<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
REGISTRATION NO. 333-8061
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVIATION DISTRIBUTORS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5008 33-0715685
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
1 WRIGLEY DRIVE
IRVINE, CALIFORNIA 92618
(714) 586-7558
(Address and telephone number of principal executive offices)
------------------------
OSAMAH S. BAKHIT
CHIEF EXECUTIVE OFFICER
AVIATION DISTRIBUTORS, INC.
1 WRIGLEY DRIVE
IRVINE, CALIFORNIA 92618
(714) 586-7558
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BRIAN J. MCCARTHY, ESQ. KENNETH J. BARONSKY, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM MILBANK, TWEED, HADLEY & MCCLOY
300 South Grand Avenue, 34th Floor 601 South Figueroa, 30th Floor
Los Angeles, California 90071 Los Angeles, California 90017
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes effective.
------------------------
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 statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1996
PROSPECTUS [LOGO]
1,000,000 SHARES
AVIATION DISTRIBUTORS, INC.
COMMON STOCK
Of the 1,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 860,000 are being offered by
Aviation Distributors, Inc., a Delaware corporation ("ADI" or the "Company"),
and 140,000 are being offered by the Selling Stockholder (as defined herein).
The Company will not receive any of the proceeds from the sale of the shares by
the Selling Stockholder. See "Principal and Selling Stockholder."
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $6.50 and $8.50 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price of
the Common Stock.
The Company has applied for the quotation of the Common Stock on the Nasdaq
Stock Market's SmallCap Market (the "Nasdaq SmallCap Market") under the symbol
"ADIN."
------------------------
SEE "RISK FACTORS" BEGINNING AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
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.
<TABLE>
<S> <C> <C> <C> <C>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER
Per Share..................
Total (3)..................
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Excludes the value of warrants to
purchase up to 100,000 shares of Common Stock (the "Representative's
Warrants") granted to the representative of the several Underwriters (the
"Representative"). See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ , including the Representative's non-accountable expense
allowance and including the Selling Stockholder's expenses of $ to
be paid by the Company. See "Underwriting."
(3) The Company and the Selling Stockholder have granted to the Underwriters a
45-day option to purchase up to 100,000 and 50,000 additional shares of
Common Stock, respectively, to cover over-allotments, if any. To the extent
that the option is exercised, the Underwriters will offer the additional
shares at the Price to Public shown above. If the option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to Selling Stockholder will be
$ , $ , $ and $ , respectively. See
"Underwriting" and "Principal and Selling Stockholder."
The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by them, subject to certain
conditions. Delivery of the shares is expected against payment therefor on or
about , 1996, at the offices of Cruttenden Roth Incorporated,
Irvine, California or through the facilities of the Depository Trust Company.
------------------------
CRUTTENDEN ROTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) GIVES EFFECT TO A 3,000 FOR 1
EXCHANGE OF THE COMMON STOCK OF THE COMPANY EFFECTED IN CONNECTION WITH THE
COMPANY'S REINCORPORATION IN THE STATE OF DELAWARE IN JULY 1996 AND (III) GIVES
EFFECT TO A 0.85 FOR 1 REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK IN
AUGUST 1996. SEE "UNDERWRITING." INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Aviation Distributors, Inc. (the "Company") is a supplier of new and
overhauled aircraft parts to major commercial airlines worldwide. The Company
locates, acquires and supplies parts for all major aircraft. Additionally, the
Company enters into consignment and marketing agreements with major commercial
airlines, distributors and original equipment manufacturers ("OEMs"), which
allows the Company to offer a wide range of parts for sale without certain risks
and financing costs associated with owned inventory. The aircraft parts offered
by the Company include those manufactured by Airbus, Boeing, General Electric,
Lockheed, McDonnell Douglas, Pratt & Whitney and Rolls Royce. Sales have
increased from $2.8 million in 1992 to $7.2 million in 1993, $16.4 million in
1994 and $22.7 million in 1995. The 1995 sales amount includes one significant
sale of two whole aircraft for $6.5 million. If the opportunity exists, the
Company may sell whole aircraft in the future.
The worldwide aircraft parts market is highly fragmented and parts are
supplied by many types of suppliers, including airlines, OEMs and numerous
distributors, fixed base operators, Federal Aviation Administration ("FAA")
certified facilities, traders and brokers. The Canaan Group Ltd., a management
consulting firm specializing in the aircraft and aerospace industry, estimated
that aircraft parts inventories valued at $45 billion existed in May 1995, with
a carrying cost of $10 billion annually and that 80% of such inventories were
owned by airlines. The Company believes that a portion of such inventory is
available for marketing, consignment and purchase.
The Company also believes that, based on other significant market trends,
its target market will continue to grow. According to Boeing's 1996 Market
Outlook, the worldwide fleet of commercial aircraft and air cargo aircraft is
expected to grow from 11,066 aircraft at the end of 1995 to 23,080 aircraft by
2015. In the long-term, the Company believes that a larger aircraft fleet will
necessitate a greater number of aircraft spare parts to supply such a fleet.
Furthermore, to reduce the high costs associated with excess aircraft parts
inventories, many airlines are reducing their parts inventories through bulk
sales to, and marketing and consignment agreements with, aircraft parts
suppliers. Additionally, airlines are decreasing the number of suppliers from
which parts are purchased in an effort to reduce purchasing costs and increase
quality and service. Finally, as a result of safety concerns regarding
unapproved parts, regulatory agencies are increasing emphasis on the tracking of
parts by requiring increased documentation for aircraft parts.
The Company's objectives are to take advantage of trends in the aircraft
parts market and to become a leading supplier of quality parts to airlines
worldwide. The Company's strategy is comprised of the following components:
providing excellent customer service, supplying quality parts, focusing sales
efforts on major commercial airlines, increasing access to inventory through
both consignment and purchases, and expanding its business globally. A key
component of the Company's business strategy is to implement a program to
effectively contain expenses.
The Company was established in October 1988, incorporated in February 1992
as a California corporation and reincorporated in July 1996 as a Delaware
corporation. The Company's executive offices are located at 1 Wrigley Drive,
Irvine, California 92618 and its telephone number at that address is (714)
586-7558.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company........................................... 860,000 shares
By the Selling Stockholder............................... 140,000 shares
Common Stock to be outstanding after the Offering.......... 2,645,000 shares (1)
Use of proceeds............................................ To repay approximately $3.8
million of the amount
outstanding under the Company's
lines of credit, to fund a
portion of a legal settlement
entered into by the Company and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol..................... ADIN
</TABLE>
- ------------------------
(1) Excludes an aggregate of 100,000 shares of Common Stock that may be sold by
the Company upon exercise of the Underwriters' over-allotment option. Also
excludes 100,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants and 150,000 shares of Common Stock issuable upon
the exercise of options granted pursuant to the 1996 Stock Option Plan
(defined herein). See "Underwriting" and "Management -- Employee Benefit
Plans."
4
<PAGE>
SUMMARY FINANCIAL DATA
The Summary Financial Data presented below are derived from the Consolidated
Financial Statements of the Company and are qualified in their entirety by, and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................................. $ 16,369 $ 22,652 $ 18,152 $ 17,319
Cost of sales.............................................. 11,809 18,680 15,093 12,430
Gross profit............................................... 4,560 3,972 3,059 4,889
Legal settlement expense................................... -- -- -- 1,375
Selling and administrative expenses........................ 3,958 3,757 2,770 3,381
Income from operations..................................... 602 215 289 133
Interest expense, net...................................... 278 622 360 505
Net income (loss).......................................... 208 (215) 17 (107)
Net income (loss) per share................................ 0.12 (0.12) 0.01 (0.06)
Shares used in computing net income (loss) per share....... 1,785,000 1,785,000 1,785,000 1,785,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
AS ADJUSTED
(1)
--------------
ACTUAL
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 7 $ 612
Restricted cash..................................................................... 64 64
Working capital (deficit)........................................................... (498) 4,832
Total assets........................................................................ 16,162 16,942
Total debt.......................................................................... 12,762 8,962
Total stockholders' equity.......................................................... 46 5,376
</TABLE>
- ------------------------
(1) Adjusted for the sale of 860,000 shares of Common Stock by the Company (at
an assumed offering price of $7.50 per share) in the Offering and the
application of the net proceeds therefrom as if the Offering had occurred on
September 30, 1996. See "Use of Proceeds."
------------------------
5
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, TOGETHER WITH OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are affected by many factors, including the
timing of orders from large customers, the timing of expenditures to purchase
inventory in anticipation of future sales, the timing of bulk inventory
purchases, the mix of available aircraft parts contained, at any time, in the
Company's inventory and many other factors largely outside the Company's
control. Given that a large portion of the Company's operating expenses are
relatively fixed, there can be no assurance that external factors such as those
described above will not have a material adverse impact on the Company's
operating results. Although the Company generated operating income of $133,000
for the first nine months of 1996, there can be no assurance that the Company
will continue to be profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The aircraft parts supply industry is highly competitive. Competition is
generally based on availability of product, reputation, customer service, price
and lead time. Some of the Company's competitors have access to greater
financial and other resources than the Company. There can be no assurance that
the Company will be able to effectively compete with such companies in the
future. See "Business -- Competition."
DEPENDENCE ON KEY PARTS SUPPLIERS
The Company is dependent on certain domestic and international OEMs for many
key parts and components. Many of these OEMs maintain their own parts
inventories and distribution services and compete with the Company. The Company
believes that these manufacturers will continue to adhere to their current
policy of supporting qualified independently-owned aircraft parts suppliers.
However, if the policies of such manufacturers should change or if certain OEMs
require scarce parts for their own distribution operations, the Company may
incur shortages in the supply of required parts and components. An inability of
the Company to maintain access to parts and components on commercially
reasonable terms would have a material adverse effect on the Company's business.
FOREIGN OPERATIONS
The Company's foreign activities, which account for a significant percentage
of the Company's total sales (90% for the year ended December 31, 1995), are
subject to the risks customarily associated with such activities. These include
controls, expropriation, nationalization and other economic, political and
regulatory policies of local governments as well as the laws and policies of the
United States affecting foreign trade and investment. To date, the Company has
not encountered any significant problems in its foreign activities; however
there can be no assurance that it will not encounter such problems in the
future. The Company incurs $0.80 in insurance expense per $100 in foreign sales
to help mitigate the risks associated with such activity. Consequently, an
increase in foreign sales will result in increased insurance expense for the
Company. All of the Company's sales were transacted in U.S. dollars in fiscal
year 1995. As of September 30, 1996 the Company had a minimal amount of owned
assets outside the United States.
REGULATION
Parts that are installed in aircraft are required to be certified by FAA
approved manufacturing and repair facilities prior to installation. The Company
does not operate repair stations and is not otherwise directly regulated by the
FAA. As a result of public concerns that have arisen regarding deregulation of
the aviation industry and inadequate aircraft maintenance procedures, there is a
possibility that new and more stringent FAA regulations could be adopted. There
can be no assurance that the Company will not become subject to direct
regulation by the FAA, or that any new regulations adopted by the FAA will not
have a material adverse effect on the Company's business.
6
<PAGE>
PRODUCT LIABILITY
The Company neither manufactures nor repairs aircraft parts and requires
that all of the parts that it sells be properly documented and traceable to
their original source. Although the Company has never been subject to product
liability claims, there is no guarantee that the Company could not be subject to
liability from its potential exposure relating to sales of faulty aircraft parts
in the future. The Company does not currently maintain product liability
insurance to protect it from such claims, but intends to obtain such insurance
in the future. There can be no assurance that such coverage will be obtained,
or, if obtained, that it will be adequate to fully protect the Company from any
liabilities it might incur. An uninsured loss could have a material adverse
effect upon the Company's financial condition.
CONCENTRATION OF CREDIT RISK
As part of its business strategy, the Company may, from time to time,
purchase high price items such as engines and whole aircraft on an opportunistic
basis. This activity can lead to a high proportion of net sales and trade
accounts receivables from a few customers. As of September 30, 1996, in
connection with a 1995 transaction involving the sale of whole aircraft, the
Company had a note receivable from one customer in the amount of approximately
$5.1 million, which is secured by an irrevocable letter of credit. See Note 5 of
Notes to Consolidated Financial Statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions." For the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, the Company wrote off an aggregate of
approximately $161,000 as uncollected accounts receivable. See Note 13 of Notes
to Consolidated Financial Statements.
FUTURE CAPITAL REQUIREMENTS
The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to purchase inventory
on a bulk basis. In addition, to the extent the Company expands its existing
credit facilities, the Company would require additional capital. Although the
Company believes that the net proceeds from the Offering, together with
available cash from operations, will be sufficient to meet its cash requirements
for at least the next twelve months, there can be no assurance that the Company
will not require additional financing during such period or that financing will
be available on acceptable terms, if at all.
DEPENDENCE UPON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management and other skills of Osamah Bakhit, the Chief Executive
Officer of the Company, as well as its ability to retain other key employees and
to attract skilled personnel in the future to manage the growth of the Company.
The Company maintains a key man life insurance policy in the amount of $3
million on Mr. Bakhit and has entered into a long-term employment agreement with
Mr. Bakhit, who will own approximately 62% of the Company's outstanding Common
Stock following the completion of the Offering (approximately 58% if the
over-allotment option is exercised). The loss or unavailability of the services
of Mr. Bakhit could have a material adverse effect on the Company.
CONTROL BY PRINCIPAL STOCKHOLDER
Following the consummation of the Offering, Mr. Bakhit will have majority
control of the Company and the ability to control the election of directors and
the results of other matters submitted to a vote of stockholders. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. The Board of Directors of the Company is
expected to be initially comprised entirely of designees of Mr. Bakhit. See
"Principal and Selling Stockholder" and "Management."
FUTURE SALES BY PRINCIPAL STOCKHOLDER; SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the Offering, Mr. Bakhit (the "Principal Stockholder" or
"Selling Stockholder") will beneficially own approximately 62% of the
outstanding Common Stock (approximately 58% if the over-allotment option is
exercised). Subject to the restrictions set forth below, Mr. Bakhit
7
<PAGE>
will be free to sell such shares and may determine to sell them from time to
time to take advantage of favorable market conditions or for any other reason.
Future sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. The Company
and Mr. Bakhit have entered into a lock-up agreement with Cruttenden Roth
Incorporated ("CRI"), as representative (the "Representative") of the
Underwriters, pursuant to which the Company and the Selling Stockholder have
agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell,
grant any option to purchase or otherwise transfer or dispose of any Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock or file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the foregoing or (ii) enter into
any swap or other agreement or transaction that transfers, in whole or in part,
the economic consequence of ownership of the Common Stock, without the prior
written consent of the Representative, for a period of 180 days after the date
of this Prospectus. After such time, 1,645,000 shares of Common Stock
beneficially held by Mr. Bakhit (1,595,000 shares of Common Stock if the
over-allotment option is exercised) will be eligible for sale pursuant to Rule
144
promulgated under the Securities Act. See "Shares Eligible for Future Sale" and
"Underwriting."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered hereby
will be determined by negotiations among the Company, the Selling Stockholder
and the Representative and may not be indicative of the market price for the
Common Stock after the Offering. Among the factors to be considered in such
negotiations are the preliminary demand for the Common Stock, the prevailing
market and economic conditions, the Company's results of operations, estimates
of the business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses, the current condition of the markets in which
the Company operates and other factors deemed relevant. The market price for
shares of the Common Stock may be volatile and may fluctuate based upon a number
of factors, including, without limitation, business performance, news
announcements or changes in general economic and market conditions. See
"Underwriting."
DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offering will therefore incur immediate and substantial dilution of $5.47
per share in the net tangible book value of the Common Stock from the initial
public offering price. See "Dilution."
ABSENCE OF PAYMENT OF DIVIDENDS
The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings for
use in the operation and growth of its business and does not anticipate paying
any cash dividends in the foreseeable future. See "Dividend Policy."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 860,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $7.50 per share, are estimated to be $5.3 million after
deducting the estimated underwriting discounts and commissions and the expenses
of the Offering. The Company will not receive any of the proceeds from the sale
of the 140,000 shares of Common Stock offered by the Selling Stockholder hereby,
which proceeds are estimated to be $945,000 after deducting underwriting
discounts and commissions.
Of the net proceeds to the Company from the Offering, approximately $3.8
million will be used to repay a portion of the amount outstanding under two
revolving lines of credit (each, a "Credit Facility" and together, the "Credit
Facilities") held by Far East National Bank ("Far East Bank"), $750,000 will be
used to fund a portion of a legal settlement entered into by the Company, and
approximately $750,000 will be used for general corporate purposes, including
reducing the Company's vendor payables and providing working capital. The Credit
Facilities bear an interest rate of prime plus 1.0 to 1.5 percent and provide
for maximum borrowings of $6.5 million. The $4.5 million Credit Facility matures
on March 31, 1997 and the $2.0 million Credit Facility matures on August 31,
1997. As of October 31, 1996, $5.7 million was outstanding under the Credit
Facilities. The proceeds from the Credit Facilities were used for inventory
purchases. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Pending the foregoing uses, the Company intends to invest the net proceeds
of the Offering in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
Since inception, the Company has not declared or paid any cash dividends on
its capital stock. The Company currently intends to retain any future earnings
for funding growth and, therefore, does not anticipate paying any cash dividends
in the foreseeable future. Additionally, the Company's Credit Facilities contain
covenants restricting the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
9
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at September 30, 1996 and as adjusted to give effect to the Offering (at
an assumed offering price of $7.50 per share) and the application of the net
proceeds thereof. See "Use of Proceeds." 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>
SEPTEMBER 30, 1996
------------------------
AS ADJUSTED
-----------
ACTUAL
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Total Short-Term Debt(1)............................................................. $ 7,968 $ 4,168
----------- -----------
----------- -----------
Long-Term Debt:
Note payable, net of current portion(2)............................................ 3,472 3,472
Mortgage, net of current portion(3)................................................ 925 925
Other, net of current portion(4)................................................... 397 397
----------- -----------
Total Long-Term Debt............................................................... $ 4,794 $ 4,794
----------- -----------
----------- -----------
Stockholder's Equity:
Common stock....................................................................... $ 18 $ 27
Additional paid in capital......................................................... 389 5,710
Retained deficit................................................................... (361) (361)
----------- -----------
Total Stockholder's Equity....................................................... 46 5,376
----------- -----------
Total Capitalization............................................................. $ 4,840 $ 10,170
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Short-term debt includes the Credit Facilities that bear an interest rate of
prime plus 1.0 to 1.5 percent and current portions of long-term debt and
capitalized leases and does not include a note payable executed by the
Company in connection with a legal settlement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources".
(2) This debt consists of a note payable to a financial institution used to
purchase a whole aircraft, secured by a customer note receivable.
(3) This debt consists of a mortgage for the Company's headquarters in Irvine,
California.
(4) Other debt consists of notes payable for equipment, inventory and
automobiles and capitalized amounts outstanding under various capitalized
leases associated with the Company's facilities.
10
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1996, was $46,000 or approximately $.03 per share. "Net tangible book value
per share" represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
At September 30, 1996, the Company had no intangible assets. After giving effect
to the sale of the 860,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $7.50 per share, and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company, the Company's pro forma net tangible book value at
September 30, 1996 would have been $5,376,000 or $2.03 per share. This
represents an immediate increase in pro forma net tangible book value of $2.00
per share to the existing stockholder and an immediate dilution in net tangible
book value of $5.47 per share to new investors purchasing Common Stock in the
Offering. The following table illustrates the foregoing information with respect
to dilution to new shareholders on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 7.50
Net tangible book value per share before the Offering...................... $ .03
Increase per share attributable to new investors........................... 2.00
Pro forma net tangible book value per share after the Offering............... 2.03
---------
Dilution per share to new investors.......................................... $ 5.47
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1996, the differences between the existing stockholder and the purchasers of
shares in the Offering (at an assumed initial public offering price of $7.50 per
share) with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder (1).......................... 1,785,000 68% $ 407,000 6% $ .23
New investors (1)................................. 860,000 32 6,450,000 94 7.50
------------- ----- ------------- --------- -----
Total......................................... 2,645,000 100% $ 6,857,000 100% $ 2.59
------------- ----- ------------- --------- -----
------------- ----- ------------- --------- -----
</TABLE>
- ------------------------
(1) The 140,000 shares sold by the existing stockholder will reduce the number
of shares held by the existing stockholder to 1,645,000 or 62% and increase
the number of shares held by new investors to 1,000,000 or 38%.
The underwriters have the option to purchase 150,000 shares (100,000 shares
from the Company and 50,000 shares from the existing stockholder) of Common
Stock to cover over-allotments, if any, in connection with the Company's
sale of the Common Stock.
Assuming the underwriters exercise the over-allotment option, the number of
shares held by the existing stockholder will be reduced to 1,595,000 or 58%
and the number of shares held by new investors will increase to 1,150,000 or
42%.
11
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for the years ended
December 31, 1994 and 1995 have been derived from the Consolidated Financial
Statements as audited by Arthur Andersen LLP, independent public accountants.
The selected financial data presented below as of and for the nine month periods
ended September 30, 1995 and 1996 have been derived from the unaudited
consolidated financial statements of the Company, which in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results of operations for such periods.
The selected financial data presented below should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................................. $16,369 $22,652 $18,152 $17,319
Cost of sales.............................................. 11,809 18,680 15,093 12,430
Gross profit............................................... 4,560 3,972 3,059 4,889
Legal settlement expense................................... -- -- -- 1,375
Selling and administrative expenses........................ 3,958 3,757 2,770 3,381
Income (loss) from operations.............................. 602 215 289 133
Interest expense, net...................................... 278 622 360 505
Net income (loss).......................................... 208 (215) 17 (107)
Net income (loss) per share................................ 0.12 (0.12) 0.01 (0.06)
Shares used in computing net income (loss) per share....... 1,785,000 1,785,000 1,785,000 1,785,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
AS ADJUSTED
(1)
--------------
ACTUAL
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 7 $ 612
Restricted cash..................................................................... 64 64
Working capital (deficit)........................................................... (498) 4,832
Total assets........................................................................ 16,162 16,942
Total debt.......................................................................... 12,762 8,962
Total stockholder's equity.......................................................... 46 5,376
</TABLE>
- ------------------------
(1) Adjusted for the sale of 860,000 shares of Common Stock by the Company (at
an assumed offering price of $7.50 per share) in the Offering and the
application of the net proceeds therefrom as if the Offering had occurred on
September 30, 1996. See "Use of Proceeds."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of the Company for each of
the periods discussed. This discussion and analysis should be read in
conjunction with "Selected Financial Data" and the Company's Consolidated
Financial Statements and the related notes thereto which are included elsewhere
in this Prospectus.
GENERAL
The Company's business as a supplier, distributor and seller of commercial
aircraft parts and supplies was established in October 1988. The Company was
incorporated in California in February 1992 and reincorporated in Delaware in
July 1996.
The Company's sales have increased from $2.8 million in 1992, to $7.2
million in 1993, $16.4 million in 1994, $22.7 million in 1995, and $17.3 million
for the nine months ended September 30, 1996. Of 1995 sales, approximately $6.5
million resulted from the sale of two whole aircraft (with engines) to Royal
Jordanian Airlines, which is located in the Middle East. The sale agreement
provided for monthly payments of $166,250 from August 1995 to August 1999 with
an imputed interest rate of 9.5%, which created a note receivable for $6.5
million at the date of sale. Royal Jordanian Airlines provided an irrevocable
letter of credit from a recognized financial institution as collateral for the
gross payments under the note receivable. Such letter of credit mitigates
potential risks associated with the note receivable. Excluding the whole
aircraft transaction, sales in 1995 would have been $16.2 million. If the
opportunity exists, the Company may sell whole aircraft in the future.
OVERVIEW
Net sales consist primarily of gross sales, net of allowance for returns and
other adjustments. Cost of sales consists primarily of product costs, freight
charges, commissions to outside sales representatives and an inventory provision
for damaged and obsolete products. Product costs consist of the acquisition
costs of the products and costs associated with repairs, maintenance and
certification.
Net sales and gross profit depend in large measure on the volume and timing
of sales orders received during the period and the mix of aircraft parts
contained in the Company's inventory. Sales and gross profit can be impacted by
the timing of bulk inventory purchases. In general, bulk inventory purchases
allow the Company to obtain large inventories of aircraft parts at a lower cost
than can ordinarily be obtained by purchasing such parts on an individual basis.
Thus, these bulk purchases allow the Company to receive larger gross margins on
its sale of aircraft parts since the cost of purchase is reduced.
Sales can be impacted by marketing and consignment agreements because such
agreements give the Company increased access to aircraft parts. Net profits are
impacted by marketing agreements because the Company does not incur costs
associated with carrying owned inventory due to the fact that a party who has
entered into a marketing agreement with the Company is responsible for storing
and maintaining the inventory to which the Company has access pursuant to such
marketing agreement. Generally, sales from consignment and marketing agreements
are not as profitable as sales from bulk inventory purchases.
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
The following table sets forth certain information relating to the Company's
operations for the nine month period ended September 30, 1995 and 1996 (dollars
in thousands):
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales............... $ 17,159 94.5% $ 14,409 83.2%
Net sales on consignment and marketing agreements...... 993 5.5 2,910 16.8
--------- ----- --------- -----
Net sales.............................................. 18,152 100.0 17,319 100.0
Cost of sales.......................................... 15,093 83.1 12,430 71.8
--------- ----- --------- -----
Gross profit......................................... 3,059 16.9 4,889 28.2
Legal settlement expense............................... -- -- 1,375 7.9
Selling and administrative expenses.................... 2,770 15.3 3,381 19.5
--------- ----- --------- -----
Income from operations................................. 289 1.6 133 0.8
Interest expense, net.................................. 360 2.0 505 2.9
Net income (loss)...................................... 17 0.1 (107) (0.6)
</TABLE>
DISTRIBUTED SERVICES AND INVENTORY SALES. Distributed services and
inventory sales represent sales of inventory located through outside parties and
sales of Company owned inventory. Distributed services and inventory sales
decreased from $17.2 million for the nine months ended September 30, 1995 to
$14.4 million for the nine months ended September 30, 1996, a decrease of $2.8
million or 16.3%. This decrease is the result of the whole aircraft sale for
$6.5 million during 1995, noted above. Distributed services and inventory sales,
excluding the whole aircraft transaction discussed above, for the nine months
ended September 30, 1995, would have been $10.7 million, compared to $14.4
million for the nine months ended September 30, 1996, an increase of $3.7
million or 34.6%. This increase was primarily due to an increase in the
Company's availability of aircraft parts as a result of bulk inventory purchases
during the last quarter of 1995 and the first three quarters of 1996, the
addition of new sales personnel and emphasis on development of new domestic
customers and some larger international customers. See "General."
Sales from distributed services represented approximately 97.3% and 93.5% of
total distributed services and inventory sales for the nine months ended
September 30, 1995 and 1996, respectively. Sales of Company owned inventory
represented approximately 2.7% and 6.5% of total distributed services and
inventory sales for the nine months ended September 30, 1995 and 1996,
respectively. The increase in the percentage of the sales of Company owned
inventory is primarily due to the bulk inventory purchases as discussed above.
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements represent total revenue, including commissions, related
to sales of inventory held on consignment and sales of inventory obtained
through marketing agreements. Net sales on consignment and marketing agreements
increased from $993,000 for the nine months ended September 30, 1995 to $2.9
million for the nine months ended September 30, 1996, an increase of $1.9
million or 191.3%. This increase was primarily due to an increase in the amount
of aircraft parts available for sale under these consignment and marketing
agreements, the addition of new sales personnel and emphasis on development of
new domestic customers and some larger international customers. See "Net sales."
NET SALES. Net sales decreased from $18.2 million for the nine months ended
September 30, 1995 to $17.3 million for the nine months ended September 30,
1996, a decrease of $900,000 or 4.9% This decrease in net sales is due to the
whole aircraft sale for $6.5 million in 1995 noted above, somewhat offset by the
increase in net sales primarily due to the reasons stated above. See
"Distributed services and inventory sales" and "Net sales on consignment and
marketing agreements."
14
<PAGE>
The sales by region data presented below should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto included
elsewhere in this Prospectus. The following data consists of sales by region for
the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
AREA 1995 1996
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Pacific Rim.............................................................. 19.7% 20.3%
Europe................................................................... 14.1 24.5
Latin/South America...................................................... 15.6 13.5
Africa/Middle East....................................................... 40.8 6.7
Domestic................................................................. 9.8 35.0
--------- ---------
Total.................................................................. 100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
For the nine months ended September 30, 1995, 90.2% of the Company's sales
were to international customers compared to 65.0% for the nine months ended
September 30, 1996. The decrease in the percentage of the Company's sales to
international customers was primarily due to the whole aircraft transaction
during the third quarter of 1995, discussed above, specifically in the
Africa/Middle East region. The sales to international customers as a percentage
of total sales has also decreased as a result of the Company's purchase of bulk
inventory, which is predominantly sold domestically, and an emphasis on
development of new domestic customers. The Company expects that international
sales will continue to account for a significant portion of total sales,
although the percentage may fluctuate from period to period. The majority of the
Company's international sales are insured through an export credit insurance
policy. Such insurance policy mitigates potential risks associated with
international sales.
COST OF SALES. Cost of sales decreased from $15.1 million for the nine
months ended September 30, 1995 to $12.4 million for the nine months ended
September 30, 1996, a decrease of $2.7 million or 17.9%. This decrease was
primarily the result of the whole aircraft sale, at a cost of $5.5 million,
during the third quarter of 1995, as discussed above. Cost of sales excluding
the whole aircraft transaction, discussed above, was $9.6 million for the period
ended September 30, 1995, compared to $12.4 million for the nine months ended
September 30, 1996, an increase of $2.8 million or 29.2%. This increase in cost
of sales is primarily due to the increase in net sales. As a percentage of net
sales, cost of sales decreased from 83.1% in the 1995 period to 71.8% in the
1996 period as a result of higher costs in the 1995 period due to the whole
aircraft transaction, which realized a cost of sale percentage of 85%, and due
to improved pricing on inventory parts during the 1996 period as a result of
bulk inventory purchases. See "General" and "Distributed services and inventory
sales."
GROSS PROFIT. Gross profit increased from $3.1 million, or 16.9% for the
nine months ended September 30, 1995 to $4.9 million or 28.2% for the nine
months ended September 30, 1996. The gross profit margin increased, in part, as
a result of the low profit margin of 15% realized in the nine month period ended
September 30, 1995 on the whole aircraft sale discussed above. Gross profit
margin also increased as a result of bulk inventory purchases during the last
quarter of 1995 and the first three quarters of 1996, the addition of new sales
personnel and emphasis on development of new domestic customers and some larger
international customers. See "General" and "Cost of sales."
LEGAL SETTLEMENT EXPENSE. A legal charge was recorded in the third quarter
of 1996 due to settlement negotiations relating to an action that was brought
against the Company in February 1996. The action brought against the Company
related to a contract dispute between the Company and one of its customers. In
August 1996 the Company made a partial settlement payment to such customer of
$166,000, which was accrued during December 1995 in accounts payable as it
represented aircraft parts purchased during 1995 under the contract in dispute.
Although the Company believed it had meritorious defenses to this dispute,
counsel advised the Company that final judical resolution of such matter could
take several years. Consequently, in order to pursue the Offering in a timely
manner, the Company made a strategic business decision to resolve this dispute
and in November 1996 entered
15
<PAGE>
into a settlement agreement with such customer, pursuant to which the Company
will pay $1.2 million. The Company has incurred approximately $175,000 of legal
expenses related to this contract dispute as of September 30, 1996. See
"Liquidity."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of management compensation, professional fees, consulting
expense and travel expenses. The Company's selling and administrative expenses
increased from $2.8 million for the nine months ended September 30, 1995 to $3.4
million for the nine months ended September 30, 1996, an increase of $600,000 or
21.4%. This increase in expenditures for the nine months ended September 30,
1996 principally reflects higher personnel costs necessary to respond to the
Company's growth, including salaries, taxes, insurance and commission expenses.
In addition, general and administrative expenses increased as a result of an
investment in information systems, both in the form of additional personnel and
computer hardware/software. As a percentage of net sales, general and
administrative expenses increased from 15.3% for the nine months ended September
30, 1995 to 19.5% of net sales in the nine months ended September 30, 1996
primarily due to lower commission expense in the 1995 period as a result of no
sales commission paid on the whole aircraft transaction and a small percentage
of selling and administrative support required for the whole aircraft in the
1995 period. The Company currently anticipates a future annual increase in
general and administrative expenses of approximately $350,000, which increase
consists of a minimum of $225,000 due to the Company's employment agreement with
Mr. Bakhit and the remainder primarily due to estimated bonuses the Company
anticipates paying to certain members of senior management. This increase could
be material to the Company's financial condition.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations for the nine months ended September 30, 1996 decreased $156,000
compared to the nine months ended September 30, 1995. The decrease primarily
reflects the legal settlement expense discussed above. Income from operations at
September 30, 1996, excluding the legal settlement expense, would have been $1.3
million, an increase of $1 million or 346.0%. This increase was a result of the
increase in gross profit of $1.8 million. See "Gross profit" and "Legal
settlement expense."
INTEREST EXPENSES, NET. Net interest expense increased from $360,000, or
2.0% of net sales at September 30, 1995 to $505,000, or 2.9% of net sales at
September 30, 1996. The increase in interest expense is due to an increase in
borrowings under the Company's lines of credit, notes to financial institutions
and notes to corporations secured by inventory.
NET INCOME (LOSS). Net income (loss) decreased from $17,000 for the nine
months ended September 30, 1995 to $(107,000) for the nine months ended
September 30, 1996, a decrease of $124,000. This decrease is attributable to the
legal settlement expense noted above and the increase in the Company's selling
and administrative expenses, somewhat offset by increases in gross profit. See
"Gross profit," "Legal settlement expense" and "Selling and administrative
expenses."
16
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain information relating to the Company's
operations for the years ended December 31, 1994 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales................... $ 13,530 83.0% $ 21,545 95.0%
Net sales on consignment and marketing agreements.......... 2,839 17.0 1,107 5.0
--------- --------- --------- ---------
Net sales.................................................. 16,369 100.0 22,652 100.0
Cost of sales.............................................. 11,809 72.1 18,680 82.5
--------- --------- --------- ---------
Gross profit............................................... 4,560 27.9 3,972 17.5
Selling and administrative expenses........................ 3,958 24.2 3,757 16.6
--------- --------- --------- ---------
Income from operations..................................... 602 3.7 215 0.9
Interest expense, net...................................... 278 1.7 622 2.7
Net income (loss).......................................... 208 1.3 (215) (0.9)
</TABLE>
DISTRIBUTED SERVICES AND INVENTORY SALES. Distributed services and
inventory sales increased from $13.5 million for the year ended December 31,
1994 to $21.5 million for the year ended December 31, 1995, an increase of $8.0
million or 59.3%. This increase was primarily the result of the whole aircraft
sale for $6.5 million noted above. See "General."
The sales of Company-owned inventory represented approximately 1% and 3% of
total distributed services and inventory sales for the years ended December 31,
1994 and 1995, respectively. The increase in the percentage of the sales of
Company owned inventory is primarily due to an increase in the Company's
availability of aircraft parts as a result of bulk inventory purchases during
the last quarter of 1995.
Sales of distributed services represented approximately 99% and 97% of total
distributed services and inventory sales for the years ended December 31, 1995
and 1994, respectively.
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements decreased from $2.8 million for the year ended December
31, 1994 to $1.1 million for the year ended December 31, 1995, a decrease of
$1.7 million or 61%. The decrease was due to the Company's efforts being focused
on the whole aircraft transaction during 1995 and due to the availability of
aircraft parts under consignment and marketing agreements.
NET SALES. Net sales increased from $16.4 million for the year ended
December 31, 1994 to $22.7 million for the year ended December 31, 1995, an
increase of $6.3 million or 38.4%. This increase was primarily the result of the
whole aircraft sale for $6.5 million noted above. Net sales, excluding the whole
aircraft transaction discussed above, for the year ended December 31, 1995,
would have been $16.2 million, a decrease of $200,000 or 1.2% compared to the
year ended December 31, 1994. This decrease was attributable to a reduction in
sales to smaller airlines in the Africa/Middle East region as a result of the
Company's emphasis on developing relationships with larger airlines. See
"General."
17
<PAGE>
The sales by region data presented below should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto included
elsewhere in this Prospectus. The following data consists of sales by region for
the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
AREA 1994 1995
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Pacific Rim.............................................................. 19.2% 22.4%
Europe................................................................... 25.0 15.7
Latin/South America...................................................... 16.6 17.4
Africa/Middle East....................................................... 11.6 34.8
Domestic................................................................. 27.6 9.7
--------- ---------
Total.................................................................. 100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
For the year ended December 31, 1994, 72.4% of the Company's sales were to
international customers; for the year ended December 31, 1995, 90.3% of the
Company's sales were to international customers. The increase in the percentage
of the Company's sales to international customers is primarily the result of the
whole aircraft transaction discussed above, specifically in the Africa/Middle
East region. The Company expects that international sales will continue to
account for a significant portion of total sales, although the percentage may
fluctuate from period to period. The majority of the Company's international
sales are insured through an export credit insurance policy. Such insurance
policy mitigates potential risks associated with international sales. See
"General."
COST OF SALES. Cost of sales increased from $11.8 million for the year
ended December 31, 1994 to $18.7 million for the year ended December 31, 1995,
an increase of $6.9 million or 58.5%. This increase was primarily the result of
the whole aircraft sale, at a cost of $5.5 million, as noted above. Cost of
sales excluding the whole aircraft transaction discussed above was $13.2 million
for the year ended December 31, 1995. This represents an increase of $1.4
million or 11.9%, compared to the year ended December 31, 1994. The increase was
attributable to increased sales to certain of the Company's customers. See
"General."
GROSS PROFIT. Gross profit decreased from $4.6 million or 27.9% for the
year ended December 31, 1994, to $4.0 million or 17.5% for the year ended
December 31, 1995. The gross profit margin decreased, in part, as a result of
the whole aircraft sale noted above, on which the Company realized a 15% gross
profit margin. Gross profit margin excluding the whole aircraft transaction
discussed above, for the year ended December 31, 1995, would have been 18.4%, a
decrease of 9.5% compared to the year ended December 31, 1994. The decline was
attributable to increased discounts and reduced margins on sales to certain
customers. The Company will continue to offer discounts to obtain new customers
and accept lower margins on exceptionally large sales, e.g. whole aircraft. See
"General" and "Cost of sales."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consist primarily of management compensation, professional fees, consulting
expense and travel expenses. Selling and administrative expenses decreased
slightly from $4.0 million for the year ended December 31, 1994 to $3.8 million
for the year ended December 31, 1995, a decrease of $200,000 or 5%. The decrease
is due to the Company effectively managing its expenses.
INCOME FROM OPERATIONS. As a result of the above, income from operations
decreased from $602,000 for the year ended December 31, 1994 to $215,000 for the
year ended December 31, 1995, a decrease of $387,000 or 64.3%. The decrease
reflects the lower gross profit margins realized in 1995 compared to 1994. See
"Gross profit."
INTEREST EXPENSE, NET. Net interest expense increased from $278,000 or 1.7%
of net sales for the year ended December 31, 1994 to $622,000 or 2.7% of net
sales for the year ended December 31, 1995. The increase in interest expense was
due to an increase in the outstanding amounts of the Company's lines of credit,
notes to financial institutions and notes to corporations secured by inventory.
18
<PAGE>
NET INCOME (LOSS). Net income decreased from $208,000 for the year ended
December 31, 1994 to a net loss of $(215,000) for the year ended December 31,
1995, a decrease of $423,000 or 203.4%. This decrease was attributable to a
decrease in gross profit and an increase in interest expense discussed above.
See "Gross profit" and "Interest expense, net."
LIQUIDITY AND CAPITAL RESOURCES
From inception to 1995, the Company was financed primarily with its cash
flow from operations and financing activities. The Company had cash and cash
equivalents of $251,000, $868,000 and $7,000 as of December 31, 1994, 1995 and
September 30, 1996, respectively. The Company had restricted cash of $105,000,
$301,000 and $64,000 as of December 31, 1994, 1995 and September 30, 1996,
respectively. For the periods ended December 31, 1994 and 1995 and September 30,
1996, $1.1 million, $3.1 million and $678,000, respectively, of cash was
provided by financing activities. Restricted cash was required for one of the
Credit Facilities until May 1996 and for letters of credit issued to certain
vendors. For the nine month period ended September 30, 1996 the Company had a
working capital deficit of $(498,000), as a result of the accrual of the legal
settlement expense discussed above.
The Company's primary uses of cash, to date, have been for purchases of
inventory and the repayment of indebtedness. Cash flows provided by (used in)
investing activities were ($225,000), ($1.8 million) and $59,000 for 1994, 1995
and the nine months ended September 30, 1996, respectively.
The Company's Credit Facilities provide working capital of up to $6.5
million with interest at prime plus 1.0 to 1.5 percent subject to an
availability calculation based on the eligible borrowing base. The eligible
borrowing base, currently reduced by a letter of credit for $150,000, includes
certain receivables and inventories of the Company. The $4.5 million Credit
Facility matures on March 31, 1997 and the $2.0 million Credit Facility matures
on August 31, 1997. The Company is currently in discussions with financial
institutions with respect to additional sources of financing. The Company repaid
a line of credit in the amount of $500,000 that expired during May 1996 with its
restricted cash. The Company plans to pay approximately $3.8 million of the
amount outstanding under the Credit Facilities from the proceeds received from
the Offering. The Company determined to use the majority of the proceeds
received from the Offering to pay down the amount outstanding under the Credit
Facilities as an effort to decrease insurance and interest costs. The remaining
proceeds received from the Offering, $1.5 million, are anticipated to be used
for legal settlement expenses and general corporate purposes, including reducing
the Company's vendor payables and providing working capital. See "Use of
Proceeds."
Far East Bank has a fully perfected security interest against all assets of
the Company in addition to a personal guarantee from Mr. Bakhit and his wife.
Far East Bank has indicated orally that it will consider terminating such
guarantee following consummation of the Offering.
The Credit Facilities provide for the suspension of the Credit Facilities
and repayment of all debt (i) in the event of a material adverse change in the
Company's financial condition, (ii) if the lender believes the prospect of
payment or performance of the indebtedness is impaired, or (iii) upon a change
of control. The $4.5 million Credit Facility requires the Company to have a
tangible net worth of at least $750,000 beginning October 31, 1996, which was
extended by the financial institution to begin on December 31, 1996. As of
September 30, 1996, the Company's tangible net worth was $46,000 and pro forma
for the Offering the Company's tangible net worth would have been $5.4 million.
In addition, the Credit Facilities require mandatory repayments from excess cash
flow. Substantially all of the Company's assets are pledged as collateral for
amounts borrowed. At December 31, 1995 and for the nine months ended September
30, 1996, the Company was in compliance with all of its requirements under the
Credit Facilities.
The Company's long-term debt consists of the following: (i) note payable of
$5.1 million at September 30, 1996 to a financial institution, due in monthly
installments of $166,250 (principal and interest) to August 1999 with an
interest rate of 9.5 percent; (ii) note payable of $940,000 at September 30,
1996 to a financial institution, secured by a building, due in adjustable
monthly installments of
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$7,729 (principal and interest) to May 1999, with a balloon payment interest at
Moody's A Bond Index (8.25% at December 31, 1995) plus .125 percent; (iii) note
payable of $555,000 at September 30, 1996 to a corporation, secured by specific
inventory, due in semi-annual installments of $125,000 (principal and interest)
to December 1998, with an imputed interest rate of 10 percent; (iv) note payable
of $731,000 at September 30, 1996 to a corporation, secured by specific
inventory, due in monthly installments of $100,000 (principal and interest) to
August 1997, with an imputed interest rate of 10 percent; (v) note payable of
$3,000 at September 30, 1996 to a corporation, secured by an automobile, due in
monthly installments of $192 (principal and interest) to March 1998, with an
interest rate of 7.9 percent; and (vi) notes payable aggregating $10,000 as of
September 30, 1996 to a corporation, secured by equipment, due in monthly
installments ranging from $196 to $347 (principal and interest) to February
2000, with interest rates ranging from 24 percent to 46 percent.
In February 1996, an action was brought against the Company arising out of a
contract dispute between the Company and one of its customers. In August 1996,
the Company made a partial settlement payment to such customer in the amount of
$166,000, which was financed through additional borrowings under the Credit
Facilities. Although the Company believed it had meritorious defenses to this
dispute, counsel advised the Company that final judicial resolution of such
matter could take several years. Consequently, in order to pursue the Offering
in a timely manner, the Company made a strategic business decision to resolve
this dispute and in November 1996 entered into a settlement agreement with such
customer. Pursuant to such settlement agreement, the Company (i) paid such
customer $300,000, which was financed through additional borrowings under the
Credit Facilities, (ii) agreed to pay such customer an additional $450,000 on or
before December 31, 1996, subject to extension, which the Company intends to pay
from a portion of the Offering Proceeds, and (iii) executed a note in the amount
of $450,000, guaranteed by an irrevocable letter of credit, payable to such
customer in quarterly installments of principal and interest (10%) commencing
March 15, 1997, which the Company anticipates will come from operating income.
In the event the Company does not satisfy its obligations under the settlement
agreement by March 15, 1997, a judgment will be entered against the Company for
$1.2 million. In such event, the Company will not receive credit towards such
judgment amount for the initial $300,000 payment set forth in clause (i) above.
The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to purchase inventory
on a bulk basis. In addition, to the extent the Company decides to expand its
existing facilities, the Company would require additional capital. Although the
Company believes that the net proceeds from the Offering, together with
available cash, will be sufficient to meet its cash requirements for at least
the next twelve months, there can be no assurance that the Company will not
require additional financing during such period or that financing will be
available on acceptable terms, if at all.
The contemplated repayment of indebtedness with the net proceeds of the
Offering is expected to significantly improve the Company's liquidity by
reducing the Company's interest expense, principal amount of the indebtedness
required to be repaid in the future and insurance costs associated with
international sales.
As part of its growth strategy, the Company intends to pursue acquisitions
of bulk inventories of aircraft parts. See "Business -- Business Strategy."
Financing for such acquisitions will be provided from operations and from
borrowings under the Credit Facilities. The Company may also issue additional
debt and/or equity securities in connection with one or more of these
acquisitions.
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BUSINESS
INTRODUCTION
The Company is a supplier of new and overhauled aircraft parts to major
commerical airlines worldwide. The Company locates, acquires and supplies parts
for all major aircraft. Additionally, the Company engages in consignment and
marketing agreements with major commerical airlines, distributors and OEMs which
allow the Company to offer a wide range of parts for sale without certain risks
and financing costs associated with owned inventory. Aircraft parts offered by
the Company include those manufactured by Airbus, Boeing, General Electric,
Lockheed, McDonnell Douglas, Pratt & Whitney and Rolls Royce. Sales have
increased from $2.8 million in 1992 to $7.2 million in 1993, $16.4 million in
1994 and $22.7 million in 1995. The 1995 sales amount included one significant
sale of two whole aircraft for $6.5 million. If the opportunity exists, the
Company may sell whole aircraft in the future.
INDUSTRY OVERVIEW AND TRENDS
The worldwide aircraft parts market is highly fragmented and parts are
supplied by many types of suppliers, including airlines, OEMs and numerous
distributors, fixed base operators, FAA-certified facilities, traders and
brokers. The Canaan Group Ltd., a management consulting firm specializing in the
aircraft and aerospace industry, estimated that aircraft parts inventories
valued at $45 billion existed in May 1995, with a carrying cost of $10 billion
annually and that 80% of such inventories were owned by airlines. The Company
believes that a portion of such inventory is available for marketing,
consignment and purchase. The Company also believes that, based on other
significant market trends, its target market will continue to grow.
MARKET GROWTH. According to Boeing's 1996 Market Outlook, the worldwide
fleet of commercial aircraft and cargo jet aircraft is expected to grow from
11,066 aircraft at the end of 1995 to 23,080 aircraft by 2015, representing a
compound annual growth rate of 3.8%. Boeing estimates that revenue passenger
miles will exceed 4 trillion by 2015, an increase from less than 2 trillion in
1995. The Company believes such increase in revenue passenger miles is an
indication that aircraft will be flown more often and will need standard service
checks more frequently. Additionally, the growth rate of revenue passenger miles
for the international market will exceed the growth rate for the domestic market
and the majority of the Company's sales are from foreign commercial airlines and
foreign OEMs. The Company believes that these factors have resulted and will
continue to result in increased demand for aircraft parts worldwide.
REDUCTION IN AIRLINE INVENTORIES. Historically, airlines have controlled
the majority of the aircraft parts inventory. Today, airlines are beginning to
reduce the size of their parts inventories in an effort to reduce inventory
carrying costs. These inventory reductions have increased reliance by airlines
on aftermarket suppliers to provide parts that are difficult to obtain from
manufacturers on a timely basis, if at all. Manufacturers' lead time for
delivery of aircraft parts averages 30 to 60 days. As airlines continue to
demand time responsive inventory procurement processes, responsibility for
inventory storage and handling has shifted to suppliers such as the Company. The
Company believes that its access to a large inventory of aircraft parts and its
ability to deliver such parts to its customers quickly and at a preferred price
enable it to provide the services sought by airlines in an effective manner.
INCREASE IN CONSIGNMENT AND MARKETING BUSINESS. To reduce the high costs
associated with excess aircraft parts inventory, many airlines are selling their
parts inventories through consignment and marketing agreements with suppliers
such as the Company. Such agreements enable an airline to distribute its
inventory to a large number of prospective inventory buyers while enabling
suppliers such as the Company to offer an extensive aircraft parts inventory to
its customers with a relatively low capital cost.
REDUCTION IN NUMBER OF SUPPLIERS. In an attempt to increase quality and
service, reduce purchasing costs and streamline purchasing decisions, airlines
have begun to form relationships with
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a few preferred suppliers. Over the last few years, airlines have begun to
reduce the number of aircraft parts suppliers with which they do business. In
each case to date where the Company had an established relationship with an
airline, the Company was one of the parts suppliers selected. The Company
believes that due to its focus on cultivating relationships with its customers
and its reputation for service, quality and reliability, airlines will continue
to select the Company as one of their preferred aircraft parts suppliers.
INCREASED EMPHASIS ON TRACEABILITY. Regulatory agencies have increased
documentation requirements for aircraft parts because of concern regarding
unapproved parts. In order for suppliers to trace all aircraft parts back to
their original source, suppliers have invested in sophisticated information
systems technology. The Company has developed and intends to maintain and
upgrade its information systems technology to ensure that all aircraft parts
bought and sold by the Company comply with applicable regulatory requirements.
BUSINESS STRATEGY
The Company's primary objectives are to be a leading quality supplier of
aircraft parts to airlines worldwide and to increase income from its business
through the application of a comprehensive business strategy combining various
customer service, marketing, operating and growth objectives. The Company's
marketing approach includes direct marketing to airlines and manufacturers,
advertising in trade directories and attending industry trade shows and
conferences. Although the Company concentrates the majority of its marketing
efforts on commercial airlines servicing the passenger market, it also seeks to
foster business from commercial airlines servicing the cargo market, as well as
overhaul facilities and OEMs.
CUSTOMER SERVICE. The Company intends to continue to market and develop its
(i) access to an extensive aircraft parts inventory, (ii) ability to deliver
parts quickly to customers at a preferred price, and (iii) emphasis on
engineering and implementing creative solutions to locate and deliver hard-to-
find aircraft parts. Additionally, the Company plans to continue to cultivate
relationships with its customers to assure that it retains its position on its
customers' preferred list of aircraft parts suppliers. The Company has
historically incurred high levels of selling and administrative expenses,
primarily travel and entertainment, associated with establishing and maintaining
customer relationships. A key component of the Company's business strategy is to
implement a program to effectively contain such expenses.
EMPHASIS ON QUALITY. The Company will continue to emphasize its reputation
for quality, including its track record of consistently meeting FAA regulations
by maintaining and, if necessary, introducing safeguards to ensure the quality
of its aircraft parts. Such safeguards include employing two FAA-licensed
Airframe and Powerplant Inspectors and contracting with two FAA-licensed
Designated Airworthiness Representatives and an outside quality assurance
consultant. Each of these specialists verifies the airworthiness of aircraft
parts bought and sold by the Company.
FOCUS ON MAJOR COMMERCIAL AIRLINES. The Company plans to continue targeting
major commercial airlines worldwide, many of which are currently customers of
the Company. Such airlines generally have larger aircraft fleets that generate a
greater demand for aircraft parts than smaller airlines. Consequently,
relationships with major commercial airlines enable the Company to expend fewer
resources to generate comparable sales volume and corresponding revenue with
margins of profitability comparable to sales to several smaller airlines.
Additionally, major commercial airlines typically have greater financial
resources than smaller airlines, resulting in reduced credit risk to the Company
and a greater likelihood of timely payment. The Company's relationships with
major commercial airlines also provide the Company with increased access to such
airlines' aircraft parts inventories, which are generally greater than those of
smaller airlines.
INCREASE ACCESS TO INVENTORY. The Company plans to increase its accessible
inventory by (i) entering into new consignment and marketing agreements with
airlines, manufacturers and overhaul facilities, (ii) bulk purchasing from
airlines and manufacturers of aircraft parts, and (iii) purchasing large items,
such as engines and whole aircraft, on an opportunistic basis. The
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Company will seek to secure aircraft parts where it believes demand is greater
than supply. Presently, the Company believes that demand exceeds supply in the
aircraft parts market for aircraft models ranging from five to thirty years old.
GLOBAL EXPANSION. The Company's goal is to service customers domestically
and worldwide, and to become a major aircraft parts supplier for the
fastest-growing markets, particularly the Far East. For the year ended December
31, 1995, 90% of the Company's sales were to international customers. The
Company plans to continue to take advantage of the growing international market
through the use of its multilingual sales staff and by maintaining existing
relationships and establishing new relationships in the following regions:
Pacific Rim/Far East/South Pacific, Europe, Latin/South America, Middle
East/Africa and North America.
PRODUCTS AND SERVICES
GENERAL. The Company is in the business of selling a broad range of
aircraft parts from its owned inventory, on behalf of airlines and manufacturers
pursuant to consignment and marketing agreements, and from inventory located
from outside parties. For the year ended December 31, 1995, sales from owned
inventory, pursuant to consignment and marketing agreements, and pursuant to
outside sourcing represented approximately 3%, 5% and 92%, respectively, of the
Company's gross revenue. The Company's owned inventory turned approximately 0.4
times during 1995. Inventory reserves are determined by analyzing the current
and future demand for the Company owned aircraft parts. The Company's access to
an extensive inventory is a result of its worldwide relationships with airlines,
manufacturers and suppliers of aircraft parts, numerous consignment and
marketing agreements with airlines and manufacturers, and owned inventory of new
and overhauled aircraft parts. The general categories of aircraft parts are as
follows: (i) rotable; (ii) repairable; and (iii) expendable.
A rotable is a part which is removed periodically as dictated by an
operator's maintenance procedures or on an as-needed basis and is typically
repaired or overhauled and re-used an indefinite number of times. A subset of
rotables is life-limited parts. A life-limited rotable has a designated number
of allowable flight hours and/or cycles (one take-off and landing generally
constitutes one cycle) after which it is rendered unusable.
A repairable is similar to a rotable except that it can only be repaired a
limited number of times before it must be discarded. Typically, rotables and
repairables must be removed from an airplane and rebuilt or checked based upon
the number of hours in flight. Rotables and repairables must be repaired at
FAA-approved repair facilities.
An expendable is generally a part which is used and not thereafter repaired
for further use. Consequently, all expendable inventory is new. Expendable
inventory cannot be used for less than its useful life and then transferred to a
new airplane; once an expendable part is removed from an airplane, it must be
discarded.
Currently, the Company supplies aircraft parts for Boeing 737, 747, and 767
series, Airbus 300 series, McDonnell Douglas 80, DC and MD series aircraft.
These aircraft parts represent a significant portion of the aircraft parts used
by major airlines, which represent the majority of the Company's current
customers. Although not required by the FAA to do so, the Company maintains on
staff two FAA-licensed Airframe and Powerplant Inspectors and contracts with two
FAA-licensed Designated Airworthiness Representatives, all of whom verify the
airworthiness of aircraft parts bought and sold by the Company. The Company
believes that its strict adherence to FAA and manufacturer guidelines has
contributed to the Company's growth in customer base and revenues. In fact, the
rejection rate for aircraft parts shipped by the Company is less than 1%. The
Company does not repair aircraft parts, and therefore is generally not subject
to the risks associated with the repair business.
Each sales person employed by the Company is responsible for making an
appraisal of a particular aircraft part's value and makes such appraisal based
on industry experience and practice after considering current manufacturers'
list price, the condition of the part, the part's availability and lead time to
manufacture the part. The Company carries its own inventory and also has access
to a much
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larger pool of inventory pursuant to its consignment and marketing agreements.
This gives the Company access to a broad assortment of aircraft parts which
helps the Company meet rapid delivery requirements. The Company's return policy
permits customers to return parts within 10 days of receipt. Additionally,
although the Company's payment terms are generally 30 days, extended payment
terms up to 60 days are provided in certain circumstances.
The Company's owned inventory and the inventory it holds on consignment is
stored in the Company's Irvine, California warehouse; a party who has entered
into a marketing agreement with the Company is responsible for storing the
inventory to which the Company has access pursuant to such marketing agreement.
All inventory is shipped to customers by the Company via national courier
services to a customer's U.S. office or, if a customer does not have a U.S.
office, to a representative of such customer located in the U.S. If an aircraft
part sought by a customer exists in the Company's owned inventory or in
inventory on consignment or inventory available through exclusive marketing
agreements (together, the "Accessible Inventory"), such part is generally
shipped to the customer the day the order is placed. The turn-around time is
generally up to one week from the time the order is placed if the Company has to
acquire a part from an outside party.
The Company also from time to time, on an opportunistic basis, purchases for
resale high price items, such as engines and whole aircraft.
CLIENT SERVICES. Client services are conducted through the Company's
Irvine-based multilingual direct sales force, as well as through its sales force
in the Company's overseas offices whose primary responsibility is to sell
aircraft parts and manage customers. Sales personnel travel extensively to
develop strong personal relationships with the Company's customers, improve
communications and remain current on regional market data. Salespeople are
assigned to specific airlines and are supported by a group of regional agents
who assist in countries such as Argentina, India, Indonesia, Israel, Malaysia,
New Zealand, Philippines, Singapore and Turkey where local representation is
critical to purchase order processing and timely payment. The Company also
maintains a two-person office in London to coordinate European sales and
support.
Each sales representative is supported by additional personnel who research
and locate parts ordered by the Company's customers. The Company's sales staff,
through its knowledge of the industry and its relationships throughout the
world, is able to engineer and implement creative solutions to locate and
deliver hard-to-find aircraft parts, a quality that the Company believes sets it
apart from its competitors.
Upon the Company's receipt from a customer of a telephone or fax inquiry for
a specific aircraft part, the Company first checks its owned inventory for
availability of the part, then checks the Accessible Inventory. If the part is
not owned or part of the Accessible Inventory, the Company will attempt to
source the part through cultivated industry contacts or the Inventory Locator
Service-TM- ("ILS"), a domestic, industry-wide database of aircraft parts. Even
if the aircraft part is within the Company's owned or Accessible Inventory, the
Company will assure that it is achieving full market value for each part sold by
researching alternate sources for availability and competing prices for the part
prior to quoting the end user.
Management plans to continue to grow the core business of sourcing aircraft
parts to end users, and to enhance the Company's relationships with existing
customers. This should allow new relationships to grow and increase the exposure
of its sales staff to the needs and desires of the customers. Coincident with
the growth of the core business, additional marketing and consignment
opportunities should continue to expand the Company's consignment and marketing
business.
CONSIGNMENT AND MARKETING BUSINESS. In addition to supplying parts from
owned inventory, the Company also supplies parts through (i) consignment
agreements, pursuant to which the Company takes actual possession of a vendor's
inventory, and (ii) exclusive marketing agreements, pursuant to which the
Company markets vendors' inventory which remains in the vendors' possession.
Through
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consignment agreements or marketing agreements with an aircraft parts supplier
such as the Company, customers, such as airlines and manufacturers, are able to
distribute their aircraft parts to a larger number of prospective inventory
buyers. This allows customers to maximize the value of their inventory while at
the same time freeing up resources that can be focused on their core business.
Consignment and marketing arrangements also enable the Company to offer for sale
aircraft parts from a much larger inventory at minimal capital cost to the
Company.
When an inquiry is made with respect to a particular aircraft part, the
Company will query its inventory databases for availability before researching
market value. A party who has entered into consignment or marketing agreements
with the Company (the "Contract Party") typically establishes an asking price
for each aircraft part subject to the agreement, but may allow the Company to
lower such price to assure a sale. If the Company feels it must offer a part for
below the price established by the Contract Party, it will first seek the
Contract Party's permission. In most instances, the Contract Party has entered
into the relationship with the Company because it believes the Company has the
expertise necessary to attract the best price for each aircraft part. Further,
the Company is paid a percentage of the sales price as compensation for its
consignment and marketing services. Consequently, the Contract Party,
understanding that the Company's own best interest is in achieving the highest
price possible for the sale of the part, will usually give consideration to a
recommendation by the Company to sell a particular aircraft part at a price
below the Contract Party's established price.
In the past, the Company conducted certain of its consignment sales
activities through ADI Consignment Sales, Inc. ("ADICS"), a wholly-owned
subsidiary of the Company. Pursuant to consignment arrangements, ADICS sold
parts held on consignment to wholesalers of aircraft parts, including the
Company. The Company has discontinued consignment sales through ADICS and
intends to dissolve ADICS in the future and conduct its consignment sales
activities directly through the Company. The Company has several consignment and
marketing agreements with airlines and OEMs. No single consignment or marketing
agreement is material to the Company as a whole.
INVENTORY PURCHASES. The Company acquires aircraft parts by bidding on the
inventory of (i) airlines that are eliminating certain portions of their parts
inventory due to retirement of an aircraft type from their fleet, downsizing of
operations or the dissolution of their businesses and (ii) OEMs and overhaul
facilities who seek to sell excess inventory. Management believes that its
primary source of aircraft parts for acquisition during the next few years will
be from such purchases. The Company also purchases specific items from time to
time, such as engines and whole aircraft, on an opportunistic basis.
SYSTEMS
Due to concerns regarding unapproved aircraft parts, regulatory authorities
have increased the level of documentation required for aircraft parts. This
requirement has, in turn, been extended by end users to the suppliers of the
parts. The sophistication required to track the history of an inventory
consisting of thousands of aircraft parts is considerable and has required
aircraft parts suppliers to invest significantly in information systems
technology. The high cost of increased technology has made entry into and
survival in the aircraft parts supply market increasingly difficult and
expensive. However, the Company has previously invested in systems technology
and intends to continue to maintain its information systems to allow it to
effectively compete in the aircraft parts supply market.
The most commonly used database available in the aircraft part supply
industry is ILS. ILS is a service that assists in searching for and locating
aircraft parts. Once a potential purchaser locates a part owned by the Company
or available through the Company's Accessible Inventory, the purchaser contacts
the Company to confirm price, condition and availability information. As of
September 30, 1996, the Company listed approximately 240,000 items on ILS of
which the Company owned approximately 80,000 with the remaining 124,000
constituting the Accessible Inventory. Additionally, ILS is one of the tools
used by the Company to locate aircraft parts to which it does not have direct
access.
The Company also uses a software packages called Quick Quote-TM-. This
computer database creates requests for quote sheets, quotations, sales orders,
purchase orders, repair order and invoices.
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Quick Quote also provides extensive part number databases and inventory control.
The system, specifically designed for the aircraft parts industry, is
comprehensive and can originate and complete a transaction without additional
software. The Company also uses advanced methods of electronic data exchange
including Spec 2000, AIRS, BComm-TM-, and the Internet. The Company is currently
in the initial development stage of creating a customized inventory
identification and search system for the Internet. Further, the Company offers
customers a remote link directly into the Company's databases to improve
communications with each Contract Party.
COMPETITION
The aircraft parts supply industry is highly competitive. The Company
encounters substantial competition from (i) direct competitors such as The Ages
Group, The Memphis Group, AAR Corp. and Aviation Sales Company and (ii) indirect
competitors such as OEMs, which include aircraft manufacturers such as Boeing,
Airbus and McDonnell Douglas, as well as component manufacturers such as Bendix,
Menasco and Goodrich. Competition is generally based on availability of product,
reputation, customer service, price and lead time. Although some of the
Company's competitors have access to greater financial and other resources than
the Company, the Company believes that by focusing on service, product integrity
and the cultivation of relationships with customers worldwide, it is well
equipped to compete effectively in its industry.
GOVERNMENT REGULATION
Both domestic and foreign entities regulate products sold by the Company.
The following discussion summarizes the required regulatory approvals and
clearances relating to the Company's products and highlights the Company's
specific efforts to conform to such requirements.
The FAA is charged with regulating the manufacture, repair and operation of
all aircraft and aircraft equipment operated within the United States. The FAA
monitors safety by promulgating regulations regarding proper maintenance of
aircraft and aircraft equipment. Similar regulations exist in foreign countries.
All aircraft and aircraft equipment must be monitored on a continual basis and
periodically inspected in order to ensure proper condition and maintenance.
Regulatory agencies specify maintenance, repair and inspection procedures for
aircraft and aircraft equipment. These procedures must be performed by certified
technicians in approved repair facilities on set schedules. All parts must
conform to prescribed regulations and be certified prior to installation on an
aircraft. When necessary, the Company uses FAA and/or Joint Aviation Authority
certified repair shops to repair or certify parts for distribution. Because
regulations are subject to modification, the Company carefully monitors the FAA
and industry trade organizations in order to assess any potentially adverse
impact on the Company caused by changes in regulations applicable to its
operations.
Documentation of spare parts is of paramount importance in the aircraft
parts industry. To ensure that all parts are properly documented and thus
traceable to their original source, the Company requires that its suppliers
comply with all documentation requirements set forth by regulatory agencies.
Documentation may include: (i) an invoice or purchase order from an approved
supplier, (ii) a "teardown" report noting actions taken during the last repair,
(iii) a signed maintenance release from a certified airline or repair facility
that repaired the aircraft spare part and a statement from an inspector
verifying that the part was repaired in accordance with proper workmanship, and
using proper materials and methods.
EMPLOYEES
As of October 31, 1996, the Company had 48 full-time and two part-time
employees in the United States, two full-time employees in England and one
full-time employee in New Zealand. As of such date, the Company also has a total
of five agents in Chile, India, Italy, Malaysia and Turkey. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
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FACILITIES
As of October 31, 1996, the Company owned one facility at One Wrigley Drive,
Irvine, California 92618, leased 5,000 square feet of additional warehouse space
at 4 Autry, Irvine, California 92618 on a month-to-month basis (subject to
termination upon 30-days notice) for $2,400 per month and leased a facility at 6
Market Street, Sleaford, Lincolnshire, England for L588 per month, which lease
expires on December 31, 1996. The Company's owned facility in Irvine, California
houses the Company's corporate headquarters and consists of 16,000 square feet,
9,200 of which are used for warehouse space, with the remaining space used for
sales administration and accounting offices. The Company's facility in England
is used as a sales office. The Company believes that its facilities are
adequately covered by insurance.
The Company anticipates that an additional 20,000-25,000 square feet of
warehouse space will be needed by late 1996 to accommodate new consignment and
company-owned inventory. The Company has recently begun the process of locating
such additional warehouse space.
LEGAL PROCEEDINGS
The Company is involved in certain legal and administrative proceedings and
threatened legal and administrative proceedings arising in the normal course of
its business. While the outcome of such proceedings and threatened proceedings
cannot be predicted with certainty, management believes the ultimate resolution
of these matters individually or in the aggregate will not have a material
adverse effect on the Company.
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MANAGEMENT
<TABLE>
<CAPTION>
EXECUTIVE AGE TITLE
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Osamah S. Bakhit 46 Chief Executive Officer, President and Director
Mark W. Ashton 45 Chief Financial Officer, Vice President, Finance
and Director
Jeffrey G. Ward 37 Executive Vice President
Dennis R. Lewis 54 Senior Vice President, Technical Operations
Victor Buendia 38 Vice President, Latin and South American Sales
Elizabeth Morgan 33 Vice President, Consignment and Domestic Sales
Laura M. Birgbauer 28 Chief Accounting Officer and Treasurer
Bruce H. Haglund 45 Secretary and Director
Daniel C. Lewis 47 Proposed Director
William T. Walker, Jr. 65 Proposed Director
</TABLE>
OSAMAH S. BAKHIT, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr.
Bakhit has over 15 years of aircraft experience. Currently, Mr. Bakhit oversees
the sales and operations of the Company. Prior to forming the Company in 1988,
Mr. Bakhit was CEO of Bakhit Enterprises, a company that purchased heavy
construction vehicles and material for General Enterprise Company. Mr. Bakhit
worked for General Enterprise Company in Amman, Jordan, where he managed overall
construction operations. His duties included supervising the construction of
Queen Alia International Airport in Jordan. Mr. Bakhit has a B.S. in chemistry
from the University of California, Irvine.
MARK W. ASHTON, CHIEF FINANCIAL OFFICER, VICE PRESIDENT, FINANCE AND
DIRECTOR. Mr. Ashton has over 4 years of aircraft experience and over 18 years
of general accounting and finance experience. Currently, Mr. Ashton oversees the
Company's finance and accounting departments. Prior to joining the Company in
1996, Mr. Ashton was Controller/Chief Accounting Officer for Optical Science
Company (1993-1996) and CR & R Inc. (1991-1993) where he oversaw accounting and
finance reporting and developed and implemented state-of-the art software
systems. Mr. Ashton has a B.S. in accounting/ finance from the University of
Southern California/California State University, Fullerton and an M.B.A. from
Pepperdine University.
JEFFREY G. WARD, EXECUTIVE VICE PRESIDENT. Mr. Ward has over 15 years of
aircraft experience and currently oversees and lends leadership to the extensive
sales team at ADI. Prior to joining the Company in 1993, Mr. Ward was a sales
representative for Systems Industries. He was a sales consultant to the
aerospace industry with key accounts including the U.S. military and major
aerospace manufacturers. Prior to Systems Industries, Mr. Ward was a sales
representative for Eastman Kodak Company. Mr. Ward also served in the United
States Marine Corps for seven years as a naval aviator. Mr. Ward has a B.A. in
economics from University of Virginia.
DENNIS R. LEWIS, SENIOR VICE PRESIDENT, TECHNICAL OPERATIONS. Mr. Lewis
joined ADI in 1994, and currently oversees the technical operations and quality
control of the Company. His 25 years of aviation experience includes serving as
Vice President of Marketing and Business Planning for Royal Aerospace and Vice
President of Operations and a pilot at Worldways Canada Ltd., where his duties
included managing the maintenance facility. Mr. Lewis holds several aviation
credentials, together with a technological diploma in mechanical engineering and
a teaching degree with the North York Board of Education, Canada.
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VICTOR BUENDIA, VICE PRESIDENT, LATIN AND SOUTH AMERICAN SALES. Mr. Buendia
has 4 years of aircraft experience. Mr. Buendia is responsible for all of the
Company's major Latin America accounts. Prior to joining the Company in 1992,
Mr. Buendia owned and operated his own business and brings valuable marketing,
communication and sales skills to ADI.
ELIZABETH MORGAN, VICE PRESIDENT, CONSIGNMENT AND DOMESTIC SALES. Ms.
Morgan has 12 years of experience in aircraft parts sales. Ms. Morgan is
responsible for the operations and sales of the Company's consignment sales.
Prior to joining the Company in 1994, Ms. Morgan was the Director of Marketing
for Pacific Airmotive, a division of UNC. In addition, Ms. Morgan has worked for
several other companies in aircraft sales.
LAURA M. BIRGBAUER, CHIEF ACCOUNTING OFFICER AND TREASURER. Ms. Birgbauer
has over four years of public accounting experience and is a Certified Public
Accountant. Currently, Ms. Birgbauer manages the Company's finance and
accounting departments and is responsible for financial reporting and the
Company's treasury. From 1991 to 1996, Ms. Birgbauer was an Experienced Senior
Auditor for Arthur Andersen LLP, where she supervised audit engagements and
prepared and reviewed financial reports. Ms. Birgbauer has a B.S. in accounting
from the University of Southern California.
BRUCE H. HAGLUND, SECRETARY AND DIRECTOR. Mr. Haglund has served as General
Counsel of the Company since 1992 and has served as Secretary and a director of
the Company from June 1996 to present. Since 1994, Mr. Haglund has been a
partner in the law firm Gibson, Haglund & Johnson. Prior to 1994, Mr. Haglund
was a principal in the law firm of Phillips, Haglund, Hadden & Jeffers. From
1984 to 1991, he was a partner at the law firm of Gibson & Haglund. Mr. Haglund
is also the Secretary and a member of the Board of Directors of GB Foods
Corporation and the Secretary of Metalclad Corporation, both public companies
traded on the Nasdaq SmallCap Market. Mr. Haglund has a J.D. from the University
of Utah College of Law.
DANIEL C. LEWIS, PROPOSED DIRECTOR. Mr. Lewis currently serves as a Senior
Vice President of Booz-Allen & Hamilton, Inc. ("Booz-Allen") where he heads the
firm's worldwide engineering manufacturing businesses of aerospace, automotive
and industrials. At Booz-Allen, Mr. Lewis is a member of the Commercial
Leadership Team, Operating Council, and is a former Director of the company.
Prior to joining Booz-Allen, Mr. Lewis was a materials manager in
Warner-Lambert's consumer products group. Prior to Warner-Lambert, Mr. Lewis was
with Sundstrand working in the machine tool and aerospace business. Mr. Lewis
has a B.S. in industrial supervision and a B.A. in applied science from Purdue
University and an M.B.A. from Fairleigh Dickinson University.
WILLIAM T. WALKER, JR., PROPOSED DIRECTOR. Mr. Walker founded Walker
Associates, a corporate finance consulting firm for investment banking, in 1985
and has participated in or been instrumental in completing over $250 million in
public and private offerings since its inception. Prior to forming Walker
Associates, Mr. Walker served as executive Vice President, Manager of Investment
Banking, Member of the Board and Executive Committee and Chairman of the
Underwriting Committee for Bateman Eichler Hill Richards, a New York Stock
Exchange Member firm. Mr. Walker is also a member of the Board of Directors of
Fortune Petroleum Corporation and Go-Video, Inc., both public companies traded
on the American Stock Exchange. Mr. Walker attended Stanford University.
BOARD OF DIRECTORS
The Board of Directors of the Company (the "Board of Directors") is
currently comprised of Messrs. Bakhit, Ashton and Haglund. Prior to the
consummation of the Offering, the Company intends to appoint Daniel C. Lewis and
at least one other individual, each of whom are neither officers nor employees
of the Company, as directors. The Company has three classes of directors which
are elected for staggered terms of three years. The initial terms of each class
expire at the annual meetings of stockholders in 1997 (Class I), 1998 (Class II)
and 1999 (Class III). Mr. Haglund is a Class I director, Mr. Ashton is a Class
II director and Mr. Bakhit is a Class III director.
The Board of Directors has (i) an Audit Committee that is responsible for
recommending to the Board of Directors the engagement of the independent
auditors of the Company and reviewing with
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the independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors, and (ii) a Compensation
Committee (the "Compensation Committee") that is responsible for reviewing and
approving all compensation arrangements for officers of the Company, including
compensation pursuant to the Executive Compensation Plan (as defined herein),
and for administering the 1996 Stock Option Plan. See "Employment Agreements"
and "Employee Benefit Plans -- 1996 Stock Option Plan."
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Directors who are not employees of the
Company will receive a fee of $1,000 for each board or committee meeting
attended in person and a fee of $500 for each board or committee meeting
attended via conference call. All directors are reimbursed for expenses incurred
in connection with attendance at board or committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth compensation received in the year ended
December 31, 1995 by (i) the Company's Chief Executive Officer and (ii) the
Company's two other most highly compensated executive officers whose salary plus
bonus exceeded $100,000 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)
- --------------------------------------------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Osamah S. Bakhit 1995 --(1) -- 21,000(2)
Chief Executive Officer and Director
Jeffrey G. Ward 1995 116,473 21,000 --
Executive Vice President
Dennis R. Lewis 1995 103,200 25,000 --
Senior Vice President, Technical Operations
</TABLE>
- ------------------------
(1) Mr. Bakhit did not receive a salary for 1995, but did borrow $328,718 from
the Company for personal use. See "Certain Transactions." In 1994, Mr.
Bakhit received an annual salary of $106,000.
(2) Compensation consists of automobile lease payments and automobile insurance
paid by the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an amended and restated employment agreement
with Mr. Bakhit (the "Bakhit Agreement") pursuant to which Mr. Bakhit shall
serve as the Chairman of the Board, Chief Executive Officer and President. The
Bakhit Agreement provides for an annual base salary of $225,000. In addition,
the Company shall provide Mr. Bakhit with an automobile allowance and all
employee benefits established for Company employees. The Bakhit Agreement also
provides Mr. Bakhit with incentive compensation under the Executive Incentive
Compensation Plan (the "Executive Compensation Plan"), which provides for the
contribution to a senior management bonus pool of 7.5% of the Company's earnings
before taxes (not to exceed $250,000 annually), to be allocated in accordance
with the determination of the Board of Directors. In addition, Mr. Bakhit is
entitled to bonus compensation declared at the discretion of the independent
members of the Board of Directors from time to time in an amount not to exceed
two times Mr. Bakhit's annual base salary per calendar year. Under the Bakhit
Agreement, Mr. Bakhit was granted an option to purchase 51,050 shares of Common
Stock pursuant to the terms of the Company's 1996 Stock Plan (defined below) at
an option price of $7 per share. This option vests six months after the closing
of the Offering.
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The Bakhit Agreement contains nonsolicitation, noncompetition and
confidentiality provisions, which provisions are tied to Mr. Bakhit remaining
with the Company as a consultant upon certain events of termination. The Bakhit
Agreement provides for an initial term expiring on December 31, 2001. However,
the Bakhit Agreement will be automatically renewed for a new five-year term on
its expiration date unless canceled upon 90 days written notice by the Company
or by Mr. Bakhit or unless sooner terminated pursuant to the terms of the Bakhit
Agreement.
The Company has entered into an employment agreement with Mr. Ashton (the
"Ashton Agreement") pursuant to which Mr. Ashton shall serve as the Company's
Chief Financial Officer and Vice President, Finance. The Ashton Agreement
provides for an annual base salary of $120,000. In addition, the Company shall
provide Mr. Ashton all employee benefits established for Company employees. The
Ashton Agreement also provides Mr. Ashton with incentive compensation under the
Executive Compensation Plan in an amount to be determined by the Board of
Directors. Under the Ashton Agreement, Mr. Ashton was granted an option to
purchase 10,000 shares of Common Stock pursuant to the 1996 Stock Plan at an
option price of $7 per share. This option vests ratably over a three-year period
commencing six months after the closing of the Offering.
The Ashton Agreement contains nonsolicitation and confidentiality
provisions. The Ashton Agreement provides for an initial term expiring on
December 31, 1999. However, the Ashton Agreement will be automatically renewed
for a new three-year term on the expiration date unless canceled upon 90 days
written notice by the Company or by Mr. Ashton or unless sooner terminated
pursuant to the terms of the Ashton Agreement.
The Company has entered into an employment agreement with Mr. Ward (the
"Ward Agreement") pursuant to which Mr. Ward shall serve as the Company's
Executive Vice President. The Ward Agreement provides for an annual base salary
of $120,000. In addition, the Company shall provide Mr. Ward all employee
benefits established for Company employees. The Ward Agreement also provides Mr.
Ward with incentive compensation under the Executive Compensation Plan in an
amount to be determined by the Board of Directors. Under the Ward Agreement, Mr.
Ward was granted an option to purchase 15,000 shares of Common Stock pursuant to
the 1996 Stock Plan at an option price of $7 per share. This option vests
ratably over a three-year period commencing six months after the closing of the
Offering. In addition, Mr. Ward is entitled to commission on sales to certain
customers identified in the Ward Agreement equal to 1.25% of such sales.
The Ward Agreement contains nonsolicitation and confidentiality provisions.
The Ward Agreement provides for an initial term expiring on December 31, 1999.
However, the Agreement will be automatically renewed for a new three-year term
on the expiration date unless canceled upon 90 days written notice by the
Company or by Mr. Ward or unless sooner terminated pursuant to the terms of the
Ward Agreement.
EMPLOYEE BENEFIT PLANS
THE 1996 STOCK PLAN
On July 10, 1996, the Board of Directors adopted, and the then stockholder
approved, the Aviation Distributors Incorporated 1996 Stock Option and Incentive
Plan (the "1996 Stock Plan"), which provides for the grant of various types of
stock-based compensation to non-employee directors, selected employees and
independent contractors of the Company and its subsidiaries. The 1996 Stock Plan
provides for the issuance of a maximum of 264,500 shares of Common Stock
pursuant to awards under the 1996 Stock Plan.
The purposes of the 1996 Stock Plan are to promote the success of the
Company's business by providing incentives to those non-employee directors,
employees and independent contractors who are or will be responsible for such
success; to facilitate the ownership of Common Stock by such
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individuals, thereby increasing their proprietary interests in the Company's
business; and to assist the Company in attracting and retaining non-employee
directors, employees and independent contractors with experience and ability.
The 1996 Stock Plan is designed to comply with the requirements of
Regulation G (12 C.F.R. Section207), the requirements for "performance-based
compensation" under Section 162(m) of the Internal Revenue Code of 1986, as
amended and the conditions for exemption from the short-swing profit recovery
rules under Rule 16b-3 of the Exchange Act. The summary that follows is subject
to the actual terms of the 1996 Stock Plan.
The 1996 Stock Plan provides for the granting of stock options ("Options"),
including incentive stock options ("ISOs") and non-qualified stock options
("NSOs"). Options granted under the 1996 Stock Plan may be accompanied by stock
appreciation rights ("SARs") or limited stock appreciation rights ("LSARs"), or
both ("Rights"). Rights may also be granted independently of Options. The Plan
also provides for the granting of restricted stock and restricted stock units
("Restricted Awards"), dividend equivalents and other stock- and cash-based
awards. The 1996 Stock Plan also permits the plan's administrator to make loans
to participants in connection with the grant of awards, on terms and conditions
determined solely by the plan administrator. All awards will be evidenced by an
agreement (an "Award Agreement") setting forth the terms and conditions
applicable thereto.
PLAN ADMINISTRATION
The 1996 Stock Plan is administered by the Board of Directors, and from and
after the consumation of the Offering, will be administered by the Compensation
Committee, the composition of which will at all times satisfy the provisions of
Rule 16b-3 (such Board or committee sometimes referred to herein as the "Plan
Administrator"). Members of the Compensation Committee are not entitled to
receive remuneration for administering the 1996 Stock Plan. The 1996 Stock Plan
provides that no member of the Board of Directors or the Compensation Committee
will be liable for any action or determination taken or made in good faith with
respect to the 1996 Stock Plan or any Option, Right, Restricted Award or other
award granted thereunder.
Subject to the terms of the 1996 Stock Plan, the Plan Administrator has the
right to grant awards to eligible recipients and to determine the terms and
conditions of Award Agreements, including the vesting schedule and exercise
price of such awards, and the effect, if any, of a change in control of the
Company on such awards.
SHARES SUBJECT TO THE 1996 STOCK PLAN
The 264,500 shares reserved for issuance under the 1996 Stock Plan may be
authorized but unissued shares of Common Stock or shares which have or may be
reacquired by the Company in the open market, in private transactions or
otherwise. Generally speaking, shares subject to an award which is forfeited,
cancelled, exchanged, surrendered or terminated, without distribution of the
shares subject thereto, will again be available for issuance under the 1996
Stock Plan.
The 1996 Stock Plan provides that, in the event of changes in the Common
Stock by reason of a merger, reorganization, recapitalization, common stock
dividend, stock split or similar change, the Plan Administrator will make
appropriate adjustments in the aggregate number of shares available for issuance
under the 1996 Stock Plan, the purchase price to be paid or the number of shares
issuable upon the exercise thereafter of any Option previously granted and in
the purchase price to be paid or the number of shares issuable pursuant to other
awards. The Plan Administrator will have the discretion to make other
appropriate adjustments to awards to prevent dilution of shares or other
devaluations of such awards.
ELIGIBILITY
Discretionary grants of Options, Rights, Restricted Awards and dividend
equivalents, and loans in connection therewith may be made to any non-employee
director, employee or any independent contractor of the Company or its direct
and indirect subsidiaries and affiliates who is determined by the Plan
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Administrator to be eligible for participation in the 1996 Stock Plan,
consistent with the purposes of the Plan; provided that, ISOs may only be
granted to employees of the Company and its subsidiaries and affiliates which
have participants in the 1996 Stock Plan.
EXERCISE OF OPTIONS
Options will vest and become exercisable over the exercise period, at such
times and upon such conditions as the Plan Administrator determines and sets
forth in the Award Agreement. The Plan Administrator may accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it deems appropriate. Options that are not exercised within ten
years from the date of grant, however, will expire without value. Options are
exercisable during the optionee's lifetime only by the optionee. The Award
Agreements will contain provisions regarding the exercise of Options following
termination of employment with or service to the Company, including terminations
due to the death, disability or retirement of an award recipient, or upon a
change in control of the Company. In addition to the terms and conditions
governing NSOs, ISOs awarded under the 1996 Stock Plan must comply with the
requirements set forth in Section 422 of the Code.
The purchase price of Common Stock subject to the exercise of an Option will
be as determined by the Plan Administrator and may be adjusted in accordance
with the antidilution provisions described in "Shares Subject to the 1996 Stock
Plan," above. Upon the exercise of any Option, the purchase price may be fully
paid in cash, by delivery of Common Stock previously owned by the optionee equal
in value to the exercise price, by means of a loan from the Company, or by
having shares of Common Stock with a fair market value (on the date of
exercise), equal to the exercise price withheld by the Company or sold by a
broker-dealer under qualifying circumstances (or in any combination of the
foregoing).
STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
Unless the Plan Administrator determines otherwise, a SAR or LSAR (1)
granted in tandem with an NSO may be granted at the time of grant of the related
NSO or at any time thereafter or (2) granted in tandem with an ISO may only be
granted at the time of grant of the related ISO. A SAR will be exercisable only
to the extent the underlying Option is exercisable.
Upon exercise of a SAR the grantee will receive, with respect to each share
subject thereto, an amount equal in value to the excess of (1) the fair market
value of one share of Common Stock on the date of exercise over (2) the grant
price of the SAR (which in the case of a SAR granted in tandem with an Option
will be the exercise price of the underlying Option, and in the case of any
other SAR will be the price determined by the Plan Administrator).
Upon exercise of a LSAR, the grantee will receive, with respect to each
share subject thereto, automatically upon the occurrence of a change in control
of the Company, an amount equal in value to the excess of (1) the change in
control price (which in the case of a LSAR granted in tandem with an ISO will be
the fair market value) of one share of Common Stock on the date of such change
in control over (2) the grant price of the LSAR (which in the case of a LSAR
granted in tandem with an Option will be the exercise price of the underlying
Option, and which in the case of any other LSAR will be the price determined by
the Plan Administrator). In the case of a LSAR granted to a participant,
however, who is subject to the reporting requirements of Section 16(a) of the
Exchange Act (a "Section 16 Individual"), such Section 16 Individual will only
be entitled to receive such amount if the LSAR has been outstanding for at least
six (6) months as of the date of the change in control.
With respect to SARs and LSARs that are granted in tandem with Options, each
such SAR and LSAR will terminate upon the termination or exercise of the
pertinent portion of the related Option, and the pertinent portion of the
related Option will terminate upon the exercise of any such SAR or LSAR.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
A Restricted Stock award is an award of Common Stock subject to such
restrictions on transferability and other restrictions as the Plan Administrator
may impose at the date of grant or thereafter. Restrictions on shares may lapse
at such times, under such circumstances or otherwise, as determined
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<PAGE>
by the Board of Directors or the Compensation Committee. Unless an Award
Agreement provides otherwise, a Restricted Stock recipient will have all of the
rights of a shareholder during the restriction period including the right to
vote Restricted Stock and the right to receive dividends.
If the recipient of an award of Restricted Stock terminates employment with
or service to the Company during the applicable restriction period, Restricted
Stock and any accrued but unpaid dividends or dividend equivalents that are at
that time still subject to restrictions will be forfeited (unless the Plan
Administrator has provided otherwise in an Award Agreement).
Recipients of Restricted Stock Units will receive cash or shares of Common
Stock, as determined by the Plan Administrator, upon expiration of the deferral
period specified for such Restricted Stock Units in the related Award Agreement.
Restricted Stock Units may also be subject to such restrictions as the Plan
Administrator imposes at the time of grant or thereafter, which restrictions may
lapse at the expiration of the deferral period (or at an earlier or later time
in the Plan Administrator's discretion).
Upon termination of employment with or service to the Company during any
applicable deferral period to which forfeiture conditions apply, or upon failure
to satisfy any other conditions precedent to the delivery of cash or Common
Stock pursuant to a Restricted Stock Unit award, all such units that are subject
to deferral or restriction will be forfeited (unless the applicable Award
Agreement or the Plan Administrator provides otherwise).
DIVIDEND EQUIVALENTS
Dividend equivalents may be granted which relate to Options, Rights or other
awards under the 1996 Stock Plan, or may be granted as freestanding awards. The
Board of Directors or the Compensation Committee may provide, at the grant date
or thereafter, that dividend equivalents will be paid or distributed to an
awardee when accrued with respect to Options, Rights or other awards under the
1996 Stock Plan, or will be deemed to have been reinvested in additional shares
of Common Stock (or such other investment vehicles as the Plan Administrator may
specify). Dividend equivalents which are not freestanding will be subject to all
conditions and restrictions applicable to the underlying awards to which they
relate.
OTHER STOCK- OR CASH-BASED AWARDS
The Plan Administrator may grant Common Stock as a bonus or in lieu of
Company commitments to pay cash under other plans or compensatory arrangements
of the Company. The Board of Directors and the Compensation Committee may also
grant other stock- or cash-based awards as an element of or supplement to any
other award under the 1996 Stock Plan. Such awards may be granted with value and
payment contingent upon the attainment of specified individual or Company (or
subsidiary) financial goals, or upon any other factors designated by the Plan
Administrator. The Plan Administrator may determine the terms and conditions of
such awards at the date of grant or thereafter.
AMENDMENT; TERMINATION
The Board of Directors or the Compensation Committee may terminate or amend
the 1996 Stock Plan at any time, except that stockholder approval is required
for any amendment which (i) increases the maximum number of shares of Common
Stock which may be issued under the 1996 Stock Plan (except for adjustments made
to prevent share dilutions and award devaluations), (ii) changes the class of
individuals eligible to participate in the 1996 Stock Plan, or (iii) extends the
term of the 1996 Stock Plan or the period during which any Option, Right,
Restricted Award or other award may be granted or any Option or Right may be
exercised; but such approval is needed only to the extent required by Rule 16b-3
with respect to the material amendment of any employee benefit plan maintained
by the Company. Termination or amendment of the 1996 Stock Plan will not affect
previously granted Options, Rights, Restricted Awards or other grants, which
will continue in effect in accordance with their terms.
PAYMENT OF TAXES
The Company is authorized to withhold from any award granted, any payment
relating to an award under the 1996 Stock Plan (including from a distribution of
Common Stock), or any other payment to a grantee, amounts of withholding and
other taxes due in connection with the award, and to take such
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<PAGE>
other action as the Plan Administrator may deem advisable to enable the Company
and grantees to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to the award. This authority includes the right
to withhold or receive Common Stock or other property and to make cash payments
in respect thereof in satisfaction of a grantee's tax obligations.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion of certain relevant federal income tax effects
applicable to Options, Rights, Restricted Awards and dividend equivalents
granted under the 1996 Stock Plan is a summary only, and reference is made to
the Code for a complete statement of all relevant federal tax provisions.
Holders of NSOs, ISOs, Rights and dividend equivalents should consult their tax
advisors before realization of any such awards, and holders of Common Stock
pursuant to awards hereunder should consult their tax advisors before disposing
of any shares of Common Stock acquired pursuant to such awards. Section 16
Individuals should note that somewhat different rules than those described below
may apply to them.
NON-QUALIFIED STOCK OPTIONS
A participant will generally not be taxed upon the grant of an NSO. Rather,
at the time of exercise of such NSO, the participant will recognize ordinary
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares purchased over the Option price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the participant recognizes ordinary income.
If shares acquired upon exercise of a NSO (or upon untimely exercise of an
ISO) are later sold or exchanged, then the difference between the sales price
and the fair market value of such Common Stock on the date that ordinary income
was recognized with respect thereto will generally be taxable as long-term or
short-term capital gain or loss (if the Common Stock is a capital asset of the
participant) depending upon whether the Common Stock has been held for more than
one year after such date.
INCENTIVE STOCK OPTIONS
A participant will not be taxed upon the grant of an ISO or upon its timely
exercise. Exercise of an ISO will be timely if made during its term and if the
participant remains an employee of the Company or a subsidiary at all times
during the period beginning on the date of grant of the ISO and ending on the
date three months before the date of exercise (or one year before the date of
exercise in the case of a disabled employee). Exercise of an ISO will also be
timely if made by the legal representative of a participant who dies (i) while
in the employ of the Company or a subsidiary or (ii) within three months after
termination of employment (or one year in the case of a disabled employee). The
tax consequences of an untimely exercise of an ISO will be determined in
accordance with the rules applicable to NSOs. (See "Certain Federal Income Tax
Effects -- Non-qualified Stock Options," above.)
If shares acquired pursuant to a timely exercised ISO are later disposed of,
the participant will, except as noted below with respect to a "disqualifying
disposition," recognize long-term capital gain or loss (if the Common Stock is a
capital asset of the employee) equal to the difference between the amount
realized upon such sale and the Option price. The Company, under these
circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the ISO or the sale of such Common Stock
by the participant.
If, however, a participant disposes of shares acquired pursuant to the
exercise of an ISO prior to the expiration of two years from the date of grant
of the ISO or within one year from the date such stock is transferred to him
upon exercise (a "disqualifying disposition"), generally (i) the participant
will realize ordinary income at the time of the disposition in an amount equal
to the excess, if any, of the fair market value of the shares at the time of
exercise (or, if less, the amount realized on such disqualifying disposition)
over the Option exercise price, and (ii) if the Common Stock is a capital asset
of the participant, any additional gain recognized by the participant will be
taxed as short-term or long-term capital gain. In such case, the Company may
claim a federal income tax deduction at the time of such disqualifying
disposition for the amount taxable to the participant as ordinary income. Any
capital gain recognized by the participant will be long-term capital gain if the
participant's holding period for the shares at the time of disposition is more
than one year; otherwise it will be short-term.
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The amount by which the fair market value of the Common Stock on the
exercise date of an ISO exceeds the Option price will be an item of adjustment
for purposes of the "alternative minimum tax" imposed by Section 55 of the Code.
EXERCISE WITH SHARES
According to a published ruling of the Internal Revenue Service, a
participant who pays the Option price upon exercise of a NSO, in whole or in
part, by delivering shares of Common Stock already owned by him will recognize
no gain or loss for federal income tax purposes on the shares surrendered, but
otherwise will be taxed according to the rules described above for NSOs. (See
"Certain Federal Income Tax Effects -- Non-qualified Stock Options," above.)
With respect to shares acquired upon exercise which are equal in number to the
shares surrendered, the basis of such shares will be equal to the basis of the
shares surrendered, and the holding period of the shares acquired will include
the holding period of the shares surrendered. The basis of additional shares
received upon exercise will be equal to the fair market value of such shares on
the date which governs the determination of the participant's ordinary income,
and the holding period for such additional shares will commence on such date.
The Treasury Department has issued proposed regulations that, if adopted in
their current form, would appear to provide for the following rules with respect
to the exercise of an ISO by surrender of previously owned shares of corporation
stock. If the shares surrendered in payment of the exercise price of an ISO are
"statutory option stock" (including stock acquired pursuant to the exercise of
an ISO) and if the surrender constitutes a "disqualifying disposition" (as would
be the case, for example, if, in satisfaction of the Option exercise price, the
Company withholds shares which would otherwise be delivered to the participant),
any gain realized on such transfer will be taxable to the optionee, as discussed
above. Otherwise, when shares of the Company's stock are surrendered upon
exercise of an ISO, in general, (i) no gain or loss will be recognized as a
result of the exchange, (ii) the number of shares received that is equal in
number to the shares surrendered will have a basis equal to the shares
surrendered and (except for purposes of determining whether a disposition will
be a disqualifying disposition) will have a holding period that includes the
holding period of the shares exchanged, and (iii) any additional shares received
will have a zero basis and will have a holding period that begins on the date of
the exchange. If any of the shares received are disposed of within two years of
the date of grant of the ISO or within one year after exercise, the shares with
the lowest basis will be deemed to be disposed of first, and such disposition
will be a disqualifying disposition giving rise to ordinary income as discussed
above.
RIGHTS
A grant of SARs or LSARs has no federal income tax consequences at the time
of such grant. Upon the exercise of SARs or LSARs (other than a Free Standing
LSAR), the amount of any cash and the fair market value as of the date of
exercise of any shares of Common Stock received is taxable to the participant as
ordinary income. With respect to a Free Standing LSAR, however, a recipient
should be required to include as taxable ordinary income on the change in
control date an amount equal to the amount of cash that could be received upon
the exercise of the LSAR, even if the LSAR is not exercised until a date
subsequent to the change in control date. The Company will generally be entitled
to a deduction at the same time and equal to the amount included in the
participant's income. Upon the sale of the shares acquired by the exercise of
SARs or LSARs, participants will recognize capital gain or loss (assuming such
Common Stock was held as a capital asset) in an amount equal to the difference
between the amount realized upon such sale and the fair market value of the
Common Stock on the date that governs the determination of the participant's
ordinary income.
RESTRICTED AWARDS
In the case of a Restricted Award, a participant generally will not be taxed
upon the grant of such an award, but, rather, the participant will recognize
ordinary income in an amount equal to (i) the fair market value of Common Stock
at the time the shares become transferable or are otherwise no longer subject to
a substantial risk of forfeiture (as defined in the Code), minus (ii) the price,
if any, paid by the participant to purchase such Common Stock. The Company will
be entitled to a deduction at the time
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when, and in the amount that, the participant recognizes ordinary income.
However, a participant may elect (not later than 30 days after acquiring such
shares) to recognize ordinary income at the time the restricted shares are
awarded in an amount equal to their fair market value at that time,
notwithstanding the fact that such shares are subject to restrictions and a
substantial risk of forfeiture. If such an election is made, no additional
taxable income will be recognized by the participant at the time the
restrictions lapse. The Company will be entitled to a tax deduction at the time
when, and to the extent that, income is recognized by the participant. However,
if shares in respect of which such election was made are later forfeited, no tax
deduction is allowable to the participant for the forfeited shares, and the
Company will be deemed to recognize ordinary income equal to the amount of the
deduction allowed to the Company at the time of the election in respect of such
forfeited shares.
DIVIDEND EQUIVALENTS
A participant will not be taxed upon the grant of a dividend equivalent, but
will instead recognize ordinary income in an amount equal to the value of the
dividend equivalent at the time the dividend equivalent becomes payable to the
participant. The Company will be entitled to a deduction at such time and in
such amount as the participant recognizes ordinary income with respect to the
dividend equivalent.
1996 STOCK PLAN BENEFITS
On July 16, 1996, the Board of Directors approved grants of Options to 34
non-employee directors, employees and independent contractors of the Company at
an exercise price of $7 per share, which was equal to the median value of the
estimated range of the initial public offering price of the Common Stock on the
date of grant. The following table provides information with respect to certain
of such Option grants. The size of any future grants to be made to individuals
named or described in the table cannot yet be determined.
<TABLE>
<CAPTION>
NAME AND POSITION OPTIONS GRANTED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Osamah S. Bakhit 51,050
Chief Executive Officer and Director
Jeffrey G. Ward 15,000
Executive Vice President
Dennis R. Lewis 0
Senior Vice President, Technical Operations
Executive Officer Group 76,050
Non-Executive Director Group 10,000
Non-Executive Officer Employee Group 63,950
</TABLE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Delaware General Corporation Law ("GCL") provides that a company may
indemnify its directors and officers as to certain liabilities. The Company's
Certificate of Incorporation and Bylaws provide for the indemnification of its
directors and officers to the fullest extent permitted by law, and the Company
intends to enter into separate indemnification agreements with each of its
directors and officers to effectuate these provisions and to purchase directors
and officers liability insurance. The effect of such provisions is to indemnify,
to the fullest extent permitted by law, the directors and officers of the
Company against all costs, expenses and liabilities incurred by them in
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.
The Company's indemnification agreements with each of its officers,
directors and key employees contain provisions which are in some respects
broader than the specific indemnification provisions contained in the GCL. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their
37
<PAGE>
status or service as directors of officers (other than liabilities arising from
willful misconduct of a culpable nature) and to advance their expenses incurred
as a result of any proceeding against them, as to which they could be
indemnified. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
At present, the Company is not aware of any pending litigation involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
38
<PAGE>
CERTAIN TRANSACTIONS
The Company loaned $328,718 to Mr. Bakhit for personal use in December 1995.
As of September 30, 1996, $328,718 principal amount was outstanding on the loan.
The loan is payable in quarterly principal installments of approximately $82,180
beginning March 1, 1997 and continuing through December 1, 1997. The loan bears
an interest rate of 6%. Interest on the unpaid principal balance through
December 30, 1996 is due and payable on December 30, 1996; thereafter, interest
is payable quarterly beginning March 1, 1997 and continuing through December 1,
1997 when all accrued and unpaid interest is due and payable.
Mr. Bakhit and his wife have personally guaranteed the Credit Facilities
with Far East Bank. Far East Bank has indicated orally that it will consider
terminating such guarantee following consummation of the Offering.
Pursuant to an Aircraft Purchase Agreement dated January 6, 1995 between the
Company and Air China Group Import and Export Trading Company ("Air China"), as
amended (the "Purchase Agreement"), the Company purchased two whole Boeing
707-320C aircraft (the "Aircraft") from Air China for an aggregate purchase
price of $5,500,000. The Company financed the purchase through a term loan with
State Street Bank.
Pursuant to an Aircraft Purchase Agreement dated August 8, 1995 (the "Sales
Agreement") between the Company and Alia-The Royal Jordanian Airline ("RJ"), the
Company sold the Aircraft and four Pratt & Whitney JT3D-7 aircraft engines to RJ
for an aggregate sale price of $7,980,000 financed by RJ through a revolving
letter of credit with the Housing Bank of Jordan payable in 48 monthly
installments of $166,250.
The Company expects that transactions between the Company and its officers,
directors and affiliated persons in the future, if any, will be on terms as
favorable to the Company as such terms would be if negotiated between the
Company and persons unaffiliated with its officers, directors or affiliated
persons.
PRINCIPAL AND SELLING STOCKHOLDER
The following table and the notes thereto set forth information, as of the
date of this Prospectus, relating to beneficial ownership (as defined in Rule
13d-3 of the Securities Exchange Act of 1934) of the Company's equity securities
by the Selling Stockholder, the Company's directors and executive officers and
the Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF SHARES BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK OF COMMON STOCK
PRIOR TO THE OFFERING(3) TO BE SOLD AFTER THE OFFERING(2)
------------------------- ---------------- -------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER NUMBER PERCENT
- -------------------------------------- ----------- ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Osamah S. Bakhit (1).................. 1,785,000 100% 140,000 1,645,000 62%
All directors and executive officers
as a group (4 persons)............... 1,785,000 100% 140,000 1,645,000 62%
</TABLE>
- ------------------------
(1) The mailing address of Mr. Bakhit is c/o Aviation Distributors Incorporated,
One Wrigley Drive, Irvine, California 92618. Mr. Bakhit is the Chief
Executive Officer, President and a director of the Company.
(2) Assumes that the over-allotment option is not exercised.
(3) Does not include Common Stock that may be purchased pursuant to the exercise
of Options granted to Mr. Bakhit and to other directors and executive
officers. See "Management -- Employee Benefit Plans -- 1996 Stock Plan
Benefits."
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have 2,645,000
shares of Common Stock outstanding. Of these shares, the 860,000 shares sold by
the Company and the 140,000 shares sold by the Selling Stockholder in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by an "affiliate" of the Company (as that
term is defined below). Any such affiliate will be subject to the resale
limitations of Rule 144 adopted under the Securities Act. The remaining
1,645,000 shares of Common Stock (1,595,000 shares of Common Stock if the
over-allotment is exercised) outstanding are "restricted securities" for
purposes of Rule 144 and are held by Mr. Bakhit, who is considered an
"affiliate" of the Company within the meaning of Rule 144. Restricted securities
may not be resold in a public distribution except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom, including the exemptions provided by Rule 144 or Rule 701.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of shares beneficially
owned for at least two years that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the outstanding shares of Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company during the 90 days
preceding a proposed sale by such person and who has beneficially owned
"restricted securities" for at least three years is entitled to sell such shares
under Rule 144 without regard to the volume, manner of sale or notice
requirements. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly controls, or is controlled by, or is under common
control with such issuer.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors before the date the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons, including the 1996 Stock Plan.
Securities issued in reliance on Rule 701 are restricted securities and,
beginning 90 days after the date of this Prospectus, may be sold by persons
other than affiliates subject only to the manner of sale provisions of Rule 144
and by affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements. Such securities will be subject, however, to any
lockup agreements related to such securities.
The Company and the Selling Stockholder have agreed, subject to certain
exceptions, not to, directly or indirectly, (i) sell, grant any option to
purchase or otherwise transfer or dispose of any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock or file a
registration statement under the Securities Act with respect to the foregoing or
(ii) enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock,
without the prior written consent of CRI, for a period of 180 days after the
date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that future sales of shares
of Common Stock, and options to acquire shares of Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Risk Factors --
Future Sales by Principal Stockholder; Shares Eligible for Future Sale."
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") and Bylaws ("Bylaws") is a summary and is qualified in its
entirety by the provisions of the Certificate and Bylaws, copies of which have
been filed as exhibits to the Registration Statement.
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, $.01 par value, and 3,000,000 shares of Preferred Stock, $.01 par
value.
COMMON STOCK
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefore. See "Dividend Policy."
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of the Company's liabilities and the
liquidation preference, if any, of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no rights to convert their
Common Stock into any other securities and there are no redemption provisions
with respect to such shares. All of the outstanding shares of Common Stock are
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. The transfer agent for the Common Stock is
American Stock Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors, without further action by the stockholders, may
issue shares of the Preferred Stock in one or more series and may fix or alter
the relative, participating, optional or other rights, preferences, privileges
and restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation
preferences and conversion rights, and the description of and number of shares
constituting any wholly unissued series of Preferred Stock. The Board of
Directors, without further stockholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. No shares of Preferred Stock presently are
outstanding and the Company currently has no plans to issue shares of Preferred
Stock. The issuance of Preferred Stock in certain circumstances may have the
effect of delaying or preventing a change of control of the Company without
further action by the stockholders, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price and the voting and other rights of the holders of Common
Stock.
CERTAIN CORPORATE PROVISIONS
Upon the consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the GCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging under certain circumstances in
a "business combination" with an "interested stockholder," for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder the Board of Directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder, (ii) the stockholder owned more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent) held on or subsequent to the date of
the business combination. An "interested stockholder" is a person who, (i) owns
15% or more of the corporation's voting stock or (ii) is an affiliate or
associate of the
41
<PAGE>
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the prior three years. Section 203 defines a
"business combination" to include, without limitation, mergers, consolidations,
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
Although the Company is a Delaware corporation, under Section 2115 of the
California Corporations Code, certain provisions of the California Corporations
Code may apply to the Company because of the residence of the Company's
stockholders and the extent of its business operations and assets in California.
These provisions include, among others, those pertaining to cumulative voting,
enforcement of certain rights by the California Attorney General, the directors'
standard of care, certain requirements for annual election and removal of
directors, limitations on sales of assets and mergers and stockholders' right to
inspect and copy the Company's stockholder's list. Certain of such provisions
may delay or prevent a change of control of the Company.
The Company's Certificate and Bylaws contain a number of provisions relating
to corporate governance and to the rights of stockholders. Certain of these
provisions may be deemed to have a potential "anti-takeover" effect in that such
provisions may delay or prevent a change of control of the Company. These
provisions include (a) the classification of the Board of Directors into three
classes, each class serving for staggered three years terms; (b) a provision
that stockholder action may be taken only at stockholder meetings; (c) the
authority of the Board of Directors to issue series of Preferred Stock with such
voting rights and other powers as the Board of Directors may determine; (d) a
provision that a vote of not less than two-thirds of the outstanding shares
entitled to vote thereon is required for an amendment to the Bylaws and to amend
provisions of the Certificate relating to (i) the classification of the Board of
Directors, (ii) the calling of special stockholder meetings and (iii) the
amendment of the Bylaws; and (e) notice requirements in the Bylaws relating to
nominations to the Board of Directors and to the raising of business matters at
stockholder meetings. See also "Risk Factors -- Control by Principal
Stockholder."
The Certificate provides that the Company is subject to the provision of
Section 302 of the GCL. In general, this statute allows any court of equitable
jurisdiction in the State of Delaware, upon proper application by the Company or
any of its creditors or stockholders, to order a meeting of creditors or
stockholders whenever a compromise or arrangement is proposed between the
Company and its creditors or the Company and its stockholders. Any compromise,
arrangement or reorganization of the Company that is approved by a majority in
number representing three-fourths in value of the creditors or stockholders, as
the case may be, and sanctioned by the court to which the application was made
shall be binding on all of the creditors or stockholders, as the case may be,
and the Company.
42
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom CRI is acting as
Representative, have severally agreed to purchase from the Company and the
Selling Stockholder, and the Company and the Selling Stockholder have agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Cruttenden Roth Incorporated...............................................
-----------------
Total.................................................................. 1,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions, and letters from the Company and its
respective counsel and the Company's independent certified public accountants.
The nature of the Underwriters' obligation is such that they are committed to
purchase and pay for all the shares of Common Stock if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain securities dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such selected dealers may
reallow, a discount not in excess of $ per share to certain brokers and
dealers. After the initial public offering of the shares, the public offering
price and other selling terms may be changed by the Representative. No change in
such terms shall change the amount of proceeds to be received by the Company and
the Selling Stockholder as set forth on the cover page of this Prospectus.
The Company and the Selling Stockholder have granted an option to the
Underwriters, exercisable for a period of 45 days after the date of this
Prospectus, to purchase up to an additional 100,000 shares and 50,000 shares,
respectively, of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
The Underwriters may exercise this option only to cover over-allotments, if any.
To the extent that the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportion as set
forth in the above table.
The Company has agreed to issue to the Representative, for a total of $100,
warrants (the "Representative's Warrants") to purchase up to 100,000 shares of
Common Stock at an exercise price per share equal to 135% of the initial public
offering price. The Representative's Warrants are exercisable for a period of
four years beginning one year from the date of this Prospectus. The holders of
the Representative's Warrants will have no voting, dividend, or other
stockholder rights until the Representative's Warrants are exercised. In
addition, the Company has granted certain rights to the holders of the
Representative's Warrants to register the Representative's Warrants and the
Common Stock underlying the Representative's Warrants under the Securities Act.
The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the aggregate Price to Public (including with respect
to shares of Common Stock underlying the over-allotment option, if and to the
extent it is exercised) set forth on the front cover of this Prospectus for
expenses in connection with this offering, of which the sum of $30,000 has been
paid. The
43
<PAGE>
Representative's expenses in excess of such allowance will be borne by the
Representative. To the extent that the expenses of the Representative are less
than the non-accountable expense allowance, the excess may be deemed to be
compensation to the Representative.
The Representative has advised the Company that it does not expect any sales
of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
Prior to this offering, there has been no established trading market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock offered hereby has been determined by negotiation among the Company and
the Representative. Among the factors considered in such negotiations were the
preliminary demand for the Common Stock, the prevailing market and economic
conditions, the Company's results of operations, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses, the current condition of the markets in which
the Company operates, and other factors deemed relevant. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
offering at or above the initial public offering price.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters and their controlling persons
against certain liabilities under the Securities Act or will contribute to
payments the Underwriters and their controlling persons may be required to make
in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California. Certain legal matters relating to the Offering will be passed upon
for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1995 and
the related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1994 and 1995 included in this Prospectus
and elsewhere in the registration statement of which this Prospectus is a part
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in such registration statement and the exhibits and
schedules thereto. For further information with respect to the Company or such
Common Stock, reference is made to such registration statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such registration statement.
Such registration statement, including exhibits thereto, may be inspected
without charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and at the following regional offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of all or any part thereof may be obtained from the Public
Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fees.
44
<PAGE>
The Commission also maintains a site on the World Wide Web at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
45
<PAGE>
AVIATION DISTRIBUTORS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996
(unaudited).......................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1995 and 1996 (unaudited)................ F-4
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1994
and 1995 and for the nine months ended September 30, 1996 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1995 and 1996 (unaudited)................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Aviation Distributors, Inc.:
We have audited the accompanying consolidated balance sheet of AVIATION
DISTRIBUTORS, INC. (a Delaware corporation) and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, stockholder's
equity and cash flows for the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aviation Distributors, Inc.
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the years ended December 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
April 17, 1996
F-2
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
1995 30,
------------ 1996
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 867,721 $ 6,507
Restricted cash.......................................................... 301,175 63,610
Accounts receivable, net of allowance for doubtful accounts of $48,607 at
December 31, 1995 and $30,000 at September 30, 1996..................... 4,437,112 5,471,499
Other receivables........................................................ 141,287 420,827
Inventories.............................................................. 2,209,262 2,925,253
Current portion of notes receivable...................................... 1,466,224 1,577,346
Current portion of note receivable from officer.......................... 65,744 246,538
Prepaid expenses......................................................... 51,700 112,595
------------ -----------
Total current assets................................................... 9,540,225 10,824,175
------------ -----------
PROPERTY AND EQUIPMENT 1,663,378 1,766,305
Less -- Accumulated depreciation......................................... 170,140 247,129
------------ -----------
1,493,238 1,519,176
------------ -----------
Notes receivable, net of current portion................................... 4,674,491 3,471,678
Note receivable from officer, net of current portion....................... 262,974 82,180
Other assets............................................................... 43,765 264,666
------------ -----------
4,981,230 3,818,524
------------ -----------
$ 16,014,693 $16,161,875
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented for payment.............................. $ 574,888 $ 207,830
Accounts payable......................................................... 2,185,188 1,746,130
Accrued liabilities...................................................... 370,833 1,399,780
Lines of credit.......................................................... 4,667,784 5,414,337
Current portion of long-term debt........................................ 1,815,220 2,532,748
Current portion of capital lease obligations............................. 26,178 21,393
------------ -----------
Total current liabilities.............................................. 9,640,091 11,322,218
------------ -----------
Long-term debt, net of current portion..................................... 6,168,356 4,754,749
------------ -----------
Capital lease obligations, net of current portion.......................... 53,240 38,801
------------ -----------
Commitments and Contingencies
STOCKHOLDER'S EQUITY:
Capital stock, par value of $.01, 10,000,000 shares authorized; 1,785,000
shares issued and outstanding........................................... 17,850 17,850
Additional paid in capital............................................... 389,150 389,150
Retained deficit......................................................... (253,994) (360,893)
------------ -----------
Total stockholder's equity............................................. 153,006 46,107
------------ -----------
$ 16,014,693 $16,161,875
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------ SEPTEMBER 30,
1994 1995 ------------------------------
-------------- -------------- 1995 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
DISTRIBUTED SERVICES AND INVENTORY SALES........ $ 13,530,167 $ 21,544,983 $ 17,159,334 $ 14,408,904
NET SALES ON CONSIGNMENT AND MARKETING
AGREEMENTS..................................... 2,838,800 1,107,327 992,562 2,910,370
-------------- -------------- -------------- --------------
TOTAL NET SALES................................. 16,368,967 22,652,310 18,151,896 17,319,274
COST OF SALES................................... 11,809,104 18,679,924 15,092,760 12,429,936
-------------- -------------- -------------- --------------
Gross profit................................ 4,559,863 3,972,386 3,059,136 4,889,338
LEGAL SETTLEMENT EXPENSE........................ -- -- -- 1,375,000
SELLING AND ADMINISTRATIVE EXPENSES............. 3,957,897 3,757,073 2,770,259 3,381,350
-------------- -------------- -------------- --------------
Income from operations...................... 601,966 215,313 288,877 132,988
OTHER EXPENSES (INCOME):
Interest expense.............................. 281,260 867,030 438,172 937,777
Interest income............................... (2,835) (245,332) (78,292) (433,161)
Other expense (income)........................ 12,603 (88,232) (99,975) (11,729)
-------------- -------------- -------------- --------------
Income (loss) before provision (benefit) for
income taxes............................... 310,938 (318,153) 28,972 (359,899)
PROVISION (BENEFIT) FOR INCOME TAXES............ 102,460 (103,320) 11,589 (253,000)
-------------- -------------- -------------- --------------
Net income (loss)........................... $ 208,478 $ (214,833) $ 17,383 $ (106,899)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Earnings (loss) per share....................... $ .12 $ (.12) $ .01 $ (.06)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares outstanding............. 1,785,000 1,785,000 1,785,000 1,785,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK
---------------------- ADDITIONAL TOTAL
NUMBER PAID RETAINED STOCKHOLDER'S
OF SHARES AMOUNT IN CAPITAL DEFICIT EQUITY
----------- --------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.............. 1,785,000 $ 17,850 $ 279,150 $ (247,639) $ 49,361
Capital contribution.................... -- -- 110,000 -- 110,000
Net income.............................. -- -- -- 208,478 208,478
----------- --------- -------------- ------------ -------------
Balance at December 31, 1994.............. 1,785,000 17,850 389,150 (39,161) 367,839
Net loss................................ -- -- -- (214,833) (214,833)
----------- --------- -------------- ------------ -------------
Balance at December 31, 1995.............. 1,785,000 17,850 389,150 (253,994) 153,006
Net loss................................ -- -- -- (106,899) (106,899)
----------- --------- -------------- ------------ -------------
Balance at September 30, 1996
(unaudited).............................. 1,785,000 $ 17,850 $ 389,150 $ (360,893) $ 46,107
----------- --------- -------------- ------------ -------------
----------- --------- -------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------ SEPTEMBER 30,
1994 1995 ------------------------
----------- ----------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 208,478 $ (214,833) $ 17,383 $ (106,899)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Sale in exchange for note receivable.................... -- (6,617,406) (6,617,406) --
Principal payments of notes receivable.................. -- 482,691 130,811 1,085,691
Borrowings on notes payable related to inventory
purchases.............................................. -- 7,463,356 6,617,406 1,161,782
Principal payments on notes payable related to inventory
purchases.............................................. -- (482,681) (130,811) (1,710,691)
Reduction in amount due on notes payable related to
inventory purchases.................................... -- -- -- (210,950)
Non-cash portion of nonrecurring loss on settlement..... 230,075 -- -- --
Loss on sale of property and equipment.................. -- -- -- 48,999
Depreciation and amortization of debt discount.......... 91,972 87,628 65,900 175,795
Changes in assets and liabilities:
Accounts receivable, net.............................. (1,650,155) (707,814) (185,761) (1,034,387)
Other receivables..................................... (250,601) 109,314 (503,086) (279,540)
Inventories........................................... (199,540) (1,833,509) (780,842 (674,918)
Other assets.......................................... (70,071) (44,919) (72,712) (275,796)
Checks issued not yet presented for payment........... 680,632 (105,744) 119,881 (367,058)
Accounts payable...................................... 29,273 908,668 543,260 (439,058)
Accrued liabilities................................... 34,769 327,167 25,619 1,028,947
Income tax payable.................................... 105,330 (105,330) (12,795) --
----------- ----------- ----------- -----------
Net cash used in operating activities............... (789,838) (733,422) (783,153) (1,598,083)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (120,086) (1,257,103) (1,236,220) (178,309)
Borrowings given on notes receivable...................... -- (6,000) (6,000) --
Borrowings given on note receivable from officer.......... -- (328,718) -- --
(Increase) decrease in restricted cash.................... (105,000) (196,175) (742,569) 237,565
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities......................................... (225,086) (1,787,996) (1,984,789) 59,256
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit............................. 1,072,250 8,988,103 13,619,640 16,445,394
Principal payments on lines of credit..................... -- (6,769,388) (12,028,732) (15,698,841)
Borrowings on long-term debt.............................. 68,233 1,848,276 974,196 --
Principal payments of long-term debt...................... (9,272) (909,076) (31,501) (49,716)
Principal payments of capital lease obligations........... (9,120) (19,965) (13,463) (19,224)
Contributed capital....................................... 10,000 -- -- --
----------- ----------- ----------- -----------
Net cash provided by financing activities........... 1,132,091 3,137,950 2,520,140 677,613
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 117,167 616,532 (247,802) (861,214)
Cash and cash equivalents at beginning of period............ 134,022 251,189 251,189 867,721
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.................. $ 251,189 $ 867,721 $ 3,387 $ 6,507
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 275,210 $ 786,725 $ 401,222 $ 920,951
Income taxes............................................ 1,600 32,632 2,400 20,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital contribution of inventory from an officer, valued
at officer's historical cost............................. 100,000 -- -- --
Capital lease obligations for purchase of new equipment... 32,000 74,779 74,779 --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Aviation Distributors, Inc. ("ADI") and its subsidiaries (the "Company")
established operations in 1988, incorporated in the state of California in 1992
and reincorporated in the state of Delaware in 1996 (see Note 14). The Company
is a supplier, distributor and broker of commercial aircraft parts and supplies.
The Company distributes aircraft components for commercial airlines worldwide.
For the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, approximately 72.4%, 90.3%, 90.2% and 65.0%,
respectively, of the Company's net sales were export sales. These export sales
by region were approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ ----------------------------
1994 1995 1995 1996
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Pacific Rim......................................................... 19.2% 22.4% 19.7% 20.3%
Europe.............................................................. 25.0 15.7 14.1 24.5
Latin/South America................................................. 16.6 17.4 15.6 13.5
Africa/Middle East.................................................. 11.6 34.8 40.8 6.7
--- --- --- ---
72.4% 90.3% 90.2% 65.0%
--- --- --- ---
--- --- --- ---
</TABLE>
ACCOUNTING ESTIMATES
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 periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, ADICSI and Aviation Distributors
(Europe) Ltd. All significant intercompany transactions have been eliminated in
consolidation.
INTERIM FINANCIAL DATA
The interim consolidated financial data as of September 30, 1996 and for the
nine month periods ended September 30, 1995 and 1996 is unaudited. The
information reflects all adjustments, consisting only of normal recurring
adjustments, that, in the opinion of management, are necessary to present fairly
the financial position and results of operations of the Company for the periods
indicated. Results of operations for the interim periods are not necessarily
indicative of the results of operations in a full fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
less than 90 days to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of short term certificates of deposits held as
security for letters of credit issued on behalf of the Company by financial
institutions and one of the Company's lines of credit.
F-7
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES
Inventories, which consist primarily of aircraft parts, are stated at the
lower of cost or market with cost determined on a first-in, first-out basis.
Expenditures required for the rectification of parts are capitalized as
inventory cost as incurred and are expensed as the parts associated with the
rectification are sold.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation expense is provided
using various methods over the estimated useful lives of the assets, ranging
from five to thirty years. Expenditures for repairs and maintenance are expensed
as incurred. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized. The carrying amounts of
assets which are sold or retired and the related accumulated depreciation are
removed from the accounts in the year of disposal, and any resulting gain or
loss is reflected in operations.
FINANCIAL INSTRUMENTS
At December 31, 1995, the carrying values of the Company's financial
instruments (cash and cash equivalents, notes receivable and notes payable)
approximated their fair values as the interest rates on such financial
instruments are comparable to market rates.
The Company had an outstanding irrevocable letter of credit in the amount of
$1,700,000 as of September 30, 1996. This letter of credit has a term of 17
months and collateralizes the Company's obligation to a third party for the
purchase of inventory. The fair value of this letter of credit is estimated to
be the same as the contract value based on the nature of the fee arrangements
with the issuing banks.
REVENUE RECOGNITION
Sales of aircraft parts are recognized as revenues when the product is
shipped and title has passed to the customer. The Company provides a reserve for
estimated product returns.
Distributed services and inventory sales represent sales of inventory
located through outside parties and sales of company owned inventory. Net sales
on consignment and marketing agreements represent revenue related to sales of
inventory held on consignment and sales of inventory obtained through marketing
agreements.
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based on
the estimated future cash flows (undiscounted and without interest charges).
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell. The Company adopted SFAS No. 121 as of January 1,
1996, and the effect of adoption was not material to the financial statements.
F-8
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." Under SFAS No. 123, companies
have the option to implement a fair value-based accounting method or continue to
account for employee stock options and stock purchase plans using the intrinsic
value-based method of accounting as prescribed by Accounting Principles Board
(APB) Opinion No. 25 "Accounting for Stock Issued to Employees." Entities
electing to remain under APB Opinion No. 25 must make pro forma disclosures of
net income or loss and earnings per share as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company has not yet determined whether it will implement the fair value-based
accounting method or continue accounting for stock options under APB Opinion No.
25.
NOTE 2 -- NOTE RECEIVABLE FROM OFFICER:
Note receivable from officer of $328,718 is due in annual installments of
$65,744 (principal only) commencing on December 30, 1996 to December 2000 and
bears interest at six percent payable annually on the aggregate principal
balance outstanding. This officer who is also the Company's sole stockholder did
not draw a salary during 1995. See "Note 14" for subsequent changes to this note
receivable.
NOTE 3 -- AIRCRAFT TRANSACTIONS:
During 1995, the Company purchased commercial aircraft and engines which
were subsequently sold in exchange for a note receivable (see Note 5) secured by
an irrevocable letter of credit provided by the customer. The Company purchased
the aircraft through proceeds from a note payable (see Note 8) to a financial
institution which is secured by the customer note receivable. This transaction
represents approximately 28 percent of the Company's 1995 sales (see Note 12).
NOTE 4 -- ACCOUNTS RECEIVABLE:
The Company distributes products in the United States and abroad to
commercial airlines, air cargo carriers, distributors, maintenance facilities
and other aerospace companies. The Company's credit risks consist of accounts
receivable denominated in U.S. dollars from customers in the aircraft industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and provides an allowance for doubtful accounts as required.
NOTE 5 -- NOTES RECEIVABLE:
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Note receivable from a corporation, secured by a $7,980,000 Irrevocable
Letter of Credit, due in monthly installments of $166,250 (principal and
interest) to August 1999 with an interest rate of 9.5 percent (see Note
3)....................................................................... $ 6,134,715 $ 5,049,024
Note receivable from an individual........................................ 6,000 --
------------- -------------
6,140,715 5,049,024
Less -- Current portion................................................... 1,466,224 1,577,346
------------- -------------
$ 4,674,491 $ 3,471,678
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Buildings................................................................. $ 1,087,834 $ 1,129,240
Computer equipment and software........................................... 236,417 282,443
Machinery and equipment................................................... 172,072 250,022
Furniture and fixtures.................................................... 81,822 94,750
Auto...................................................................... 85,233 9,850
------------- -------------
$ 1,663,378 $ 1,766,305
------------- -------------
------------- -------------
</TABLE>
NOTE 7 -- LINES OF CREDIT:
The Company has revolving lines of credit with a financial institution,
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit, interest at prime rate (8.50 percent at December 31, 1995)
plus 1.5 percent, due monthly, principal due October 31, 1996, secured by
substantially all of the Company's assets, except cash, maximum borrowings are
$3,500,000. See "Note 14" for subsequent changes to this line of credit............ $ 3,181,671 $ 3,565,185
Revolving line of credit, interest at prime rate (8.50 percent at December 31, 1995)
plus one percent, due monthly, principal due October 31, 1996, secured by
substantially all of the Company's assets, except cash, maximum borrowings are
$1,500,000. See "Note 14" for subsequent changes to this line of credit............ 1,284,200 1,849,152
Revolving line of credit, interest at 7.5 percent due monthly, principal due May 7,
1996, secured by restricted cash at December 31 of $201,913, maximum borrowings
were $500,000...................................................................... 201,913 --
------------- -------------
$ 4,667,784 $ 5,414,337
------------- -------------
------------- -------------
</TABLE>
These lines of credit are personally guaranteed by the stockholder who is
also an officer of the Company.
The weighted average borrowings outstanding under the Company's lines of
credit arrangements during 1994 and 1995 were approximately $1,904,000 and
$3,555,000, respectively. Maximum amounts outstanding at the end of the months
during 1994 and 1995 were $2,449,069 and $4,667,784, respectively. The weighted
average interest rates during 1994 and 1995 were approximately 12.0% and 10.7%,
respectively. The weighted average interest rates at December 31, 1994 and 1995
were approximately 12.5% and 9.8%, respectively.
F-10
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
Long-term debt consists of the following:
Note payable to a financial institution, due in monthly installments of $166,250
(principal and interest) to August 1999 with an interest rate of 9.5 percent.
(see Note 3)..................................................................... $ 6,134,715 $ 5,049,024
Note payable to a financial institution, secured by a building, due in adjustable
monthly installments of $7,729 as of December 31, 1995 (principal and interest)
to May 1999, with a balloon payment, interest at Moody's A Bond Index (8.25% at
December 31, 1995) plus .125 percent............................................. 950,585 940,195
Note payable to a corporation, secured by specific inventory, due in semi-annual
installments of $125,000 (principal and interest) to December 1998, with an
imputed interest rate of 10 percent, net of discount of $154,050 on original
sales value of inventory of $1,000,000 and $70,261 on renegotiated sales value of
inventory of $750,000 at December 31, 1995 and September 30, 1996,
respectively..................................................................... 845,950 554,739
Note payable to a corporation, secured by specific inventory, due in monthly
installments to August 1997, with an imputed interest rate of 10 percent, net of
discount of $19,968. (see Note 10)............................................... -- 730,540
Note payable to a corporation, secured by an automobile, due in monthly
installments of $1,892 (principal and interest) to August 1997, with an interest
rate of 8 percent................................................................ 35,319 --
Note payable to a corporation, secured by an automobile, due in monthly
installments of $192 (principal and interest) to March 1998, with an interest
rate of 7.9 percent.............................................................. 4,703 3,216
Notes payable to a corporation, secured by equipment, due in monthly installments
of $196 to $347 (principal and interest) to February 2000, with interest rates of
24 percent to 46 percent......................................................... 12,304 9,783
------------- -------------
7,983,576 7,287,497
Less -- Current portion............................................................. 1,815,220 2,532,748
------------- -------------
$ 6,168,356 $ 4,754,749
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT: (CONTINUED)
Future annual principal payments on long-term debt at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------
<S> <C>
1996..................... $ 1,815,220
1997..................... 1,932,038
1998..................... 2,051,398
1999..................... 1,295,826
2000..................... 19,736
Thereafter............... 869,358
-------------
$ 7,983,576
-------------
-------------
</TABLE>
NOTE 9 -- INCOME TAXES:
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
----------- ------------
<S> <C> <C>
Current:
Federal.......................................................... $ 77,721 $ (77,100)
State............................................................ 29,209 (6,056)
----------- ------------
106,930 (83,156)
----------- ------------
Deferred:
Federal.......................................................... (3,334) (14,164)
State............................................................ (1,136) (6,000)
----------- ------------
(4,470) (20,164)
----------- ------------
Total:......................................................... $ 102,460 $ (103,320)
----------- ------------
----------- ------------
</TABLE>
At December 31, 1995 current income tax benefit consists primarily of an
estimated income tax receivable and the difference between the Company's
estimated and actual 1994 income tax liability.
The reconciliation of income tax expense computed at U.S. Federal statutory
rates to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
----------- ------------
<S> <C> <C>
Tax at U.S. Federal statutory rates................................ $ 105,719 $ (108,173)
State income taxes, net of federal effect.......................... 19,085 (18,898)
Net operating losses............................................... -- --
Other, net......................................................... (22,344) 23,751
----------- ------------
$ 102,460 $ (103,320)
----------- ------------
----------- ------------
</TABLE>
F-12
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES: (CONTINUED)
Deferred income taxes arise as a result of differences in the methods used
to determine income for financial reporting versus income for tax reporting
purposes. Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Depreciation..................................................... $ (28,192)
<S> <C>
---------
Gross deferred tax liabilities................................. (28,192)
---------
Inventory reserve................................................ 29,840
Allowance for doubtful accounts.................................. 19,442
Operating accruals............................................... 3,544
Net operating loss carryforwards................................. 82,528
---------
Gross deferred tax assets...................................... 135,354
---------
Deferred tax assets valuation allowance........................ (82,528)
---------
$ 24,634
---------
---------
</TABLE>
The net deferred tax asset at December 31, 1995 is included in other assets
in the accompanying balance sheet.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance for net operating loss carryforwards. As of
December 31, 1995 the Company has net operating loss carryforwards of
approximately $212,000 and $106,000 for federal and state purposes,
respectively, which expire in 2010 and 2000, respectively. Realization of future
tax benefits from utilization of the net operating loss carryforwards may be
subject to certain limitations if ownership changes occur in the future.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
The Company leases equipment and facilities under noncancelable operating
and capital leases. As of December 31, 1995, the annual minimum lease
commitments are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
------------- ----------- -----------
<S> <C> <C>
1996................................................................ $ 37,656 $ 43,808
1997................................................................ 26,366 28,639
1998................................................................ 24,108 25,599
1999................................................................ 13,418 11,967
2000................................................................ 2,280 2,820
----------- -----------
103,828 $ 112,833
-----------
-----------
Less -- Amount representing interest................................ 24,410
-----------
79,418
Less -- Current portion............................................. 26,178
-----------
$ 53,240
-----------
-----------
</TABLE>
Rent expense for the years ended December 31, 1994, and 1995 was $181,572
and $135,568, respectively.
In 1996, the Company entered into an agreement to purchase approximately
$1.6 million of inventory from a vendor. Under the terms of the agreement, the
Company will remit 17 monthly installments of $100,000 beginning in April 1996
(see Note 8).
F-13
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company supplies certain parts to its customers through various
consignment agreements, under which the Company takes possession of a vendors
inventory and exclusive marketing agreements, under which the Company markets
the vendors inventory which remains in the vendors possession. These agreements
are generally entered into on a long-term basis.
The Company neither manufacturers nor repairs aircraft parts and requires
that all of the parts that it sells are properly documented and traceable to
their original source. Although the Company has never been subject to product
liability claims, there is no guarantee that the Company could not be subject to
liability from its potential exposure relating to faulty aircraft parts in the
future. The Company maintains liability insurance in the amount of $2 million to
protect it from such claims, but there can be no assurance that such coverage
will be adequate to fully protect the Company from any liabilities it might
incur. An uninsured loss could have a material adverse effect upon the Company's
financial condition.
NOTE 11 -- NONRECURRING LOSS ON SETTLEMENT:
On April 8, 1994, the Company entered into an agreement to settle various
asserted claims made by one of its key officers to avoid the cost and the
uncertainties of litigation. Under the terms of the settlement, the Company paid
$112,000 in cash and transferred the common stock of ADI Manufacturing, Inc., a
former subsidiary that manufactured aircraft hardware, to this officer. ADI
Manufacturing Inc.'s results of operations were not material to the Company's
financial statements. The common stock was valued at the book value of net
assets transferred. In return, the key officer agreed to drop all claims against
the Company and to resign as an officer of the Company. Management believes this
separation is in the best interest of the Company. The amount charged to
operations during 1994 relating to this settlement was $376,075, which is
included in selling and administrative expenses.
NOTE 12 -- CONCENTRATION OF CREDIT RISK:
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified due to the large number of customers and their dispersion
worldwide. During 1995, as a result of the aircraft transaction (see Note 3),
the Company had one large customer that accounted for 28 percent of net sales
for the year. The note receivable related to this large customer represented 38
percent of total assets at December 31, 1995.
The Company had two large customers in 1994 which accounted for
approximately 22 percent of net sales, and approximately 30.5 percent of trade
accounts receivable at December 31, 1994.
The Company performs ongoing credit evaluations and insures a large portion
of its accounts receivable through an export credit insurance policy for the
majority of the international customers.
NOTE 13. -- VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1994 and 1995, activity with respect to the
Company's allowance for doubtful accounts is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Beginning balance...................................................... $ -- $ 12,207
Charged to expense..................................................... 19,707 86,400
Amounts written off.................................................... (7,500) (50,000)
--------- ---------
Ending balance......................................................... $ 12,207 $ 48,607
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. -- SUBSEQUENT EVENTS-UNAUDITED
STOCK OPTION PLAN
On July 10, 1996, the Company adopted the Aviation Distributors Incorporated
1996 Stock Option and Incentive Plan (the "Plan") which provides for the
issuance of up to a maximum of 264,500 shares of the Company's common stock to
employees, non-employee directors and independent contractors at the sole
discretion of the board of directors. The Plan provides for the issuance of
incentive stock options and non-qualified stock options. Options issued under
the Plan may be accompanied by stock appreciation rights, as defined.
Additionally, the Plan provides for the issuance of restricted stock, dividend
equivalents and other stock and cash based awards and loans to participants in
connection with the options or other plan provisions at the discretion of the
board of directors.
On July 16, 1996, the Company's board of directors granted 150,000 options
under the Plan at an exercise price of $7.00 per share.
REINCORPORATION
On July 12, 1996, the Company reincorporated in the State of Delaware,
increasing its authorized number of Common Shares to 10,000,000, $.01 par value,
and increasing the number of Common Shares outstanding to 2,100,000. All share
and per share data have been retroactively restated in the accompanying
financial statements to give effect to the above items.
Effective July 12, 1996, the Company also authorized the issuance of up to
3,000,000 shares of preferred stock, $.01 par value.
STOCK SPLIT
On August 16, 1996 the Company approved a .85 for one stock split. All share
and per share data have been retroactively restated in the accompanying
financial statements to give effect to this stock split.
LINES OF CREDIT
In August 1996 the Company's $3.5 million and $1.5 million lines of credit
were increased to $4.5 million and $2.0 million, respectively, and extended to
March 31, 1997 and August 31, 1997, respectively.
The $4.5 million line has a financial covenant that requires the Company's
tangible net worth to be not less than $750,000 beginning December 31, 1996.
As of September 30, 1996, the Company's tangible net worth was approximately
$46,000. The ability of the Company to be in compliance with this covenant as of
December 31, 1996, is dependent upon, among other things, the success of fourth
quarter operations. In the opinion of management, the Company will meet this
covenant as of December 31, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with the Chief
Executive Officer (CEO) providing for a base salary of $225,000, an automobile
allowance, incentive compensation under the Executive Incentive Compensation
Plan, and bonus compensation from time to time on an amount determined by the
independent members of the Board of Directors not to exceed two times his base
salary per calendar year. The CEO was also granted 51,050 shares of common stock
at an option price of $7 per share. The agreement expires on December 31, 2001
and will be automatically renewed for a new five-year term on the expiration
date unless cancelled upon 90 days written notice.
F-15
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. -- SUBSEQUENT EVENTS-UNAUDITED (CONTINUED)
The Company has also entered into an employment agreement with an officer
providing for an annual base salary of $120,000, all normal employee benefits,
incentive compensation under the Executive Incentive Compensation Plan and
options to purchase 10,000 shares of common stock at an option price of $7 per
share. The agreement expires on December 31, 1999 and will be automatically
renewed for a new three-year term on the expiration date unless cancelled upon
90 days written notice.
The Company has also entered into an employment agreement with an officer
providing for an annual base salary of $120,000, all normal employee benefits,
incentive compensation under the Executive Incentive Compensation Plan and
options to purchase 15,000 shares of common stock at an option price of $7 per
share. In addition, this officer is entitled to commission on sales to certain
customers identified in the agreement equal to 1.25% of such sales. The
agreement expires on December 31, 1999 and will be automatically renewed for a
new three year term on the expiration date unless cancelled upon 90 days written
notice.
LEGAL SETTLEMENT
In February 1996, an action was brought against the Company arising out of a
dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest, attorney
fees and punitive damages. At December 31, 1995, the Company believed they had
adequately accrued in the amount of $166,000 their potential liability, based
upon discussions with legal counsel indicating substantial defenses to the
remaining claims from this customer. The Company also filed a counterclaim
against this customer for breach of contract, fraud and negligent
misrepresentation. Although the Company believed it had meritorious defenses to
this dispute, in August 1996, counsel advised the Company that final judicial
resolution of such matter could take several years. Consequently, in order to
pursue an initial public offering in a timely manner, during the third quarter
of 1996 the Company made a strategic business decision to resolve this dispute.
On November 1, 1996 this case was settled for $1.2 million, which was accrued in
the accompanying balance sheet at September 30, 1996. Included in the legal
settlement expense as of September 30, 1996 is the $1.2 million settlement
charge plus $175,000 of legal costs.
Pursuant to such settlement agreement, the Company (i) paid such customer
$300,000 upon execution of settlement agreement, (ii) agreed to pay such
customer an additional $450,000 on or before December 31, 1996, subject to
extension, and (iii) executed a note guaranteed by an irrevocable letter of
credit in the amount of $450,000 payable to such customer in quarterly
installments including 10% interest commencing March 15, 1997. In the event the
Company does not satisfy its obligations under the settlement agreement by March
15, 1997, a judgment will be entered against the Company for $1.2 million. In
such event, the Company will not receive credit towards such judgment amount for
the initial $300,000 payment set forth in clause (i) above.
CORPORATE NAME CHANGE
On September 16, 1996 the Company changed its name to Aviation Distributors,
Inc.
NOTE RECEIVABLE FROM OFFICER
In November 1996 the terms of the note receivable from officer were amended.
The new terms amend the principal payments to be due and payable in four equal
quarterly installments of approximately $82,180, commencing on March 1, 1997 and
continuing through December 1, 1997. Interest payments were amended to require
the interest on the unpaid principal balance through December 30, 1996 shall be
due and payable on December 30, 1996; thereafter, interest on the unpaid
principal balance shall be due and payable quarterly commencing March 1, 1997
and continuing through December 1, 1997.
F-16
<PAGE>
- -----------------------------------------------------
-----------------------------------------------------
- -----------------------------------------------------
-----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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, THE SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. 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 DATE SUBSEQUENT TO THE DATE
HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 9
Capitalization............................................................ 10
Dilution.................................................................. 11
Selected Financial Data................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 21
Management................................................................ 28
Certain Transactions...................................................... 39
Principal and Selling Stockholder......................................... 39
Shares Eligible for Future Sale........................................... 40
Description of Capital Stock.............................................. 41
Underwriting.............................................................. 43
Legal Matters............................................................. 44
Experts................................................................... 44
Additional Information.................................................... 44
Index to Financial Statements............................................. F-1
</TABLE>
--------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,000,000 SHARES
[LOGO]
AVIATION DISTRIBUTORS, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
CRUTTENDEN ROTH
INCORPORATED
, 1996
- -----------------------------------------------------
-----------------------------------------------------
- -----------------------------------------------------
-----------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the GCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include judgments, fines, amounts
paid in settlement and expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, with respect to criminal proceedings, had no reasonable cause to
believe his conduct was illegal. A Delaware corporation may indemnify its
officers and directors against expenses actually and reasonably incurred by them
in connection with an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred in connection therewith.
Section 102(b)(7) of the GCL further provides that a corporation in its
certificate of incorporation may eliminate or limit the personal liability of
its directors to the corporation or its stockholders for breach of their
fiduciary duties in certain circumstances.
In accordance with Section 145 of the GCL, the Company's Certificate
provides that the Company shall indemnify its officers and directors against,
among other things, any and all judgments, fines, penalties, amounts paid in
settlements and expenses paid or incurred by virtue of the fact that such
officer or director was acting in such capacity to the extent not prohibited by
law.
In addition, as permitted by Section 102(b)(7) of the GCL, the Company's
Certificate contains a provision limiting the personal liability of the
Company's directors for violations of their fiduciary duties to the fullest
extent permitted by the Delaware Law. This provision eliminates each director's
liability to the Company or its stockholders for monetary damages except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or
(iv) for any transaction from which a director derived an improper personal
benefit. The general effect of this provision is to eliminate a director's
personal liability for monetary damages for actions involving a breach of his or
her fiduciary duty of care, including any such actions involving gross
negligence.
Also, in accordance with the GCL and pursuant to the Company's Certificate,
the Company is authorized to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company, is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Company would have the power to indemnify such person
against liability under the GCL.
The Company has entered into agreements (the "Indemnification Agreements")
with certain directors and officers of the Company (the "Indemnified Parties")
which require the Company to indemnify each Indemnified Party against, and to
advance expenses incurred by each Indemnified Party in the defense of, any claim
arising out of his or her employment to the fullest extent permitted under law.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee....................................................... $ 3,173
NASD filing fee............................................................ 1,420
Nasdaq SmallCap Market Listing Fee......................................... 6,150
Blue Sky fees and expenses................................................. 60,000
Printing and engraving expenses............................................ *
Legal fees and expenses.................................................... 300,000
Accounting fees and expenses............................................... *
Transfer Agent and Registrar fees.......................................... *
Miscellaneous expenses..................................................... *
-----------------
Total.................................................................. $ *
-----------------
-----------------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None
ITEM 27. EXHIBITS.
(a) Exhibits
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
4.1 Specimen Common Stock Certificate.
*4.2 Form of Warrant Agreement.
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.2 1996 Stock Option and Incentive Plan.
10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between Alia The
Royal Jordanian Airlines and Aviation Distributors Incorporated.
10.4 Aircraft Purchase Agreement, dated January 4, 1995, by and between Air
China Group Import & Export Trading Co. and Aviation Distributors
Incorporated.
*10.5 Revolving Credit Facility, dated August 22, 1996, by and between Aviation
Distributors Incorporated and Far East National Bank.
10.6 Employment Agreement, dated as of July 16, 1996, by and between Osamah S.
Bakhit and Aviation Distributors Incorporated.
*10.7 Employment Agreement, dated as of July 16, 1996, by and between Mark W.
Ashton and Aviation Distributors Incorporated.
*10.8 Employment Agreement, dated as of July 16, 1996, by and between Jeffrey G.
Ward and Aviation Distributors Incorporated.
10.9 Commercial Lease, dated June 11, 1996, by and between Francis De Leone and
Aviation Distributors, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Lease Agreement, dated January 1, 1996, by and between Ian and Robert
Burton Limited and Aviation Distributors (Europe) Limited.
*10.11 Revolving Credit Facility, dated August 31, 1996, by and between Aviation
Distributors Incorporated and Far East National Bank.
*10.12 Non-Revolving Credit Facility, dated August 22, 1996, by and between
Aviation Distributors, Incorporated and Far East National Bank.
*10.13 Amended and Restated Employment Agreement, dated as of July 16, 1996, by
and between Osamah S. Bakhit and Aviation Distributors Incorporated.
**10.14 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation
Distributors, Inc., dated as of December 31, 1995.
*23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 of the Registration Statement on
Form SB-2 filed on July 12, 1996 (File No. 333-8061)).
99.1 Lock-up Agreement, dated August 16, 1996, by and between Osamah S. Bakhit
and Cruttenden Roth Incorporated.
99.2 Consent of Daniel C. Lewis.
*99.3 Consent of William T. Walker, Jr.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 Securities
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 Securities
Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 purposes of determining any liability under the Securities
Act, 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-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 8th day of
November, 1996.
AVIATION DISTRIBUTORS INCORPORATED
By: /s/ OSAMAH S. BAKHIT
-----------------------------------
Osamah S. Bakhit
CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities stated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------------------- -----------------------
*
------------------------------------ Chief Executive Officer, President and November 8, 1996
Osamah S. Bakhit Director (Principal Executive Officer)
* Chief Financial Officer, Vice President,
------------------------------------ Finance and Director (Principal November 8, 1996
Mark W. Ashton Financial Officer)
*
------------------------------------ Treasurer (Principal Accounting Officer) November 8, 1996
Laura M. Birgbauer
*
------------------------------------ Secretary and Director November 8, 1996
Bruce H. Haglund
By /s/ OSAMAH S. BAKHIT
-----------------------------------
Osamah S. Bakhit
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<C> <S> <C>
*1.1 Form of Underwriting Agreement................................................................
3.1 Amended and Restated Certificate of Incorporation of the Registrant...........................
3.2 Bylaws, as amended, of the Registrant.........................................................
4.1 Specimen Common Stock Certificate.............................................................
*4.2 Form of Warrant Agreement.....................................................................
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom...............................................
10.2 1996 Stock Option and Incentive Plan..........................................................
10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between Alia The Royal Jordanian
Airlines and Aviation Distributors Incorporated..............................................
10.4 Aircraft Purchase Agreement, dated January 4, 1995, by and between Air China Group Import &
Export Trading Co. and Aviation Distributors Incorporated....................................
*10.5 Revolving Credit Facility, dated August 22, 1996, by and between Aviation Distributors
Incorporated and Far East National Bank......................................................
10.6 Employment Agreement, dated as of July 16, 1996, by and between Osamah S. Bakhit and Aviation
Distributors Incorporated....................................................................
*10.7 Employment Agreement, dated as of July 16, 1996, by and between Mark W. Ashton and Aviation
Distributors Incorporated....................................................................
*10.8 Employment Agreement, dated as of July 16, 1996, by and between Jeffrey G. Ward and Aviation
Distributors Incorporated....................................................................
10.9 Commercial Lease, dated June 11, 1996, by and between Francis De Leone and Aviation
Distributors, Inc............................................................................
10.10 Lease Agreement, dated January 1, 1996, by and between Ian and Robert Burton Limited and
Aviation Distributors (Europe) Limited.......................................................
*10.11 Revolving Credit Facility, dated August 31, 1996, by and between Aviation Distributors
Incorporated and Far East National Bank......................................................
*10.12 Non-Revolving Credit Facility, dated August 22, 1996, by and between Aviation Distributors,
Incorporated and Far East National Bank......................................................
*10.13 Amended and Restated Employment Agreement, dated as of July 16, 1996, by and between Osamah S.
Bakhit and Aviation Distributors Incorporated................................................
**10.14 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation Distributors, Inc.,
dated as of December 31, 1995................................................................
*23.1 Consent of Arthur Andersen LLP................................................................
**23.2 Consent of Counsel (included on page II-4 of the Registration Statement on Form SB-2 filed on
July 12, 1996 (File No 333-8061))............................................................
24.1 Power of Attorney (See page II-4).............................................................
99.1 Lock-up Agreement, dated August 16, 1996, by and between Osamah S. Bakhit and Cruttenden Roth
Incorporated.................................................................................
99.2 Consent of Daniel C. Lewis....................................................................
*99.3 Consent of William T. Walker, Jr..............................................................
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
[DRAFT]
1,000,000 SHARES
AVIATION DISTRIBUTORS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
November __, 1996
Cruttenden Roth Incorporated
As Representative of the Several Underwriters
Named in Schedule I Attached Hereto
18301 Von Karman
Irvine, California 92715-1009
Ladies and Gentlemen:
Aviation Distributors, Inc., a Delaware corporation (the "Company"),
and Osamah S. Bakhit (the "Selling Stockholder") severally propose to issue and
sell an aggregate of 1,000,000 shares (the "Offered Shares") of the Company's
common stock, $0.01 par value (the "Common Stock"), to Cruttenden Roth
Incorporated (the "Representative") and the several underwriters named in
Schedule I hereto (collectively with the Representative, the "Underwriters" and
individually, an "Underwriter," which terms shall also include any Underwriter
substituted as hereinafter provided in Section 12). The Offered Shares consist
of 860,000 shares of Common Stock to be issued and sold by the Company and
140,000 outstanding shares of Common Stock to be sold by the Selling
Stockholder. The Offered Shares shall be offered to the public at an initial
offering price of $_____ per Offered Share (the "Offering Price").
In addition, the several Underwriters, in order to cover over-
allotments in the sale of the Offered Shares, may purchase from the Company and
the Selling Stockholder within 45 days after the Effective Date (as hereinafter
defined), for their own account for offering to the public at the Offering
Price, up to 100,000 and 50,000, respectively, additional shares of Common Stock
(the "Optional Shares"), upon the terms and conditions set forth in Section 5
hereof. The Offered Shares and the Optional Shares are hereinafter collectively
referred to as the "Shares." The Company, intending to be legally bound hereby,
confirms its agreement with each of the Underwriters as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) The Company has prepared in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules,
regulations, releases and instructions (the "Regulations") of the
Securities and Exchange Commission (the "SEC") under the Act in effect
at all applicable times and has filed with the SEC a registration
statement on Form SB-2 (File No. 333-8061) and one or more amendments
thereto registering the offering and sale of the Shares under the Act.
Any preliminary prospectus included in such registration statement or
filed with the SEC pursuant to Rule 424(a) of the Regulations is
hereinafter called a "Preliminary Prospectus." The various parts of
such registration statement, including all exhibits thereto and the
information contained in any form of final prospectus filed with the
SEC pursuant to Rule 424(b) of the Regulations in accordance with
Section 6(a) of this Agreement and deemed by virtue of Rule 430A of
the Regulations to be part of such registration statement at the time
it was declared effective, each as amended at the time such
registration statement became effective, and each registration
statement, if any, filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act, are
hereinafter collectively referred to as the "Registration Statement."
The final prospectus in the form included in the Registration
Statement or first filed with the SEC pursuant to Rule 424(b) of the
Regulations and any amendments or supplements thereto is hereinafter
referred to as the "Prospectus."
(b) The Registration Statement has or will become effective
under the Act as of the Effective Date, and the SEC has not issued any
stop order suspending the effectiveness of the Registration Statement
or preventing or suspending the use of any Preliminary Prospectus nor
has the SEC instituted, threatened to institute or, to the Company's
knowledge, contemplated proceedings with respect to such an order.
The Company has not received any stop order suspending the sale of the
Shares in any jurisdiction designated by the Representative pursuant
to Section 6(f) hereof, and no proceedings for that purpose have been
instituted or, to the Company's knowledge, are threatened or
contemplated. The Company has complied with all requests of the SEC
and any state securities commission in a state
- 2 -
<PAGE>
designated by the Representative pursuant to Section 6(f) hereof,
for additional information to be included in the Registration
Statement or Prospectus or otherwise. Each Preliminary Prospectus
conformed in all material respects to the requirements of the Act
and the Regulations as of its date and did not as of its date
contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading, except the foregoing shall not
apply to statements in or omissions from any Preliminary Prospectus
in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of any Underwriter through
the Representative expressly for use therein. The Registration
Statement on the date on which it was declared effective by the SEC
(the "Effective Date") conformed, and any post-effective amendment
thereof on the date it shall become effective, and the Prospectus
at the time it is filed with the SEC pursuant to Rule 424(b) of the
Regulations and on the Closing Date (as defined in Section 4
hereof) and any Option Closing Date (as defined in Section 5(b)
hereof) will conform in all material respects, to the requirements
of the Act and the Regulations, and neither the Registration
Statement, any post-effective amendment thereof nor the Prospectus
will, on any of such respective dates, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement
or the Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of
any Underwriter through the Representative expressly for use
therein. It is understood that the written information described
in Section 13 constitutes the only information furnished in writing
by or on behalf of any Underwriter for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement.
(c) The consolidated financial statements (including the notes
thereto) filed as part of any Preliminary Prospectus, the Prospectus
and the Registration Statement present fairly the consolidated
financial position of the Company and each corporation
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or other entity of which the Company owns or will own fifty percent or
more of the outstanding equity securities as of the Closing Date
(individually a "Subsidiary," and collectively the "Subsidiaries"), as
of the respective dates thereof, and the consolidated results of
operations and cash flows of the Company and its Subsidiaries, for the
periods indicated therein, all in conformity with generally accepted
accounting principles consistently applied through the periods
involved, except as may be otherwise stated therein. The supporting
schedules, if any, included in the Registration Statement fairly state
the information required to be stated therein in relation to the basic
financial statements taken as a whole. The other financial and
statistical information included in the Prospectus, including without
limitation the data under the captions "Prospectus Summary" and
"Selected Financial Data," presents fairly the information shown
therein and has been compiled on a basis consistent with that of the
audited financial statements included in the Registration Statement
and the books and records of the Company.
(d) The Company does not have any "significant" Subsidiaries (as
defined in Regulation S-X promulgated under the Act) other than ADI
Consignment Sales, Inc., a California corporation ("ADICSI"), and,
except Aviation Distributors (Europe) Ltd., the Company does not own
any stock or other equity interest in, or control, directly or
indirectly, any other corporation, partnership or other entity.
(e) Each of the Company and ADICSI is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation with all necessary corporate power
and authority, and all required licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and
operate its properties and to conduct its business as described in the
Prospectus and to execute, deliver and perform this Agreement, except
where failure to have such licenses, permits, certifications,
registrations, approvals, consents and franchises would not reasonably
be expected to have a material adverse effect on the Company and
ADICSI taken as a whole. Each of the Company and ADICSI is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business
or its ownership or leasing of property requires such
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<PAGE>
qualification, except where the failure to be so qualified would not
reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(f) The Company has all necessary corporate power and authority
to execute and deliver this Agreement and the Warrant to purchase the
shares of Common Stock to be issued and sold to the Representative
under the terms of the Warrant Agreement (as hereinafter defined) in
accordance with Section 6(p) of this Agreement (the "Representative's
Warrant").
(g) This Agreement, the Warrant Agreement and the
Representative's Warrant have been duly authorized, executed and
delivered by the Company and constitute its valid and binding
obligations, enforceable against the Company in accordance with their
respective terms, except as rights to indemnity and contribution
hereunder or thereunder may be limited by federal or state securities
laws or principles of public policy, and except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles. This Agreement,
the Warrant Agreement and the Representative's Warrant conform to the
description thereof in the Prospectus.
(h) The execution, delivery and performance of this Agreement,
the Warrant Agreement and the Representative's Warrant by the Company
does not and will not, with or without the giving of notice or the
lapse of time, or both, (A) conflict with any terms or provisions of
the Certificate of Incorporation or Bylaws of the Company, as amended
to the date hereof and the Closing Date or Option Closing Date, as the
case may be; (B) result in a breach of, constitute a default under,
result in the termination or modification of or result in the creation
or imposition of any lien, security interest, charge or encumbrance
upon any of the properties of the Company pursuant to any indenture,
mortgage, deed of trust, contract, commitment or other agreement or
instrument to which the Company is a party or by which any of its
properties or assets are bound or affected, the effect of which would
reasonably be expected to have a material adverse effect on the
business or properties of the Company; (C) violate any law, rule,
regulation, judgment, order or decree of any government or
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governmental agency, instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its properties or
businesses; or (D) result in a breach, termination or lapse of the
power and authority of the Company to own or lease and operate its
properties and conduct its business as described in the Prospectus,
the effect of which could reasonably be expected to have a material
adverse effect on the business or properties of the Company.
(i) The capitalization of the Company is as set forth in the
Prospectus under the heading "Capitalization" as of the date set forth
therein and at the Closing Date the Company will have the as-adjusted
capitalization set forth under the caption "Capitalization" in the
Prospectus. On the Effective Date, the Closing Date and any Option
Closing Date, there will be no options or warrants for the purchase
of, other outstanding rights to purchase, agreements or obligations to
issue or agreements or other rights to convert or exchange any
obligation or security into, capital stock of the Company or
securities convertible into or exchangeable for capital stock of the
Company, except as described in the Prospectus.
(j) The authorized capital stock of the Company, including,
without limitation, the outstanding shares of Common Stock and the
Shares being issued on the Closing Date and Option Closing Date (if
any and to the extent applicable), conforms to the descriptions
thereof in the Prospectus, and such descriptions conform to the
descriptions thereof set forth in the instruments defining the same.
The information in the Prospectus insofar as it relates to outstanding
options that have been granted to employees, agents, consultants and
directors and the Representative's Warrant, in each case as of the
Effective Date, the Closing Date and any Option Closing Date, is true,
correct and complete in all material respects. As of the Closing
Date, all of the outstanding capital stock or other securities
evidencing equity ownership of ADICSI will have been duly and validly
authorized and issued and will be fully paid and nonassessable and,
except as described in the Prospectus, will be owned, directly or
indirectly, by the Company, free and clear of any security interest,
claim, lien or encumbrance; there are no outstanding rights, warrants
or options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in any
Subsidiary.
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<PAGE>
(k) The outstanding shares of Common Stock (including the Shares
to be sold by the Selling Stockholder) have been duly authorized and
are validly issued, fully paid and non-assessable. The shares of
Common Stock issuable pursuant to the Representative's Warrant, when
issued and paid for in accordance with the respective terms thereof,
will be duly authorized, validly issued, fully paid and non-
assessable. None of such outstanding shares of Common Stock were, and
none of the Representative's Warrant or the shares of Common Stock
issuable upon exercise of the Representative's Warrant will be, issued
in violation of any preemptive rights of any security holder of the
Company. The Company has reserved a sufficient number of shares of
Common Stock for issuance pursuant to the Representative's Warrant.
The offers and sales of the outstanding shares of Common Stock were,
and the issuance of Common Stock upon exercise of the Representative's
Warrant will be, made in conformity with applicable registration
requirements or exemptions therefrom under federal and applicable
state securities laws.
(l) The issuance and sale of the Shares by the Company have been
duly authorized and, when the Shares have been duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and non-assessable. None of the Shares
will be issued in violation of any preemptive rights of any security
holder of the Company. The certificates representing the Shares are
in proper legal form under, and conform to the requirements of the
Delaware General Corporation Law, as amended (the "GCL"). Neither the
filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives any security holder of
the Company any rights for or relating to the registration of any
shares of Common Stock or any other security of the Company other than
the Representative's Warrant and the shares of Common Stock issuable
upon exercise of the Representative's Warrant.
(m) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company of
any of the Shares (including the anticipated use of proceeds
therefrom), or for the execution,
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<PAGE>
delivery or performance by the Company of this Agreement, except
such as may be required for the registration of the Shares under
the Act, the Regulations and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which consent, approval and
authorization have been obtained, and for compliance with the
applicable state securities or Blue Sky laws, or the Bylaws, rules
and other pronouncements of the National Association of Securities
Dealers, Inc. (the "NASD"). The Common Stock is registered under
Section 12(g) of the Exchange Act and all necessary filings have
been made to include the Shares in such registration. Upon the
effectiveness of the Registration Statement, the Shares will be
listed on the Nasdaq Stock Market's SmallCap Market. The Company
has taken no action designed, or likely, to have the effect of
terminating the registration of the Common Stock under Section
12(g) of the Exchange Act, nor has the Company received any
notification that the SEC is contemplating terminating such
registration.
(n) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts,
agreements or other documents, are accurate in all material respects
and present or summarize fairly, the information required to be
disclosed under the Act and the Regulations, and there are no
contracts, agreements or other documents required to be described or
referred to in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement under the Act or the
Regulations that have not been so described, referred to or filed, as
required.
(o) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein, there has not been (A) any material adverse change
(including, whether or not insured against, any material loss or
damage to any assets), or development involving a prospective material
adverse change, in the general affairs, properties, assets,
management, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and ADICSI
taken as a whole, (B) any transaction entered into by the Company or
any Subsidiary that is material to the Company and ADICSI taken as a
whole and not in the ordinary course of business, (C) any dividend or
distribution of any kind declared, paid or made by the Company on its
capital
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<PAGE>
stock, (D) any liabilities or obligations, direct or indirect,
incurred by the Company or any Subsidiary that are material to the
Company and ADICSI taken as a whole, or (E) any material change in the
short-term debt or long-term debt of the Company and ADICSI taken as a
whole. The Company and ADICSI taken as a whole do not have any
contingent liabilities or obligations that are material and that are
not disclosed in the Prospectus.
(p) The Company has not distributed and, prior to the later to
occur of the Closing Date, the Option Closing Date or the completion
of the distribution of the Shares, will not distribute any offering
material in connection with the offering or sale of the Shares other
than the Registration Statement, each Preliminary Prospectus and the
Prospectus, in any such case only as permitted by the Act and the
Regulations.
(q) Each of the Company and ADICSI has filed with the
appropriate federal, state and local governmental agencies, and all
foreign countries and political subdivisions thereof, all tax returns
that are required to be filed, or has duly obtained extensions of time
for the filing thereof and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same have
become due other than taxes and/or assessments which are being
contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting
principles. Neither the Company nor ADICSI has executed or filed
with any taxing authority, foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes
or is a party to any pending action or proceeding by any foreign or
domestic governmental agencies for the assessment or collection of
taxes, and no claims for assessment or collection of taxes have been
asserted against the Company or ADICSI that might materially adversely
affect the general affairs, properties, assets, condition (financial
or otherwise), results of operations, stockholders' equity, business
or prospects of the Company and ADICSI taken as a whole.
(r) Arthur Andersen LLP, which is certifying the financial
statements and supporting schedules included in the Prospectus and
forming a part of the Registration Statement, is a firm of independent
public accountants as required by the Act and the Regulations.
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<PAGE>
(s) Neither the Company nor ADICSI is in violation of, or in
default under, any of the terms or provisions, of (A) its Certificate
of Incorporation or Bylaws, as applicable, each as amended to the date
hereof, the Closing Date or the Option Closing Date, as the case may
be, (B) any indenture, mortgage, deed of trust, contract, loan or
credit agreement, commitment or other agreement or instrument to which
the Company or ADICSI is a party or by which any of them or any of
their properties are bound or affected, (C) any law, rule, regulation,
judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction
over the Company or ADICSI or any of their properties or businesses or
(D) any license, permit, certification, registration, approval,
consent or franchise referred to in subsections (e) or (m) of this
Section 1, except where such violation or default would not reasonably
be expected to have a material adverse effect on the business or
properties of the Company and ADICSI taken as a whole.
(t) Except as disclosed in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries
pending before or, to the Company's knowledge, threatened or
contemplated by, any governmental agency, instrumentality, court or
tribunal, domestic or foreign, or before any private arbitrational
tribunal, relating to or affecting the Company or ADICSI or their
properties or businesses that might affect the issuance or validity of
any of the Shares or the validity of any of the outstanding shares of
Common Stock, or that, if determined adversely to the Company or
ADICSI, respectively, would, individually or in the aggregate, could
reasonably be expected to result in any material adverse change in the
general affairs, properties, assets, condition (financial or
otherwise), results of operations, stockholders' equity, business or
prospects, of the Company and ADICSI taken as a whole; nor, to the
Company's knowledge, is there any reasonable basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry; all
pending legal or governmental proceedings to which the Company or any
Subsidiary is a party or of which any of their property is the subject
which are not described in the Registration Statement and the
Prospectus, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material. There are
no outstanding orders, judgments
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<PAGE>
or decrees of any court, governmental agency, instrumentality or other
ribunal enjoining the Company or ADICSI from, or requiring the Company
or ADICSI to take or refrain from taking any action, or to which the
Company or ADICSI, or any of their properties, assets or businesses is
bound or subject.
(u) Except as otherwise stated in the Prospectus, the Company
and ADICSI own, or possess adequate rights to use all patents, patent
applications, trademarks, trademark registrations, applications for
trademark registration, trade names, service marks, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential technology,
information, systems, design methodologies and devices or procedures
developed or derived from the Company's or ADICSI' businesses), trade
secrets, confidential information, processes and formulations
necessary for, used in or proposed to be used in the conduct of their
businesses as described in the Prospectus (collectively, the
"Intellectual Property") that, if not so owned or possessed, would
reasonably be expected to have a material adverse effect on the
general affairs, properties, condition (financial or otherwise),
results of operations, stockholders' equity, business or prospects of
the Company and ADICSI taken as a whole. To the best of the Company's
knowledge, neither the Company nor ADICSI has infringed, is infringing
or has received any notice of conflict with the asserted rights of
others with respect to the Intellectual Property, and, to the
Company's knowledge, no others have infringed upon or are in conflict
with the Intellectual Property.
(v) The Company and ADICSI have obtained all permits, licenses
and other authorizations that are required under all applicable
environmental laws (collectively, the "Environmental Laws"), other
than any permits, licenses or other authorizations which, if not
obtained, would not have a material adverse effect on the business or
properties of the Company and ADICSI taken as a whole. Each of the
Company and ADICSI is in compliance with all terms and conditions of
any required permits, licenses and authorizations, and is in
compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws, except where the
failure to so
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<PAGE>
comply would not have a material adverse effect on the Company and
ADICSI.
(w) There are no present or past events, conditions,
circumstances, activities, practices, incidents, actions or plans
relating to the business as currently being conducted by the Company
and ADICSI that interfere with or prevent compliance with or continued
compliance with the Environmental Laws, the non-compliance with which
would reasonably be expected to have a material adverse effect on the
Company and ADICSI taken as a whole, or which would be reasonably
likely to give rise to any material legal liability (whether statutory
or common law) or otherwise would be reasonably likely to form the
basis of any claim, action, demand, suit, proceeding, hearing, notice
of violation, study, investigation, remediation, or clean up based on
or related to the generation, manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release into the workplace, community or
environment of any pollutant, contaminant, chemical or industrial,
toxic, or hazardous substance or waste, which claim, action, demand,
suit, proceeding, hearing, notice of violation, study, investigation,
remediation, or clean up would reasonably be expected to have a
material adverse effect on the Company and ADICSI taken as a whole.
(x) Each of the Company and ADICSI has good and marketable title
in fee simple to all real property, interests in real property and
personal property (tangible and intangible) described in the
Prospectus as being owned by them, in each case, free and clear of all
liens, security interests, charges or encumbrances, except such as are
described in the Prospectus or which do not materially affect the
aggregate value of such property and interests taken as a whole and do
not interfere with the use made and proposed to be made of such
property and interests by the Company or any of its Subsidiaries.
Each of the Company and ADICSI has adequately insured the property of
the Company and ADICSI, respectively, against loss or damage by fire
or other casualty and maintains, in adequate amounts, insurance
against such other risks as management of the Company deems
appropriate. Except as described in the Prospectus, neither the
Company nor ADICSI owns any real property, and all real property
currently used or leased by the Company and ADICSI, as described in
the Prospectus (the "Premises"), is held by the Company or
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<PAGE>
ADICSI, as applicable, under a valid, subsisting and enforceable
lease, and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by
general equitable principles. The Premises, and all operations
conducted thereon, are now and, since the Company or ADICSI, as
applicable, began to use such Premises, always have been and, to
the Company's knowledge, prior to when the Company or ADICSI, as
applicable, began to use such Premises, always had been, in
compliance with the Environmental Laws except where such operations
would not reasonably be expected to have a material adverse effect
on the Company and ADICSI taken as a whole. To the Company's
knowledge, there is no, and the Company and ADICSI have not
received notice of any, claim, demand, investigation, regulatory
action, suit or other action instituted or threatened against any
of them or the Premises relating to any of the Environmental Laws.
The Company has not received any notice of material violation,
citation, complaint, order, directive, request for information or
response thereto, notice letter, demand letter or compliance
schedule to or from any governmental or regulatory agency arising
out of or in connection with hazardous substances (as defined by
applicable Environmental Laws) on, about, beneath, arising from, or
generated at the Premises.
(y) The Company and ADICSI maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with management's general
or specific authorization, (B) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance
with generally accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D)
the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) No unregistered securities of the Company have been sold by
the Company or on behalf of the Company by any person or persons
controlling, controlled by or under common control with the Company
within the three years prior to the date hereof, except as disclosed
in the Registration Statement.
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<PAGE>
(aa) Each contract or other instrument (however characterized or
described) to which the Company or ADICSI is a party or by which any
of the properties or business of it or them is bound or affected and
to which reference has been made in the Prospectus or which has been
filed as an exhibit to the Registration Statement has been duly and
validly executed by the Company or ADICSI, as applicable, and, to the
Company's knowledge, by the other parties thereto. Except as
described in the Prospectus, each such contract or other instrument is
in full force and effect and is enforceable against the parties
thereto in accordance with its terms, and except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles, and none of the
Company, ADICSI or any other party is in default thereunder and no
event has occurred that, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder.
(ab) Except as disclosed in the prospectus, neither the Company
nor ADICSI has any employee benefit plan, profit sharing plan,
employee pension benefit plan or employee welfare benefit plan or
deferred compensation arrangements (collectively, "Plans") that is
subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended, or the rules and regulations thereunder
("ERISA"). To the Company's knowledge, all Plans that are subject to
ERISA are, and have been at all times since their establishment, in
compliance with ERISA and, to the extent required by the Internal
Revenue Code of 1986, as amended (the "Code"), in compliance with the
Code. To the Company's knowledge, neither the Company nor ADICSI has
had any employee pension benefit plan that is subject to Part 3 of
Subtitle B of Title 1 of ERISA or any defined benefit plan or
multiemployer plan. To the Company's knowledge, neither the Company
nor ADICSI has maintained retiree life and retiree health insurance
plans that are employee welfare benefit plans providing for continuing
benefit or coverage for any employee or any beneficiary of any
employee after such employee's termination of employment, except as
required by Section 4980B of the Code. To the Company's knowledge, no
fiduciary or other party in interest with respect to any of the Plans
has caused any of such Plans to engage in a "prohibited action" as
defined in Section 406 of ERISA. As used in this subsection, the
terms "defined
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<PAGE>
benefit plan," "employee benefit plan," "employee pension benefit
plan," "employee welfare benefit plan," "fiduciary" and
"multiemployer plan" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
(ac) To the best of their knowledge, neither the Company nor any
of its Subsidiaries is engaged in any unfair labor practice which
could reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole. Except for matters
which are not material in the aggregate to the Company and its
Subsidiaries taken as a whole, (A) there is (x) no unfair labor
practice complaint pending or, to the best of their knowledge,
threatened against the Company or any of its Subsidiaries before the
National Labor Relations Board, and no grievance or arbitration
proceeding arising out of or under collective bargaining agreements is
pending or, to the best of their knowledge, threatened, (y) no strike,
labor dispute, slowdown or stoppage pending or, to the best knowledge
of the Company or any of its Subsidiaries after due inquiry,
threatened against the Company or any of its Subsidiaries and (z) no
union representation question existing with respect to the employees
of the Company or any of its Subsidiaries and, to the best knowledge
of the respective managements of the Company or any of its
Subsidiaries, no union organizing activities are taking place and (B)
there has been no violation of any federal, state or local law
relating to discrimination in the hiring, promotion or pay of
employees, nor of any applicable wage or hour laws.
(ad) Except for certain compensation to be paid to the
Representative, the Company has not incurred any liability for any
finder's fees or similar payments in connection with the transactions
contemplated herein.
(ae) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-B of the Regulations.
(af) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future
to continue to conduct, its affairs in such a manner to ensure that
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<PAGE>
it will not become an "investment company" within the meaning of the
1940 Act and such rules and regulations.
(ag) None of the Company, ADICSI or director, officer, agent,
employee or other person associated with or acting on behalf of the
Company or ADICSI has, directly or indirectly, (A) used any corporate
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to any political activity, (B) made any
unlawful payment to foreign or domestic governments or governmental
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (C) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (D) made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(ah) The Company and its Subsidiaries have all governmental
licenses, certificates, permits, authorizations, approvals, franchises
or other rights necessary to carry on their business as such business
is presently conducted by them, except where failure to have such
licenses, certificates, permits, authorizations, approvals, franchises
or other rights would not reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
Neither the Company nor any of its Subsidiaries has any reason to
believe that any governmental body or agency is considering limiting,
suspending or revoking any such license, certificate, permit,
authorization, approval, franchise or right in any material respect.
Neither the Company nor any of its Subsidiaries has any reason to
believe that any such license, permit or approval necessary in the
future to conduct the business of the Company and its Subsidiaries as
described in the Prospectus will not be granted upon application, or
that any governmental agencies are investigating the Company or any of
its Subsidiaries other than in ordinary course administrative reviews
or an ordinary course review of the transactions contemplated hereby.
(ai) The Directors' and Officers' Questionnaires delivered by the
Company to the Representatives on or prior to the Effective Date are
true and correct in all material respects.
(aj) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of
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<PAGE>
indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration
Statement and the Prospectus.
(ak) Except as set forth in the Registration Statement and
Prospectus, the Company has not consummated the acquisition or
disposition of any business or property which is "significant" to the
Company within the meaning of Regulation S-X under the Act, and no
such acquisition or disposition is probable.
Any certificate signed by any officer of the Company in such capacity
and delivered to the Representative or to counsel for the Underwriters pursuant
to this Agreement shall be deemed a representation and warranty by the Company
to the several Underwriters as to the matters covered thereby.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder severally represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and
has, and on the Closing Date (and Option Closing Date, if applicable)
will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to
this Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(c) The Selling Stockholder has, and on the Closing Date and the
Option Closing Date will have, full legal right, power and authority
to enter into this Agreement and to sell, assign, transfer and deliver
such Shares in the manner provided herein and therein, and this
Agreement has been duly executed and delivered by or on behalf of the
Selling Stockholder and this Agreement is a valid and binding
agreement of the Selling Stockholder enforceable in accordance with
its terms, except as rights to indemnity and contribution hereunder
may be limited by applicable law.
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<PAGE>
(d) The Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement, and other than as permitted by the
Act, the Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(e) The execution, delivery and performance of this Agreement by
the Selling Stockholder, compliance by the Selling Stockholder with
all the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may
be under the Act, state securities laws or Blue Sky laws) and will not
conflict with or constitute a breach of any of the terms or provisions
of agreement, indenture or other instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder or property
of the Selling Stockholder is bound, or violate or conflict with any
laws, administrative regulation or ruling or court decree applicable
to the Selling Stockholder or property of the Selling Stockholder.
(f) Such parts of the Registration Statement under the caption
"Principal and Selling Stockholder" which specifically relate to the
Selling Stockholder do not, and will not on the Closing Date (and any
Option Closing Date, if applicable), contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading.
(g) At any time during the period described in paragraph 6(b)
hereof, if there is any change in the information referred to in
paragraph 2(g) above, the Selling Stockholder will immediately notify
you of such change.
(i) The Selling Stockholder is not aware, and has no reason to
believe, that any representation or
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warranty of the Company set forth in Section 1 above is untrue or
inaccurate in any material respect.
3. PURCHASE AND SALE OF OFFERED SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, (i) the Company shall sell
860,000 Offered Shares; and (ii) the Selling Stockholder agrees to sell 140,000
Offered Shares to the several Underwriters at the Offering Price less the
underwriting discount shown on the cover page of the Prospectus (the
"Underwriting Discount"), and the Underwriters, severally and not jointly, shall
purchase from the Company and the Selling Stockholder, on a firm commitment
basis, at the Offering Price less the Underwriting Discount, the respective
Offered Shares set forth opposite their names on Schedule I hereto. In making
this Agreement, each Underwriter is contracting severally, and not jointly, and,
except as provided in Sections 5 and 12 hereof, the agreement of each
Underwriter is to purchase only that number of Offered Shares specified with
respect to that Underwriter in Schedule I hereto. The Underwriters shall offer
the Offered Shares to the public as set forth in the Prospectus.
4. PAYMENT AND DELIVERY. Payment for the Offered Shares shall be made to
the Company and the Selling Stockholder by certified or official bank check
payable to the order of the Company and the Selling Stockholder in next day
funds, at the offices of Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California, or at such other location as shall be agreed upon by the Company and
the Representative, or in immediately available funds wired to such account or
accounts as the Company and the Selling Stockholder may specify (with all costs
and expenses incurred by the Underwriters in connection with such settlement
(including, but not limited to, interest or cost of funds expenses) to be borne
by the Company and the Selling Stockholder), against delivery of the Offered
Shares to the Representative at such place as you shall designate, for the
respective accounts of the Underwriters. Such payments and delivery will be
made at 7:00 a.m., Pacific time, on the third or fourth business day after the
date of this Agreement or at such other time and date thereafter as the
Representative and the Company shall agree upon. Such time and date are
referred to herein as the "Closing Date." The certificates representing the
Offered Shares to be sold and delivered will be in such denominations and
registered in such names as the Representative requests not less than two full
business days prior to the Closing Date, and will be made available to the
Representative for inspection, checking and packaging at the office of the
Company's Transfer Agent, on the business day prior to the Closing Date. The
Representative has advised the Company that each Underwriter has authorized the
Representative to accept
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delivery of the Offered Shares and to make payment and receipt therefor.
5. OPTION TO PURCHASE OPTIONAL SHARES.
(a) For the purposes of covering any over-allotments in connection
with the distribution and sale of the Offered Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth, the
several Underwriters are hereby granted an option by the Company to
purchase all or any part of the Optional Shares from the Company and the
Selling Stockholder (the "Over-allotment Option"). The purchase price per
share to be paid for the Optional Shares shall be the Offering Price less
the Underwriting Discount. The Over-allotment Option granted hereby may be
exercised by the Representative on behalf of the several Underwriters as to
all or any part of the Optional Shares at any time (but not more than once)
within 45 days after the Effective Date. No Underwriter shall be under any
obligation to purchase any Optional Shares prior to an exercise of the
Overallotment Option.
(b) The Over-allotment Option granted hereby may be exercised by the
Representative on behalf of the several Underwriters by giving notice to
the Company by a letter sent by registered or certified mail, postage
prepaid, telex, telegraph, telegram or facsimile (such notice to be
effective when sent), addressed as provided in Section 14 hereof, setting
forth the number of Optional Shares to be purchased, the date and time for
delivery of and payment for the Optional Shares and stating that the
Optional Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of
the Offered Shares. If such notice is given prior to the Closing Date, the
date set forth therein for such delivery and payment shall not be earlier
than either two full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment shall be a
date selected by the Representative that is not later than three full
business days after the exercise of the Over-allotment Option. The date
and time set forth in such a notice is referred to herein as the "Option
Closing Date," and a closing held pursuant to such a notice is referred to
herein as the "Option Closing." The number of Optional Shares to be sold
to each Underwriter pursuant to the exercise of the Over-allotment Option
shall be the number that bears the same ratio to the aggregate number of
Optional Shares being purchased through such Over-allotment Option exercise
as the
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<PAGE>
number of Offered Shares opposite the name of such Underwriter in
Schedule I hereto bears to the total number of all Offered Shares; subject,
however, to such adjustment as the Representative may approve to eliminate
fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set
forth in Section 10 of the Agreement Among Underwriters. Upon the exercise
of the Over-allotment Option, the Company shall become obligated to sell to
the Representative for the respective accounts of the Underwriters, and on
the basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set forth,
and the several Underwriters shall become severally, but not jointly,
obligated to purchase from the Company, the number of Optional Shares
specified in each notice of exercise of the Over-allotment Option.
(c) Payment for the Optional Shares shall be made to the Company and
the Selling Stockholder by certified or official bank check payable to the
order of the Company in next day funds, at the office of Skadden, Arps,
Slate, Meagher & Flom, Los Angeles, California, or such other location as
shall be agreed upon by the Company and the Representative, or in
immediately available funds wired to such accounts as the Company and the
Selling Stockholder may specify (with all costs and expenses incurred by
the Underwriters in connection with such settlement in immediately
available funds (including, but not limited to, interest or cost of funds
expenses) to be borne by the Company and the Selling Stockholder), against
delivery of the Optional Shares to the Representative at such place as you
shall designate, for the respective accounts of the Underwriters. The
certificates representing the Optional Shares to be issued and delivered
will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Option Closing Date, and will be made available to the Representative for
inspection, checking and packaging at the office of the Company's Transfer
Agent on the business day prior to the Option Closing Date.
6. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, the Company will
timely file the Prospectus pursuant to and in compliance with Rule 424(b)
of the Regulations and will
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<PAGE>
advise the Representative of the time and manner of such filing.
(b) The Company will not at any time, whether before or after the
Registration Statement shall have become effective, during such period as,
in the opinion of counsel for the Underwriters, the Prospectus is required
by law to be delivered in connection with sales by the Underwriters or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Representative have not been
previously advised and furnished a copy, or which is not in compliance with
the Regulations, or, during the period before the distribution of the
Offered Shares and the Optional Shares is completed, file or publish any
amendment or supplement to the Registration Statement or Prospectus to
which the Representative reasonably objects in writing.
(c) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time and date that this Agreement is
executed and delivered by the parties hereto, to become effective and will
advise the Representative immediately, and confirm such advice in writing,
(i) when the Registration Statement, or any post-effective amendment to the
Registration Statement, is filed with the SEC, (ii) of the receipt of any
comments from the SEC, (iii) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective,
or when any supplement to the Prospectus or any amended Prospectus has been
filed, (iv) of any request of the SEC for amendment or supplementation of
the Registration Statement or Prospectus or for additional information, (v)
during the period when the Prospectus is required to be delivered under the
Act and Regulations, of the happening of any event which in the Company's
judgment makes any material statement in the Registration Statement or the
Prospectus untrue or which requires any changes to be made in the
Registration Statement or Prospectus in order to make any material
statements therein, in light of the circumstances under which they were
made, not misleading and (vi) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, the suspension of the qualification of any of the Shares for
offering or sale in any jurisdiction in which the Underwriters intend to
make such offers or sales, or of the initiation or threatening of any
proceedings for any such purposes. The Company will use its best efforts
to prevent the issuance of any such stop order or of any order preventing
or suspending such use and,
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<PAGE>
if any such order is issued, to obtain as soon as possible the lifting
thereof.
(d) The Company has delivered to the Representative, without charge,
and will continue to deliver from time to time until the Effective Date, as
many copies of each Preliminary Prospectus as the Representative may
reasonably request. The Company will deliver to the Representative,
without charge, as soon as possible after the Effective Date, and
thereafter from time to time during the period when delivery of the
Prospectus is required under the Act, such number of copies of the
Prospectus (as supplemented or amended, if the Company makes any
supplements or amendments to the Prospectus) as the Representative may
reasonably request. The Company hereby consents to the use of such copies
of each Preliminary Prospectus and the Prospectus for purposes permitted by
the Act, the Regulations and the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered or sold by the several
Underwriters and by all dealers to whom Shares may be offered or sold, both
in connection with the offering and sale of the Shares and for such period
of time thereafter as the Prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer. The Company has
furnished or will furnish to the Representative two signed copies of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Effective Date, two copies of all
exhibits filed therewith and two signed copies of all consents and
certificates of experts, and will deliver to the Representative such number
of conformed copies of the Registration Statement, including financial
statements and exhibits, and all amendments thereto, as the Representative
may reasonably request.
(e) The Company will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit the
continuance of offers and sales of, and dealings in, the Shares for as long
as may be necessary to complete the distribution of the Shares as
contemplated hereby.
(f) The Company will furnish such information as may be required and
otherwise reasonably cooperate in the registration or qualification of the
Shares, or exemption therefrom, for offering and sale by the several
Underwriters and by dealers under the securities or Blue Sky laws of such
jurisdictions in which the Representative determines to offer the Shares,
after consultation with the Company, and will file such consents to service
of process or other documents necessary or appropriate in order to effect
such
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<PAGE>
registration or qualification; provided, however, that no such
qualification shall be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to taxation or qualification
as a foreign corporation doing business in such jurisdiction where it is
not now so qualified or to take any action which would subject it to
service of process in suits, other than those arising out of the offering
or sale of the Shares, in any jurisdiction where it is not now so subject.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect
for so long a period as is required under the laws of such jurisdiction for
such offering and sale.
(g) Subject to subsection (b) of this Section 6, in case of any
event, at any time within the period during which, in the opinion of
counsel for the Underwriters, a prospectus is required to be delivered
under the Act and Regulations, as a result of which event any Preliminary
Prospectus or the Prospectus, as then amended or supplemented, would
contain, in the judgment of the Company or in the opinion of counsel for
the Underwriters, an untrue statement of a material fact, or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or,
if it is necessary at any time to amend any Preliminary Prospectus or the
Prospectus to comply with the Act and Regulations or any applicable
securities or Blue Sky laws, the Company promptly will prepare and file
with the SEC, and any applicable state securities commission, an amendment
or supplement that will correct such statement or omission or an amendment
that will effect such compliance and will furnish to the Representative
such number of copies of such amendment or amendments or supplement or
supplements to such Preliminary Prospectus or the Prospectus (in form and
substance satisfactory to the Representative and counsel for Underwriters)
as the Representative may reasonably request. For purposes of this
subsection, the Company will furnish such information to the
Representative, the Underwriters' counsel and counsel for the Company as
shall be necessary to enable such persons to consult with the Company with
respect to the need to amend or supplement any Preliminary Prospectus or
the Prospectus, and shall furnish to the Representative and the
Underwriters' counsel such further information as each may from time to
time reasonably request. If the Company and the Representative agree that
any Preliminary Prospectus or the Prospectus should be amended or
supplemented, the Company, if requested by the Representative, will, if and
to the extent required by law,
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<PAGE>
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(h) The Company will make generally available to its security holders
as soon as practicable and in any event not later than 45 days after the
end of the period covered thereby, an earnings statement of the Company
(which need not be audited unless required by the Act, the Regulations, the
Exchange Act or the rules or regulations thereunder) that shall comply with
Section 11(a) of the Act and cover a period of at least 12 consecutive
months beginning not later than the first day of the Company's fiscal
quarter next following the Effective Date.
(i) For a period of five years from the Effective Date, the Company
will deliver to the Representative: (A) a copy of each report or document,
including, without limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q
(or such similar forms as may be designated by the SEC), registration
statements and any exhibits thereto, filed with or furnished to the SEC or
any securities exchange or the NASD, as soon as practicable after the date
each such report or document is so filed or furnished, (B) as soon as
practicable, copies of any reports or communications (financial or other)
of the Company mailed to its security holders and (C) every material press
release in respect of the Company or ADICSI or their affairs that was
released or prepared by the Company or ADICSI.
(j) During the course of the distribution of the Shares, the Company
has not taken, nor will it take, directly or indirectly, any action
designed to or that might, in the future, reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common
Stock.
(k) The Company will cause each person listed on Schedule II hereto
to execute a legally binding and enforceable agreement (a "lockup
agreement") to, for the period commencing on the Effective Date and ending
180 days after the Effective Date, not sell, offer to sell, contract to
sell, grant any option for the sale of or otherwise transfer or dispose of
any shares of Common Stock (except for the sale of the Shares as
contemplated by this Agreement or transfers permitted pursuant to the
lockup agreement), any options to purchase Common Stock or any securities
convertible into or exchangeable for Common Stock without the prior written
consent of the Representative, which lockup agreement shall be in form and
substance satisfactory
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<PAGE>
to the Representative and the Underwriters' counsel, and deliver
such lockup agreement to the Representative prior to the Effective
Date. Appropriate stop transfer instructions will be issued by the
Company to the transfer agent for the securities affected by the
lockup agreements.
(l) The Company will not sell, issue, contract to sell, offer to sell
or otherwise dispose of any Common Stock, options to purchase Common Stock
or any other security convertible into or exchangeable for Common Stock,
from the date of the Effective Date through 180 days after the Effective
Date, without the prior written consent of the Representative, except for
the sale of the Shares as contemplated by this Agreement, the granting of
options, and the issuance of Common Stock upon their exercise, under the
Company's stock option plans described in the Prospectus and the issuance
of the Representative's Warrant.
(m) The Company will use all reasonable efforts to maintain the
inclusion of the Common Stock on the Nasdaq SmallCap Market (or on the
Nasdaq National Market or a national securities exchange) for a period of
five years after the date hereof.
(n) The Company shall, at its sole cost and expense, supply and
deliver to the Representative and the Underwriters' counsel, within a
reasonable period after the Closing Date, one set of transaction documents,
which shall include the Registration Statement, as amended or supplemented,
all exhibits to the Registration Statement, each Preliminary Prospectus,
the Prospectus, the Preliminary Blue Sky Memorandum and any supplement
thereto and all underwriting and other closing documents.
(o) The Company will use the net proceeds from the sale of the Shares
to be sold by it hereunder substantially in accordance with the description
thereof set forth in the Prospectus and shall file such reports with the
SEC with respect to the sale of such Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Act.
(p) On the Closing Date, the Company shall sell to the
Representative, at a purchase price of $0.001 per warrant, a
Representative's Warrant to purchase 100,000 shares of Common Stock. Such
Representative's Warrant shall be issued pursuant to the terms of the
Warrant Agreement and shall have an exercise price per share equal to 135%
of the Offering Price, shall be exercisable during the period beginning on
the first anniversary of the Effective Date and
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<PAGE>
ending on the fifth anniversary of the Effective Date, and shall contain
customary anti-dilution and registration rights provisions.
(q) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Securities and Exchange Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(r) The Company will use its best efforts to do and perform all
things reasonably required to be done and performed by it prior to or after
the Closing Date and will use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Shares.
7. PAYMENT OF EXPENSES.
(a) Whether or not the transactions contemplated by this Agreement
are consummated and regardless of the reason this Agreement is terminated,
the Company will pay or cause to be paid, and bear or cause to be borne,
all costs and expenses incident to the performance of the obligations of
the Company under this Agreement, including: (i) the fees and expenses of
the accountants and counsel for the Company incurred in the preparation of
the Registration Statement and any post-effective amendments thereto
(including financial statements and exhibits), each Preliminary Prospectus
and the Prospectus and any amendments or supplements thereto; (ii) printing
and mailing expenses associated with the Registration Statement and any
post-effective amendments thereto, each Preliminary Prospectus, the
Prospectus (including any supplement thereto), this Agreement, the
Agreement Among Underwriters, the Underwriters' Questionnaire, the Selected
Dealer Agreement and related documents and the Preliminary Blue Sky
Memorandum and any supplement thereto; (iii) the costs incident to the
authentication, issuance, delivery and transfer of the Shares to the
Underwriters; (iv) all taxes,
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if any, on the issuance, delivery and transfer of the Shares to be
sold by the Company; (v) the fees, expenses and all other costs of
qualifying the Shares for the sale under the securities or Blue Sky
laws of those jurisdictions in which the Shares are to be offered
or sold including the fees and disbursements of Underwriters'
counsel and such local counsel as may have been reasonably required
and retained for such purpose up to a maximum of $45,000; (A) the
fees, expenses and other costs of, or incident to, securing any
review or approvals by or from the NASD exclusive of fees of the
Underwriters' counsel; (vii) the filing fees of the SEC; (viii) the
cost of furnishing to the Underwriters copies of the Registration
Statement, each Preliminary Prospectus and the Prospectus
(including any supplement or amendment thereto) as herein provided;
(ix) the Company's travel expenses in connection with meetings with
the brokerage community and institutional investors and expenses
associated with hosting such meetings, including meeting rooms,
meals, facilities and ground transportation expenses; (x) the costs
and expenses associated with settlement in same day funds
(including, but not limited to, interest or cost of funds
expenses), if desired by the Company; (xi) the fees for inclusion
of the Shares on the Nasdaq SmallCap Market; (xii) the cost of
printing and engraving certificates for the Shares; (xiii) the cost
and charges of any transfer agent; and (xiv) all other costs and
expenses reasonably incident to the performance of its obligations
hereunder that are not otherwise specifically provided for in this
Section 7.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received from the sale of
the Offered Shares. In the event the Over-allotment Option is exercised,
the Company shall pay to the Representative at the Option Closing Date an
additional amount equal to three percent (3%) of the gross proceeds
received upon exercise of the Over-allotment Option.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Offered Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which its right to purchase under Section 5 has been exercised on
an Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date, as applicable, to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholder set
forth herein, to the performance by the Company and the Selling Stockholder of
its
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<PAGE>
covenants, agreements and obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 1:00 p.m. (and in the case of a Registration Statement filed under
Rule 462(b) of the Act, no later than 7:00 p.m.), Pacific time, on the date
of this Agreement, or at such later time or on such later date as the
Representative may agree to in writing; if required by the Regulations, the
Prospectus shall have been filed with the SEC pursuant to Rule 424(b) of
the Regulations within the applicable time period prescribed for such
filing by the Regulations and in accordance with subsection (a) of
Section 6 hereof; on or prior to the Closing Date or any Option Closing
Date, as the case may be, no stop order or other order preventing or
suspending the effectiveness of the Registration Statement or the sale of
any of the Shares shall have been issued under the act or any state
securities law and no proceedings for that purpose shall have been
initiated or shall be pending or, to the Representatives' knowledge or the
knowledge of the Company, shall be contemplated by the SEC or any authority
in any jurisdiction designated by the Representative pursuant to subsection
(f) of Section 6 hereof and any request on the part of the SEC for
additional information shall have been complied with to the reasonable
satisfaction of counsel for the Underwriters.
(b) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date and the Option Closing Date, if any, with the same
effect as if made on the Closing Date and the Option Closing Date, if
any, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date and the Option Closing Date, if any;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
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(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or other), earnings, business or properties of the Company and ADICSI
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(c) The Selling Stockholder shall have furnished to the
Representatives a certificate, signed by the Selling Stockholder, dated the
Closing Date and the Option Closing Date, if any, to the effect that the
signer of such certificate has carefully examined the Registration
Statement, the Prospectus, any supplement to the Prospectus and this
Agreement and that the representations and warranties of such Selling
Stockholder in this Agreement are true and correct in all material respects
on and as of the Closing Date to the same effect as if made on the Closing
Date.
(d) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Warrant Agreement,
the Representative's Warrant and the Shares and the form of the
Registration Statement, each Preliminary Prospectus and the Prospectus, and
all other legal matters relating to this Agreement and the transactions
contemplated hereby, shall be satisfactory in all respects to counsel to
the Underwriters; the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters; and the Representative shall have received from
the Underwriters' counsel, Milbank, Tweed, Hadley & McCloy, a customary
opinion, dated as of the Closing Date and any Option Closing Date, as the
case may be, and addressed to the Representative individually and as the
Representative of the several Underwriters.
(e) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of any of the Shares.
(f) The Representative shall have received copies of the lockup
agreements described in subsection (k) of Section 6 signed by those persons
set forth on Schedule III hereto.
(g) The Representative shall have received at or prior to the Closing
Date from the Underwriters' counsel a
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memorandum or summary, in form and substance satisfactory to the
Representative, with respect to the qualification for offering and sale by
the Underwriters of the Shares under the securities or Blue Sky laws of
such jurisdictions designated by the Representative pursuant to subsection
(f) of Section 6 hereof.
(h) You shall have received on the Closing Date and on the Option
Closing Date, if any, an opinion from Skadden, Arps, Slate, Meagher & Flom,
counsel for the Company and the Selling Stockholder, dated the Closing Date
and the Option Closing Date, if any, and addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, substantially in the form attached hereto as "Exhibit A."
(i) At the Closing Date and any Option Closing Date: (A) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the
Act and the Regulations and shall conform, in all material respects, to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor any post-effective amendment thereto nor the Prospectus and
any amendments or supplements thereto shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus and
any amendments or supplements thereto, except as otherwise stated therein,
there shall have been no material adverse change in the properties,
condition (financial or otherwise), results of operations, stockholders'
equity, business or management of the Company, from that set forth therein,
whether or not arising in the ordinary course of business, other than as
referred to in the Registration Statement or Prospectus; (C) since the
respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus or
any amendment or supplement thereto, there shall have been no transaction,
contract or agreement entered into by the Company or ADICSI, other than in
the ordinary course of business and as set forth in the Registration
Statement or Prospectus, that has not been, but would be required to be,
set forth in the Registration Statement or Prospectus; (D) no action, suit
or proceeding at law or in equity shall be pending or, to the knowledge of
the Company or ADICSI,
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threatened against the Company that would be required to be set forth in
Prospectus, other than as set forth therein, and no proceedings shall be
pending or, to the knowledge of the Company, threatened against the
Company or ADICSI before or by any federal, state or other commission,
board or administrative agency wherein an unfavorable decision, ruling
or finding would materially adversely affect the properties, condition
(financial or otherwise), results of operations, stockholders' equity or
business of the Company or ADICSI taken as a whole, other than as set
forth in the Prospectus.
(j) You shall have received a letter on and as of the date hereof as
well as on and as of the Closing Date and the Option Closing Date (in the
case of a letter delivered on the Closing Date or Option Closing Date, such
letter shall constitute an affirmation of the statements set forth in the
former), in form and substance satisfactory to you, from Arthur Andersen,
LLP, independent public accountants, with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(k) The Company shall have executed and delivered an agreement
memorializing the Representative's Warrant in a form satisfactory to the
Representative (the "Warrant Agreement") and there shall have been tendered
to the Representative certificates representing the Representative's
Warrant described in subsection (p) of Section 6, to be purchased by the
Representative on the Closing Date.
(l) At the Closing Date and any Option Closing Date, the
Representative shall have been furnished such additional documents and
certificates as they shall reasonably request.
(m) No action shall have been taken by the NASD, the effect of which
is to make it improper, at any time prior to the Closing Date or any Option
Closing Date, for members of the NASD to execute transactions as principal
or as agent in the Shares or to trade or deal in the Shares, and no
proceedings for the purpose of taking such action shall have been
instituted or shall be pending or, to the Company's or the Representatives'
knowledge, shall be contemplated by the NASD.
If any conditions to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date, shall not have been fulfilled, the
Representative may on behalf of the several Underwriters terminate this
Agreement or, if they so elect, waive
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any such conditions which have not been fulfilled or extend the time for their
fulfillment.
9. INDEMNIFICATION.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission which is based upon
information relating to any Underwriter furnished in writing to the Company
by or on behalf of any Underwriter through the Representative expressly for
use therein; PROVIDED, HOWEVER, that if the Company has complied with its
obligations under Section 6(d) hereof, the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such loss, claim,
damage, liability or judgment purchased the Shares (or any person who
controls such Underwriter within the meaning of Section 15 of the Exchange
Act) if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of any Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of
such Shares to such person and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or judgment. Notwithstanding the foregoing, the
liability of the Selling Stockholder under this paragraph shall be limited
to an amount equal to the net proceeds of the Shares sold by the Selling
Stockholder to the Underwriters.
(b) In case any action shall be brought against any Underwriter or
any person controlling such Underwriter,
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based upon any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement thereto and with respect to
which indemnity may be sought against the Company and the Selling
Stockholder, such Underwriter shall promptly notify the parties against
whom indemnification is being sought (the "Indemnifying Parties") in
writing and the Indemnifying Parties shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses. Any Underwriter
or any such controlling person shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such
counsel has been specifically authorized in writing by the Indemnifying
Parties, (ii) the Indemnifying Parties shall have failed to assume the
defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the Indemnifying Parties and such Underwriter or
such controlling person shall have been advised by such counsel that
there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying
Parties (in which case the Indemnifying Parties shall not have the right
to assume the defense of such action on behalf of such Underwriter or
such controlling person, it being understood, however, that the
Indemnifying Parties shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for all
such Underwriters and controlling persons, which firm shall be
designated in writing by the Representative and that all such fees and
expenses shall be reimbursed as they are incurred). The Indemnifying
Parties shall not be liable for any settlement of any such action
effected without their written consent. If settled with such written
consent, the Indemnifying Parties agree to indemnify and hold harmless
any Underwriter and any such controlling person from and against any
loss or liability by reason of such settlement. Notwithstanding the
immediately preceding sentence, if in any case where the fees and
expenses of counsel are at the expense of the Indemnifying Parties and
an indemnified party shall have requested the Indemnifying Parties to
reimburse the indemnified party for such fees and expenses of counsel as
incurred, the Indemnifying Parties agree that they shall be liable for any
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<PAGE>
settlement of any action effected without its written consent if (i) such
settlement is entered into more than ten business days after the receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall have failed to reimburse the indemnified party in accordance
with such request for reimbursement prior to the date of such settlement.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, the
Selling Stockholder and each person, if any, controlling such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the
Company and the Selling Stockholder to each Underwriter but only with
reference to information relating to such Underwriter furnished in writing
by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In
case any action shall be brought against the Company, any of its directors,
any such officer or any person controlling the Company or the Selling
Stockholder or any person controlling the Selling Stockholder based on the
Registration Statement, the Prospectus or any preliminary prospectus and in
respect of which indemnity may be sought against any Underwriter, the
Underwriter shall have the rights and duties given to the Company and the
Selling Stockholder by paragraph (b) above (except that if the Company or
Selling Stockholder shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of such Underwriter), and the Company,
its directors, any such officers and any person controlling the Company and
the Selling Stockholder and any person controlling the Selling Stockholder
shall have the rights and duties given to the Underwriter by Section 9(b)
hereof.
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<PAGE>
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholder and the Underwriters in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholder and the Underwriters shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholder, and the
total underwriting discounts and commissions received by the Underwriters,
bear to the total price to the public of the Shares, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
of the Company and the Selling Stockholder and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company, the Selling
Stockholder or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Selling Stockholder and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 9(d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party
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<PAGE>
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section
9(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date; and such
representations, warranties and agreements of the Underwriters and the Company,
including without limitation the indemnity and contribution agreements contained
in Section 9 hereof and the agreements contained in Sections 7, 10, 11 and 13
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
and shall survive delivery of and payment for the Shares and termination of this
Agreement, whether before or after the Closing Date or any Option Closing Date.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective immediately as to Sections
7, 9, 10, 11 and 13 and, as to all other provisions, (i) if at the time of
execution and delivery of this Agreement the Registration Statement has not
become effective, at 6:30 a.m., Pacific time, on the first business day
following the Effective Date, or (ii) if at the time of execution and
delivery of this Agreement the Registration Statement has been declared
effective, at 6:30 a.m., Pacific time, on the date of execution of this
Agreement; but this Agreement shall nevertheless become effective at such
earlier time after the Registration Statement becomes effective as the
Representative may determine by notice to the Company or by release of any
of the Shares for sale to the public. For the purposes of this Section 11,
the Shares shall be deemed to have been so released upon the release
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for publication of any newspaper advertisement relating to the Shares or
upon the release by the Representative of telegrams (i) advising the
Underwriters that the shares are released for public offering or (ii)
offering the Shares for sale to securities dealers, whichever may occur
first. The Representative may prevent the provisions of this Agreement
(other than those contained in Sections 7, 9, 10, 11 and 13) hereof from
becoming effective without liability of any party to any other party,
except as noted below, by giving the notice indicated in subsection (c) of
this Section 10 before the time the other provisions of this Agreement
become effective.
(b) The Representative shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections 8
and 12 hereof or by written notice to the Company if any of the following
have occurred: (i) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company, or the earnings, business affairs, management or business
prospects of the Company, whether or not arising in the ordinary course of
business that would make it, in the Representative's judgement, impractical
to market the Shares or enforce contracts for the sale of the Shares; (ii)
any outbreak of hostilities or other national or international calamity or
crisis or change in economic, political or financial market conditions if
such outbreak, calamity, crisis or change would, in the Representative's
reasonable judgment, make it impractical or inadvisable to commence or
continue the offering of the Shares; (iii) suspension of trading generally
in securities on the New York Stock Exchange or the over-the-counter market
or limitation on prices (other than limitations on hours or numbers of days
of trading) for securities or the promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental
authority which in the Representative's reasonable opinion materially and
adversely affects trading on either such Exchange or the over-the-counter
market; (iv) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of any court or
other governmental authority that would make it, in the Representative's
judgement, impractical to market the Shares or enforce contracts for the
sale of the Shares; (v) declaration of a banking moratorium by either
federal or New York or California authorities; (vi) the taking of any
action by any federal, state or local government or agency in respect of
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its monetary or fiscal affairs which in the Representative's reasonable
opinion has a material adverse effect on the securities markets in the
United States which would in the Representative's judgment make it
impractical to market the Shares or enforce contracts for the sale of the
Shares; (vii) declaration of a moratorium in foreign exchange trading by
major international banks or other institutions or (viii) trading in any
securities of the Company shall have been suspended or halted by the NASD
or the SEC.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 11, the Representative shall notify the Company thereof promptly by
telephone, telex, telegraph or facsimile, confirmed by letter.
12. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Offered Shares or Optional Shares hereunder, and if
the Offered Shares or Optional Shares with respect to which such default
relates do not exceed the aggregate of ten percent (10%) of the number of
Offered Shares or Optional Shares, as the case may be, that all
Underwriters have agreed to purchase hereunder, then such Offered Shares or
Optional Shares to which the default relates shall be purchased severally
by the non-defaulting Underwriters in proportion to their respective
commitments hereunder.
(b) If such default relates to more than ten percent (10%) of the
Offered Shares or Optional Shares, as the case may be, the Representative
may in its discretion arrange for another party or parties (including a
non-defaulting Underwriter) to purchase such Offered Shares or Optional
Shares to which such default relates, on the terms contained herein. In
the event that the Representative does not arrange for the purchase of the
Offered Shares or Optional Shares to which a default relates as provided in
this Section 12 within 36 hours after such default, this Agreement may be
terminated by the Representative or by the Company without liability on the
part of the nondefaulting Underwriters (except as provided in Section 9
hereof) or the Company (except as provided in Sections 7 and 9 hereof), but
nothing herein shall relieve a defaulting Underwriter of its liability, if
any, to the other several Underwriters and to the Company for damages
occasioned by its default hereunder.
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<PAGE>
(c) If the Offered Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to
be purchased by another party or parties as aforesaid, the Representative
or the Company shall have the right to postpone the Closing Date or any
Option Closing Date, as the case may be, for a reasonable period but not in
any event exceeding seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus
or in any other documents and arrangements, and the Company agrees to file
promptly any amendment to the Registration Statement or supplement to the
Prospectus which in the opinion of counsel for the Underwriters may thereby
be made necessary. The terms "Underwriters" and "Underwriter" as used in
this Agreement shall include any party substituted under this Section 12
with like effects as if it had originally been a party to this Agreement
with respect to such Offered Shares or Optional Shares.
13. INFORMATION FURNISHED BY UNDERWRITERS. The Representative, on behalf
of the Underwriters, represents and warrants to the Company that the information
appearing in any preliminary prospectus, the Prospectus or the Registration
Statement (a) on the cover page of the Prospectus with respect to price,
underwriting discounts and commissions and terms of offering, (b) in the section
entitled "Underwriting," and (c) in the section entitled "Legal Matters" with
respect to the identity of counsel for the Underwriters was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and the Prospectus and is correct in
all material respects. The parties acknowledge that this information
constitutes the only information furnished in writing by or on behalf of any
Underwriter for inclusion in any preliminary prospectus, the Prospectus or the
Registration Statement referred to in subsection (b) of Section 1 hereof and
subsection (a) of Section 9 hereof.
14. NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Cruttenden Roth Incorporated, 18301 Von
Karman, Irvine, California 97215-1009, Attention: President, with a copy to
Milbank, Tweed, Hadley & McCloy, 601 South Figueroa Street, 30th Floor, Los
Angeles, California 90017, Attention: Kenneth J. Baronsky, Esq.; if sent to the
Company shall be mailed, delivered, telexed, telegrammed, telegraphed or
telecopied and confirmed to Aviation Distributors, Inc., 1 Wrigley Drive,
Irvine, California 92618, Attention: Chief Executive Officer, with a copy to
Skadden, Arps, Slate, Meagher & Flom, 300 South
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<PAGE>
Grand Avenue, 34th Floor, Los Angeles, California 90071, Attention: Brian J.
McCarthy, Esq.
15. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, and the
controlling persons, directors and officers referred to in Section 9 hereof, and
their respective successors, assigns, heirs and legal representatives, and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provision herein contained. The term "successors" and "assigns" shall not
include any purchaser of the Shares merely because of such purchase.
16. DEFINITION OF BUSINESS DAY. For purposes of this Agreement, "business
day" means any day on which the New York Stock Exchange, Inc. is open for
trading.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
18. CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and performed entirely within such State.
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If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement by and
among the Underwriters and the Company.
Very truly yours,
AVIATION DISTRIBUTORS, INC.,
a Delaware corporation
________________________________
Osamah S. Bakhit
Chief Executive Officer
________________________________
Osamah S. Bakhit
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
CRUTTENDEN ROTH INCORPORATED
By:___________________________
Its______________________
Acting severally on behalf of itself and the several Underwriters named in
Schedule I hereto
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF OFFERED SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------
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<PAGE>
SCHEDULE II
PERSONS SUBJECT TO LOCKUP AGREEMENTS
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<PAGE>
EXHIBIT A
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM, COUNSEL FOR THE COMPANY
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[DRAFT]
AVIATION DISTRIBUTORS, INC.
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt of
which is hereby acknowledged, Cruttenden Roth Incorporated ("HOLDER") is
entitled to purchase, subject to the terms and conditions of this Warrant, from
Aviation Distributors, Inc., a Delaware corporation (the "COMPANY"), up to
100,000 fully paid and nonassessable shares of the Common Stock ("COMMON STOCK")
of the Company, in accordance with Section 2 below during the period commencing
one year after the date hereof and ending at 5:00 p.m. California time,
, 2001 (the "EXPIRATION DATE"), at which time this Warrant will expire and
become void unless earlier terminated as provided herein. The shares of Common
Stock of the Company for which this Warrant is exercisable as adjusted from time
to time pursuant to the terms hereof, are hereinafter referred to as the
"SHARES."
1. EXERCISE PRICE. The initial purchase price for the Shares shall
be $ per share. Such price shall be subject to adjustment pursuant to
the terms hereof (such price, as adjusted from time to time, is hereinafter
referred to as the "EXERCISE PRICE").
2. EXERCISE AND PAYMENT.
(a) CASH EXERCISE. At any time after , 1997, this
Warrant may be exercised, in whole or in part, from time to time by the Holder,
during the term hereof, by surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed by the Holder to the Company at the
principal executive offices of the Company, together with payment in the amount
obtained by multiplying the Exercise Price then in effect by the number of
Shares thereby purchased, as designated in the Notice of Exercise. Payment may
be in cash or by check payable to the order of the Company.
(b) NET ISSUANCE. In lieu of payment of the Exercise Price
described in Section 2(a), the Holder may elect to receive, without the payment
by the Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice
<PAGE>
annexed hereto duly executed, at the office of the Company. Thereupon, the
Company shall issue to the Holder such number of fully paid and nonassessable
shares of Common Stock as is computed using the following formula:
where: X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder pursuant to this
Section 2.
Y = the number of shares covered by this Warrant in respect of which the
net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the time the net
issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "FAIR MARKET VALUE" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or
is listed on the Nasdaq SmallCap Market or the Nasdaq National Market of
the Nasdaq Stock Market (the "NASDAQ MARKET") or other over-the-counter
quotation system, the fair market value shall be the last reported sale
price of the Common Stock on such exchange or on the Nasdaq Market on the
last business day before the effective date of exercise of the net issuance
election or if no such sale is made on such day, the mean of the closing
bid and asked prices such day on such exchange, the Nasdaq Market or over-
the-counter quotation system; and
ii. If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not reported, the fair market
value shall be the price per share which the Company could obtain from a
willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be determined by mutual agreement of the
Company and the Holder of this Warrant.
3. DELIVERY OF STOCK CERTIFICATES. Within a reasonable time after
exercise, in whole or in part, of this Warrant, the Company shall issue in the
name of and deliver to the Holder, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock which the Holder shall
have requested in the Notice of Exercise. If this Warrant is exercised in part,
the Company shall deliver to the Holder a new Warrant for the unexercised
portion of this Warrant at the time of delivery of such stock certificate or
certificates.
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<PAGE>
4. NO FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares will be issued upon exercise of this Warrant. If upon any
exercise of this Warrant a fraction of a share results, the Company will pay the
Holder the difference between the cash value of the fractional share and the
portion of the Exercise Price allocable to the fractional share.
5. CHARGES, TAXES AND EXPENSES. The Holder shall pay all transfer
taxes or other incidental charges, if any, in connection with the transfer of
the Shares purchased pursuant to the exercise hereof from the Company to the
Holder.
6. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant. The Company agrees that the agreement of
Cruttenden Roth Incorporated to so indemnify the Company shall be satisfactory
to the Company and no further security shall be required.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
weekday which is not a legal holiday.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the total
number of Shares purchasable under this Warrant as of such date shall remain the
same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("COMMON STOCK EQUIVALENTS") without payment of any consideration by such holder
for the additional shares of Common Stock or the
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Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date
is set) for determining which holders of Common Stock shall be entitled to
receive such dividend, in proportion to the increase in the number of
outstanding shares (and shares of Common Stock issuable upon conversion of
all such securities convertible into Common Stock) of Common Stock as a
result of such dividend, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all the Shares issuable
hereunder immediately after the record date (or on the date of such
distribution, if applicable), for such dividend shall equal the aggregate
amount so payable immediately before such record date (or on the date of such
distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof
the Company distributes to holders of its Common Stock, other than as part of
its dissolution or liquidation or the winding up of its affairs, any shares of
its capital stock, any rights to purchase shares of its capital stock, any
evidence of indebtedness or any of its assets (other than cash, Common Stock or
securities convertible into Common Stock), then the Company may, at its option,
either (i) decrease the per share Exercise Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors or (ii)
provide by resolution of the Company's Board of Directors that on exercise of
this Warrant, the Holder hereof shall thereafter be entitled to receive, in
addition to the shares of Common Stock otherwise receivable on exercise hereof,
the number of shares or other securities or property which would have been
received had this Warrant at the time been exercised.
(d) MERGER. If at any time after the date hereof there shall be
a merger or consolidation of the Company with or into another corporation when
the Company is not the surviving corporation then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares or other securities or property of the successor corporation
resulting from such merger or consolidation, which would have been received by
Holder for the shares of stock subject to this Warrant had this Warrant at such
time been exercised.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a change or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares or other securities or property resulting from such change or
reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this Warrant at such time been exercised.
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section 8
hereof, the Company
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shall execute and deliver to the Holder a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed
(by first class mail, postage prepaid) to the Holder.
10. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive dividends or other distributions thereon, or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
in the event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Holder of this Warrant, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. RESTRICTED SECURITIES. The Holder understands that this Warrant
and the Shares purchasable hereunder constitute "RESTRICTED SECURITIES" under
the federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933, as amended (the "1933 ACT"), or
an applicable exemption from such registration. In this connection, the Holder
acknowledges that Rule 144 of the Commission is not now, and may not in the
future be, available for resales of the Warrant and the Shares purchasable
hereunder. Unless the Shares are subsequently registered pursuant to Section 14,
the Holder further acknowledges that the securities legend on Exhibit A to the
Notice of Exercise attached hereto shall be placed on any Shares issued to the
Holder upon exercise of this Warrant.
12. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the 1933 Act shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder covenants and
agrees that, at the time of exercise hereof, it will deliver to the Company a
written certification executed by the Holder that the securities acquired by him
upon exercise hereof are for the account of such Holder and acquired for
investment purposes only and that such securities are not acquired with a view
to, or for sale in connection with, any distribution thereof in violation of
applicable securities law.
13. DISPOSITION OF SHARES. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
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(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Holder shall have complied with all requirements of this
Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the Company,
that (i) the proposed disposition does not require registration of the Shares
under the 1933 Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act has been taken.
The Company shall NOT be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of the terms of this Warrant.
14. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time within five (5)
years after the effective date of the Company's Registration Statement on Form
SB-2 (File No. 333-8061), the Company shall determine to register for its own
account or the account of others under the 1933 Act any of its equity
securities, other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business, or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Holder of Warrants or Shares, who is entitled to registration
rights under this Section 14(a) written notice of such determination and, if
within twenty (20) days after receipt of such notice, such Holder shall so
request in writing (hereafter a "SELLING HOLDER"), the Company shall include in
such registration statement all or any part of the Shares issuable upon exercise
of the Warrants (the "REGISTRABLE SECURITIES") such Selling Holder requests to
be registered. The obligations of the Company under this Section 14(a) may be
waived by Holders holding a majority in interest of the Registrable Securities.
In the event that the managing underwriter for said offering advises the Company
in writing that the inclusion of such securities in the offering would be
materially detrimental to the offering, such securities shall nevertheless be
included in the registration statement, provided that the Holder and each holder
of Shares desiring to have their Shares included in the registration statement
agree in writing, for a period of 90 days following such offering, not to sell
or otherwise dispose of such Shares pursuant to such registration statement,
which registration statement the Company shall keep effective for a period of at
least nine months following the expiration of such 90-day period.
(b) DEMAND REGISTRATION. In addition to any registration
statement pursuant to subparagraph (a) above, during the four-year period
beginning on , 1997 and ending on , 2001, the Company
will, as promptly as practicable (but in any event
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within 60 days), after written request (the "REQUEST") by the Holder, or by a
person or persons holding (or having the right to acquire by virtue of
holding the Warrants) at least 50% of the shares of Common Stock which have
been (or may be) issued upon exercise of the Warrants (such Holder or Holders
to be included in the definition of "SELLING HOLDER" for the purposes of
Section 14(c) hereof), prepare and file at its own expense a registration
statement with the Commission and appropriate "blue sky" authorities
sufficient to permit the public offering of the Registrable Securities and
will use its best efforts at its own expense through its officers, directors,
auditors and counsel, in all matters necessary or advisable, to cause such
registration statement to become effective as promptly as practicable and to
maintain such effectiveness so as to permit resale of the Shares covered by
the Request until the earlier of the time that all such Shares have been sold
or the expiration of 90 days from the effective date of the registration
statement, provided, however, that the Company shall only be obligated to
file one such registration statement under this Section 14(b).
(c) OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities pursuant to either Sections 14(a) or
(b), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with respect to each
Selling Holder that such Selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of the Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least fifteen (15) days prior to the first
anticipated filing date of the registration statement, the Company shall notify
each Selling Holder of the information the Company requires from each such
Selling Holder (the "REQUESTED INFORMATION") in the case of a registration
statement being prepared pursuant to Section 14(b) or if such Selling Holder
elects to have any of such Selling Holder's Registrable Securities included in
the registration statement in the case of a registration statement being
prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's acceptance
of the Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
registration statement hereunder, unless such Selling Holder has notified the
Company in writing of such Selling Holder's election to exclude all of such
Selling Holder's Registrable Securities from the registration statement; and
iii. No Selling Holder may participate in any underwritten
registration hereunder unless such Selling Holder (i) agrees to sell such
Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Selling Holders entitled hereunder to
approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (iii)
agrees to pay its pro rata share of all underwriting discounts and commissions
and other fees and
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expenses of investment bankers and any manager or managers of such
underwriting, except as provided in Section 14(d) below.
(d) EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 14(a) or 14(b),
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and the Selling Holders, shall be borne by the Company; PROVIDED,
HOWEVER, that the Company shall only be required to bear the fees and out-of-
pocket expenses of one law firm selected by the Selling Holders in connection
with such registration.
(e) INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Agreement:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if any,
of such Selling Holder, each person, if any, who controls any Selling Holder
within the meaning of the 1933 Act, any underwriter (as defined in the 1933 Act)
for the Selling Holders, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the 1933 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, expenses or liabilities (joint or
several) (collectively, "CLAIMS") to which any of them may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement when it first became effective, or any
related final prospectus, amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading (a "VIOLATION"). The
Company shall reimburse the Selling Holders and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 14(e)(i) shall not apply in such case to the extent
any such Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
any Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of the registration statement or any such
amendment thereof or supplement thereto, and shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld.
ii. In connection with any registration statement in which a
Selling Holder is participating, each such Selling Holder agrees to indemnify
and hold harmless, to the
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same extent and in the same manner set forth in Section 14(e)(i), the
Company, each of its directors, each of its officers who signs the
registration statement, each person, if any, who controls the Company within
the meaning of the 1933 Act, any underwriter and any other shareholder
selling securities pursuant to the registration statement or any of its
directors or officers or any person who controls such shareholder or
underwriter within the meaning of the 1933 Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to
which any of them may become subject, under the 1933 Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Selling Holder expressly for use in connection with such
registration statement, and such Selling Holder will reimburse any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 14(e)(ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of such Selling Holder, which consent shall not be
unreasonably withheld. The indemnification by each Selling Holder shall be
limited in amount to the net amount of proceeds received by such Selling
Holder from the sale of Registrable Securities.
iii. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer, managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information furnished in writing by such persons
expressly for inclusion in the registration statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(e) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; PROVIDED, HOWEVER, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnifying Party shall
pay for only one separate law firm for the Indemnified Parties; such law firm
shall be selected by the Indemnified Parties holding a majority in interest of
the Registrable Securities. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 14(e), except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this
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Section 14(e) shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
v. Notwithstanding any of the foregoing, if, in connection with
an underwritten public offering of Registrable Securities, the Company, the
Selling Holders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 14(e) shall be deemed inoperative for
purposes of such offering.
(f) CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 14(e) to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 14(e), (ii) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
(g) REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the 1933 Act or any
other similar rule or regulation of the SEC that may at any time permit the
Holders to sell securities of the Company to the public without registration
("RULE 144"), the Company agrees to:
i. make and keep public information available, as those
terms are understood and defined in Rule 144; and
ii. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and
iii. furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Holders to sell such securities
without registration pursuant to Rule 144.
(h) ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically
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assigned by the Holders to transferees or assignees of all or any portion of
such securities only if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of the name and address of such transferee or assignee (iii) such
assignment is in accordance with and permitted by law and all other
agreements between the transferor or assignor and the Company, including
without limitation, shareholder's agreements, warrants and subscription
agreements, and the transferor or assignor otherwise is not in material
default of any obligation to the Company under any such other agreement, and
(iv) at or before the time the Company received the written notice
contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein.
(i) TERMINATION OF REGISTRATION RIGHTS. No Holder of Warrants
or Shares shall be entitled to exercise any right provided for in this Section
14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144.
15. TRANSFERABILITY.
(a) GENERAL. This Warrant shall be transferable only on the
books of the Company maintained at its principal office in Irvine, California or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
(b) LIMITATIONS ON TRANSFER. This Warrant shall not be sold,
transferred, assigned or hypothecated by the Holder except to (i) one or more
persons, each of whom on the date of transfer is an officer or employee of the
Holder; (ii) a general partnership or general partnerships, the general partners
of which are the Holder and one or more persons, each of whom on the date of
transfer is an officer or employee of the Holder; (iii) a successor to the
Holder in any merger or consolidation; (iv) a purchaser of all or substantially
all of the Holder's assets; or (v) any person receiving this Warrant from one or
more of the persons listed in this Section 15(b) at such person's or persons'
death pursuant to will, trust or the laws of intestate succession. This Warrant
may be divided or combined, upon request to the Company by the Holder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
16. MISCELLANEOUS.
(a) CONSTRUCTION. Unless the context indicates otherwise, the
term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding pursuant to this
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<PAGE>
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to Section 15(b).
(b) RESTRICTIONS. By receipt of this Warrant, the Holder makes
the same representations with respect to the acquisition of this Warrant as the
Holder is required to make upon the exercise of this Warrant and acquisition of
the Shares purchasable hereunder as set forth in the Form of Investment Letter
attached as Exhibit A to the Notice of Exercise attached hereto.
(c) NOTICES. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified (or
one (1) day following timely deposit with a reputable overnight courier with
next day delivery instructions), or upon confirmation of receipt by the sender
of any notice by facsimile transmission, at the address indicated below or at
such other address as such party may designate by ten (10) days' advance written
notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, CA 92715
Attention: ____________________
To the Company: Aviation Distributors, Inc.
1 Wrigley Drive
Irvine, CA 92618
Attention: Chief Executive Officer
(d) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
(e) ENTIRE AGREEMENT. This Warrant, the exhibits and schedules
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof.
(f) BINDING EFFECT. This Warrant and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Company and its successors and assigns, and Holder and its successors and
assigns.
(g) WAIVER; CONSENT. This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in
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part, except by a writing executed by the parties hereto, and no waiver of
any of the provisions or conditions of this Warrant or any of the rights of a
party hereto shall be effective or binding unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto.
(h) SEVERABILITY. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and the balance shall be enforceable in accordance
with its terms.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock
Warrant effective as of the date hereof.
DATED: _______ , 1996 THE COMPANY:
Aviation Distributors, Inc.
By: ________________________________
Its: ________________________________
HOLDER:
Cruttenden Roth Incorporated
By: ________________________________
Its: ________________________________
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NOTICE OF EXERCISE
To: AVIATION DISTRIBUTORS, INC.
1. The undersigned hereby elects to purchase _____________ shares of
Common Stock ("STOCK") of Aviation Distributors, Inc., a Delaware corporation
(the "COMPANY") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price pursuant to the terms of the Warrant.
2. Attached as Exhibit A is an investment representation letter
addressed to the Company and executed by the undersigned as required by Section
12 of the Warrant.
3. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit A
attached hereto.
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
Dated: _______________ __________________________________
<PAGE>
NET ISSUANCE ELECTION NOTICE
To: AVIATION DISTRIBUTORS, INC. Date:_____________
The undersigned hereby elects under Section 2 of the attached Warrant to
surrender the right to purchase ___________ shares of Common Stock pursuant to
the attached Warrant. The Certificate(s) for the shares issuable upon such net
issuance election shall be issued in the name of the undersigned or as otherwise
indicated below.
___________________________
Signature
___________________________
Name for Registration
___________________________
Mailing Address
<PAGE>
EXHIBIT A
To: AVIATION DISTRIBUTORS, INC.
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "STOCK") of Aviation Distributors, Inc., a
Delaware corporation (the "COMPANY"), upon exercise of that certain Common Stock
Warrant dated as of , 1996, the undersigned hereby represents and
warrants as follows:
1. The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same in violation of applicable securities
laws. The undersigned further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to the Stock.
The undersigned believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Stock.
2. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "ACT"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3. Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of the
Stock unless and until:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) if requested,
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company that such disposition will not require
registration of such shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144.
A-1
<PAGE>
4. The undersigned understands the instruments evidencing the Stock
may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated: _______________ ________________________________________
A-2
<PAGE>
exh 10.5
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500,000.00 08-22-1996 03-31-1997 OHC
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
BORROWER:AVIATION DISTRIBUTORS INCORPORATED, A LENDER:FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
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- -------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT BETWEEN AVIATION DISTRIBUTORS INCORPORATED, A
DELAWARE CORPORATION ("BORROWER") AND FAR EAST NATIONAL BANK ("LENDER") IS MADE
AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR
COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR
LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED
ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND
FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL
ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT
INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS
AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS
RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET
FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY
LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION;
AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS
AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of August 22, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the paragraph
titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT PAGE 2
(Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Loan Advance and each subsequent Loan Advance under this Agreement
shall be subject to the fulfillment to Lender's satisfaction of all of the
conditions set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of
Loan proceeds, as of the date of any renewal, extension or modification of
any Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture,. store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Borrower's ownership or interest
in the properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the termination or expiration of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the properties, whether
by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT Page 3
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, and (iii) no steps have been taken to terminate
any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at One Wrigley Drive, Irvine, CA 92718. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTORS AMOUNTS
---------- -------
ADI CONSIGNMENT SALES, INC. $4,500,000.00
OSAMAH BAKHIT $4,600,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT Page 4
(CONTINUED)
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- -------------------------------------------------------------------------------
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; or (d) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.
FUNDING REQUIREMENTS. Prior to each cash advance, Borrower shall send to
Lender a copy of Invoice showing shipment information and instructions to pay
FENB directly.
PAYMENT OF LOAN PROCEEDS. Borrower shall require buyer to pay each FENB
financed invoice via wire transfer to FENB Control Account No. 691-004120 or
mail check payments to Lender's address. Eighty-five percent (85%) of
payment proceeds shall be applied to any outstanding principal balance on the
loan and the remaining fifteen percent (15%) shall be credited to Borrower's
DDA No. 691-002675.
MINIMUM TANGIBLE NET WORTH. The Borrower shall maintain a minimum Tangible
Net Worth of not less than $750,000 beginning October 31, 1996. The words
"Tangible Net Worth" mean Borrower's total assets excluding all intangible
assets (i.e., goodwill, trademarks, patents, copyrights, organizational
expenses, and similar intangible items, but including leaseholds and
leasehold improvements) less total debt.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA,
Keogh, and trust accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT Page 5
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness of any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE
COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT Page 6
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 22, 1996.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation
By: /s/Osamah Bakhit
-------------------------------------------
Osamah Bakhit, Chief Executive Officer
LENDER:
FAR EAST NATIONAL BANK
By: /s/illegible
-------------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500,000.00 08-22-1996 03-31-1997 OHC
- ------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: INITIAL RATE: DATE OF NOTE:
$4,500,000.00 9.750% AUGUST 22, 1996
PROMISE TO PAY. AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
("BORROWER") PROMISES TO PAY TO FAR EAST NATIONAL BANK ("LENDER"), OR ORDER,
IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FOUR
MILLION FIVE HUNDRED THOUSAND & 00/100 DOLLARS ($4,500,000.00) OR SO MUCH AS
MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING
PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE
OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
MARCH 31, 1997. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING AUGUST 31, 1996, AND ALL SUBSEQUENT
INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest
on this Note is computed on a 365/360 simple interest basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may
or may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500 PERCENTAGE POINTS
OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.750% PER ANNUM. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS GREATER.
LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Upon Borrower's
failure to pay all amounts declared due pursuant to this section, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 3.500 percentage points over the Index. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE
COUNTY, THE STATE OF CALIFORNIA THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA,
Keogh, and trust accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. The following party or parties are authorized to request advances
under the line of credit until Lender receives from Borrower at Lender's
address shown above written notice of revocation of their authority: OSAMAH
BAKHIT, CHIEF EXECUTIVE OFFICER. Borrower agrees to be liable for all sums
either: (a) advanced in accordance with the instructions of an authorized
person or (b) credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
<PAGE>
08-22-1996 PROMISSORY NOTE Page 2
(Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
-----------------------------------------------
Osamah Bakhit, Chief Executive Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
- -----------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500,000.00 08-22-1996 03-31-1997 OHC
- -----------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------
Borrower: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN AVIATION
DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION (REFERRED TO BELOW AS
"GRANTOR"); AND FAR EAST NATIONAL BANK (REFERRED TO BELOW AS "LENDER"). FOR
VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION
TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL
INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records
or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated August 22,
1996, in the principal amount of $4,500,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to
Lender for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any
financing statement or of this Agreement for use as a financing statement.
Grantor will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as they
appear to be on the Collateral. At the time any account becomes subject
to a security interest in favor of Lender, the account shall be a good and
valid account representing an undisputed, bona fide indebtedness incurred
by the account debtor, for merchandise held subject to delivery
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT (CONTINUED) Page 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
account debtor; there shall be no setoffs or counterclaims against any
such account; and no agreement under which any deductions or discounts may
be claimed shall have been made with the account debtor except those
disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor;
(c) all storage facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be located. Except
in the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent
of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown above,
or at such other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of inventory,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property, Grantor shall
not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Delaware,
without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer
in partial or total satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the Collateral to
be subject to any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without the
prior written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held in trust for Lender and
shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands of
all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation
names and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest
in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so long
as Lender's interest in the Collateral, in Lender's opinion, is not
jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any and
all claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnify shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies
reasonably acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10)
days' prior written notice to Lender and not including any disclaimer of
the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest, Grantor
will provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not be
obligated to) obtain such insurance as Lender deems appropriate, including
if it so chooses "single interest insurance," which will cover only
Lender's interest in the Collateral.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
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APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part OF the Collateral. If Lender
consents to repair or replacement OF the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Gran1or. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration da1e of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any collateral where
possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly
to Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole discretion, shall
deem appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve
any rights in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (0) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Delaware Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
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SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Gran1or reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with in1erest at the Note rate from date of
expenditure until repaid.
Appoint RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payab1e on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions at the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and ail other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
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GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
AUGUST 22, 1996.
GRANTOR:
AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation
By: /s/ Osamah Bakhit
-------------------------------------------------
Osamah Bakhit, Chief Executive Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [DE-E40 ADI.LN]
<PAGE>
COMMERCIAL PLEDGE AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500,000.00 08-22-1996 03-31-1997 OHC
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS COMMERCIAL PLEDGE AGREEMENT IS ENTERED INTO BETWEEN AVIATION
DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION (REFERRED TO BELOW AS
"GRANTOR"); AND FAR EAST NATIONAL BANK (REFERRED TO BELOW AS "LENDER").
GRANT OF SECURITY INTEREST. FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH
RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY
HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement:
AGREEMENT. The word "Agreement" means this Commercial Pledge
Agreement, as this Commercial Pledge Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Pledge Agreement from time to time.
COLLATERAL. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver
(or cause to be delivered) immediately to Lender, together with all
Income and Proceeds as described below:
1) ASSIGNMENT OF MULTI-BUYER CREDIT INSURANCE POLICY NO.
ESC-118422 ISSUED BY EXPORT-IMPORT BANK OF THE UNITED STATES WITH
AN AGGREGATE LIMIT OF $5,000,000.
2) ASSIGNMENT OF CREDIT INSURANCE POLICY NO. N-44930 ISSUED BY
THE CONTINENTAL INSURANCE COMPANY IN THE AMOUNT OF $300,000.
In addition, the word "Collateral" includes all property of Grantor,
in the possession of Lender (or in the possession of a third party
subject to the control of Lender), whether now or hereafter existing
and whether tangible or intangible in character, including without
limitation each of the following:
(A) ALL PROPERTY TO WHICH LENDER ACQUIRES TITLE OR DOCUMENTS OF
TITLE.
(B) ALL PROPERTY ASSIGNED TO LENDER.
(C) ALL PROMISSORY NOTES, BILLS OF EXCHANGE, STOCK CERTIFICATES,
BONDS, SAVINGS PASSBOOKS, TIME CERTIFICATES OF DEPOSIT, INSURANCE
POLICIES, AND ALL OTHER INSTRUMENTS AND EVIDENCES OF AN
OBLIGATION.
(D) ALL RECORDS RELATING TO ANY OF THE PROPERTY DESCRIBED IN THIS
COLLATERAL SECTION, WHETHER IN THE FORM OF A WRITING, MICROFILM,
MICROFICHE, OR ELECTRONIC MEDIA.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
GRANTOR. The word "Grantor" means AVIATION DISTRIBUTORS INCORPORATED,
a Delaware corporation, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INCOME AND PROCEEDS. The words "Income and Proceeds" mean all present
and future income, proceeds, earnings, increases, and substitutions
from or for the Collateral of every kind and nature, including without
limitation all payments, interest, profits, distributions, benefits,
rights, options, warrants, dividends, stock dividends, stock splits,
stock rights, regulatory dividends, distributions, subscriptions,
monies, claims for money due and to become due, proceeds of any
insurance on the Collateral, shares of stock of different par value or
no par value issued in substitution or exchange for shares included in
the Collateral, and all other property Grantor is entitled to receive
on account of such Collateral, including accounts, contract rights,
documents, instruments, chattel paper, and general intangibles.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related
Documents.
LENDER. The word "Lender" means Far East National Bank, its successors
and assigns.
NOTE. The word "Note" means the note or credit agreement dated August
22, 1996, in the principal amount of $4,500,000.00 from Grantor to
Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the note
or credit agreement.
OBLIGOR. The word "Obligor" means and includes without limitation any
and all persons or entities obligated to pay money or to perform some
other act under the Collateral.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
Grantor represents and warrants to Lender that:
OWNERSHIP. Grantor is the lawful owner of the Collateral free and
clear of all security interests, liens, encumbrances and claims of
others except as disclosed to and accepted by Lender in writing prior
to execution of this Agreement.
RIGHT TO PLEDGE. Grantor has the full right, power and authority to
enter into this Agreement and to pledge the Collateral.
BINDING EFFECT. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is
legally enforceable in accordance with its terms.
NO FURTHER ASSIGNMENT. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in
the Collateral except as provided in this Agreement.
<PAGE>
08-22-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 2
(CONTINUED)
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- --------------------------------------------------------------------------------
NO DEFAULTS. There are no defaults existing under the Collateral, and
there are no offsets or counterclaims to the same. Grantor will
strictly and promptly perform each of the terms, conditions, covenants
and agreements contained in the Collateral which are to be performed
by Grantor, if any.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold
the Collateral until all the Indebtedness has been paid and satisfied and
thereafter may deliver the Collateral to any Grantor. Lender shall have the
following rights in addition to all other rights it may have by law:
MAINTENANCE AND PROTECTION OF COLLATERAL. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral,
including payment of any liens or claims against the Collateral.
Lender may charge any cost incurred in so doing to Grantor.
INCOME AND PROCEEDS FROM THE COLLATERAL. Lender may receive all Income
and Proceeds and add it to the Collateral. Grantor agrees to deliver
to Lender immediately upon receipt, in the exact form received and
without commingling with other property, all Income and Proceeds from
the Collateral which may be received by, paid, or delivered to Grantor
or for Grantor's account, whether as an addition to, in discharge of,
in substitution of, or in exchange for any of the Collateral.
APPLICATION OF CASH. At Lender's option, Lender may apply any cash,
whether included in the Collateral or received as Income and Proceeds
or through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as Lender
shall choose, whether or not matured.
TRANSACTIONS WITH OTHERS. Lender may (a) extend time for payment or
other performance, (b) grant a renewal or change in terms or
conditions, or (c) compromise, compound or release any obligation,
with any one or more Obligors, endorsers, or Guarantors of the
Indebtedness as Lender deems advisable, without obtaining the prior
written consent of Grantor, and no such act or failure to act shall
affect Lender's rights against Grantor or the Collateral.
ALL COLLATERAL SECURES INDEBTEDNESS. All Collateral shall be security
for the Indebtedness, whether the Collateral is located at one or more
offices or branches of Lender and whether or not the office or branch
where the Indebtedness is created is aware of or relies upon the
Collateral.
COLLECTION OF COLLATERAL. Lender, at Lender's option may, but need
not, collect directly from the Obligors on any of the Collateral all
Income and Proceeds or other sums of money and other property due and
to become due under the Collateral, and Grantor authorizes and directs
the Obligors, if Lender exercises such option, to pay and deliver to
Lender all Income and Proceeds and other sums of money and other
property payable by the terms of the Collateral and to accept Lender's
receipt for the payments.
POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand,
collect, receive, receipt for, sue and recover all Income and Proceeds
and other sums of money and other property which may now or hereafter
become due, owing or payable from the Obligors in accordance with the
terms of the Collateral; (b) to execute, sign and endorse any and all
instruments, receipts, checks, drafts and warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and in the place and stead of Grantor,
execute and deliver Grantor's release and acquittance for Grantor; (d)
to file any claim or claims or to take any action or institute or take
part in any proceedings, either in Lender's own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to
be necessary or advisable; and (e) to execute in Grantor's name and to
deliver to the Obligors on Grantor's behalf, at the time and in the
manner specified by the Collateral, any necessary instruments or
documents.
PERFECTION OF SECURITY INTEREST. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral. Grantor hereby appoints Lender as
Grantor's irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. THIS IS A CONTINUING
SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY
PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD
OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may
(but shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the
Note from the date incurred or paid by Lender to the date of repayment by
Grantor. All such expenses shall become a part of the Indebtedness and, at
Lender's option, will (a) be payable on demand, (b) be added to the balance
of the Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any applicable
insurance policy or (ii) the remaining term OF the Note, or (c) be treated
as a balloon payment which will be due and payable at the Note's maturity.
This Agreement also will secure payment of these amounts. Such right shall
be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable
care in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or
its value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for
the collection or protection of any Income and Proceeds from the
Collateral, (b) preservation of rights against parties to the Collateral or
against third persons, (c) ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any of the
Collateral, or (d) informing Grantor about any of the above, whether or not
Lender has or is deemed to have knowledge of such matters. Except as
provided above, Lender shall have no liability for depreciation or
deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice OF the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume
unconditionally the
<PAGE>
08-22-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 3
(CONTINUED)
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- -------------------------------------------------------------------------------
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
ACCELERATE INDEBTEDNESS. Declare all Indebtedness, including any prepayment
penalty which Grantor would be required to pay, immediately due and
payable, without notice of any kind to Grantor.
COLLECT THE COLLATERAL. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession of
the Collateral while suing on the Indebtedness.
SELL THE COLLATERAL. Sell the Collateral, at Lender's discretion, as a unit
or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender shall give or mail
to Grantor, or any of them, notice at least ten (10) days in advance of the
time and place of any public sale, or of the date after which any private
sale may be made. Grantor agrees that any requirement of reasonable notice
is satisfied if Lender mails notice by ordinary mail addressed to Grantor,
or any of them, at the last address Grantor has given Lender in writing. If
a public sale is held, there shall be sufficient compliance with all
requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief description
of the property to be sold. Lender may be a purchaser at any public sale.
REGISTER SECURITIES. Register any securities included in the Collateral in
Lender's name and exercise any rights normally incident to the ownership of
securities.
SELL SECURITIES. Sell any securities included in the Collateral in a manner
consistent with applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is unable
to sell the securities in an open market transaction, Grantor agrees that
Lender shall have no obligation to delay sale until the securities can be
registered, and may make a private sale to one or more persons or to a
restricted group of persons, even though such sale may result in a price
that is less favorable than might be obtained in an open market
transaction, and such a sale shall be considered commercially reasonable.
If any securities held as Collateral are "restricted securities" as defined
in the Rules of the Securities and Exchange Commission (such as
Regulation D or Rule 144) or state securities departments under state
"Blue Sky" laws, or if Grantor is an affiliate of the issuer of the
securities, Grantor agrees that neither Grantor nor any member of
Grantor's family will sell or dispose of any securities of such issuer
without obtaining Lender's prior written consent.
FORECLOSURE. Maintain a judicial suit for foreclosure and sale of the
Collateral.
TRANSFER TITLE. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints Lender as its
attorney-in-fact to execute endorsements, assignments and instruments in
the name of Grantor and each of them (if more than one) as shall be
necessary or reasonable.
OTHER RIGHTS AND REMEDIES. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
APPLICATION OF PROCEEDS. Apply any cash which is part of the Collateral, or
which is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorney fees
as provided below, and court costs, whether or not there is a lawsuit and
including any fees on appeal, incurred by Lender in connection with the
collection and sale of such Collateral and to the payment of the
Indebtedness of Grantor to Lender, with any excess funds to be paid to
Grantor as the interests of Grantor may appear. Grantor agrees, to the
extent permitted by law, to pay any deficiency after application of the
proceeds of the Collateral to the Indebtedness.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to
make expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not affect
Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, the State of California This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
<PAGE>
08-22-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 4
(CONTINUED)
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AGREEMENT,
AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 22, 1996.
GRANTOR:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
-------------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500,000.00 08-22-1996 03-31-1997 OHC
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GUARANTOR: OSAMAH BAKHIT AND HEATHER BUCHER
28841 GLEN RIDGE
MISSION VIEJO, CA 92692
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS FOUR MILLION FIVE
HUNDRED THOUSAND & 00/100 DOLLARS ($4,500,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, OSAMAH BAKHIT AND
HEATHER BUCHER ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEE AND
PROMISE TO PAY, JOINTLY AND SEVERALLY, TO FAR EAST NATIONAL BANK ("LENDER")
OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE UNITED STATES OF AMERICA,
THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF AVIATION DISTRIBUTORS
INCORPORATED, A DELAWARE CORPORATION ("BORROWER") TO LENDER ON THE TERMS
AND CONDITIONS SET FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR
UNDER THIS GUARANTY ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation.
GUARANTOR. The word "Guarantor" means Osamah Bakhit and Heather Bucher, who
are signing this Guaranty jointly and severally.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated August 22, 1996.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME $4,500,000.00 PLUS ALL COSTS AND EXPENSES
OF (a) ENFORCEMENT OF THIS GUARANTY AND (b) COLLECTION AND SALE OF ANY
COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one
time. If Lender presently holds one or more guaranties, or hereafter
receives additional guaranties from Guarantor, the rights of Lender under
all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any such
other guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any such other
unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness within the limits set forth in the preceding section of
this Guaranty. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection
with any remaining portions of the Indebtedness or any of the Indebtedness
which subsequently arises or is thereafter incurred or contracted. Any
married person who signs this Guaranty as the Guarantor hereby expressly
agrees that recourse may be had against both his or her separate property
and community property. The obligations of Guarantors shall be joint and
several. Lender may proceed against any of the Guarantors individually,
against any group of Guarantors, or against all the Guarantors in one
action, without affecting the right of Lender to proceed against other
Guarantors for amounts that are covered by this Guaranty. Any inability of
Lender to proceed against any Guarantor (whether caused by actions of a
Guarantor or of Lender) will not affect Lender's right to proceed against
any or all remaining Guarantors for all or part of the amounts covered by
this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
delivered to Lender at the address of Lender listed above or such other
place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after
actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. Notice of revocation shall be
effective only as to the particular Guarantor providing the notice, and
shall not affect the liability of other guarantors. This Guaranty will
continue to bind Guarantor for all Indebtedness incurred by Borrower or
committed by Lender prior to receipt of Guarantor's written notice of
revocation, including any extensions, renewals, substitutions or
modifications of the Indebtedness. All renewals, extensions, substitutions,
and modifications of the Indebtedness granted after Guarantor's revocation,
are contemplated under this Guaranty and, specifically will not be
considered to be new Indebtedness. This Guaranty shall bind the estate of
Guarantor as to Indebtedness created both before and after the death or
incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in
the same manner in which Guarantor might have terminated it and with the
same effect. Release of any other guarantor or termination of any other
guaranty of the Indebtedness shall not affect the liability of Guarantor
under this Guaranty. A revocation received by Lender from any one or more
Guarantors shall not affect the liability of any remaining Guarantors under
this Guaranty. It is anticipated that fluctuations may occur in the
aggregate amount of Indebtedness covered by this Guaranty, and it is
specifically acknowledged and agreed by Guarantor that reductions in the
amount of Indebtedness, even to zero dollars ($0.00), prior to written
revocation of this Guaranty by Guarantor shall not constitute a termination
of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor's
heirs, successors and assigns so long as any of the guaranteed Indebtedness
remains unpaid and even though the Indebtedness guaranteed may from time to
time be zero dollars ($0.00).
<PAGE>
08-22-1996 COMMERCIAL GUARANTY (Continued)
Page 2
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, EITHER
BEFORE OR AFTER ANY REVOCATION HEREOF, WITHOUT NOTICE OR DEMAND AND WITHOUT
LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (a)
PRIOR TO REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL
SECURED OR UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS
TO BORROWER, OR OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (b) TO
ALTER, COMPROMISE, RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR
MORE TIMES THE TIME FOR PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY
PART OF THE INDEBTEDNESS, INCLUDING INCREASES AND DECREASES OF THE RATE OF
INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR
LONGER THAN THE ORIGINAL LOAN TERM; (c) TO TAKE AND HOLD SECURITY FOR THE
PAYMENT OF THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE,
SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY,
WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (d) TO RELEASE,
SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S
SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER
LENDER MAY CHOOSE; (e) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF
PAYMENTS AND CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (f) TO APPLY SUCH
SECURITY AND DIRECT THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT
LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING
SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY
DETERMINE; (g) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR
ANY PART OF THE INDEBTEDNESS; AND (h) TO ASSIGN OR TRANSFER THIS GUARANTY
IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind
have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's request
and not at the request of Lender; (c) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (d) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; (e)
upon Lender's request, Guarantor will provide to Lender financial and
credit information in form acceptable to Lender, and all such financial
information provided to Lender is true and correct in all material respects
and fairly presents the financial condition of Guarantor as of the dates
thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request
for information, Lender shall have no obligation to disclose to Guarantor
any information or documents acquired by Lender in the course of its
relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender to (a) make any presentment, protest,
demand, or notice of any kind, including notice of change of any terms of
repayment of the Indebtedness, default by Borrower or any other guarantor
or surety, any action or nonaction taken by Borrower, Lender, or any other
guarantor or surety of Borrower, or the creation of new or additional
Indebtedness; (b) proceed against any person, including Borrower, before
proceeding against Guarantor; (c) proceed against any collateral for the
Indebtedness, including Borrower's collateral, before proceeding against
Guarantor; (d) apply any payments or proceeds received against the
Indebtedness in any order; (e) give notice of the terms, time, and place of
any sale of the collateral pursuant to the Uniform Commercial Code or any
other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or
surety, or about any action or nonaction of Lender; or (g) pursue any
remedy or course of action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of
(h) any disability or other defense of Borrower, any other guarantor or
surety or any other person; (i) the cessation from any cause whatsoever,
other than payment in full, of the Indebtedness; (j) the application of
proceeds of the Indebtedness by Borrower for purposes other than the
purposes understood and intended by Guarantor and Lender; (k) any act of
omission or commission by Lender which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor or surety,
or the Indebtedness, or the loss or release of any collateral by operation
of law or otherwise; (l) any statute of limitations in any action under
this Guaranty or on the Indebtedness; or (m) any modification or change in
terms of the Indebtedness, whatsoever, including without limitation, the
renewal, extension, acceleration, or other change in the time payment of
the Indebtedness is due and any change in the interest rate, and including
any such modification or change in terms after revocation of this Guaranty
on Indebtedness incurred prior to such revocation. Until all Indebtedness
is paid in full, Guarantor waives all rights and any defenses Guarantor may
have arising out of an election of remedies by Lender even though that
election of remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed Guarantor's rights of
subrogation and reimbursement against Borrower or any other guarantor or
surety by operation of Section 580d and 726 of the California Code of Civil
Procedure or otherwise. This waiver includes, without limitation, any loss
of rights Guarantor may suffer by reason of any rights or protections of
Borrower in connection with any anti-deficiency laws or other laws limiting
or discharging the Indebtedness or Borrower's obligations (including,
without limitation, Sections 726, 580b, and 580d of the California Code of
Civil Procedure). Until all Indebtedness is paid in full, Guarantor waives
any right to enforce any remedy Lender may have against Borrower or any
other guarantor, surety, or other person, and further, Guarantor waives any
right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so
that at no time shall Guarantor be or become a "creditor" of Borrower
within the meaning of 11 U.S.C. section 547(b), or any successor provision
of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable
law or public policy, such waiver shall be effective only to the extent
permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of
setoff against the moneys, securities or other property of Guarantor given
to Lender by law, Lender shall have, with respect to Guarantor's
obligations to Lender under this Guaranty and to the extent permitted by
law, a contractual possessory security interest in and a right of setoff
against, and Guarantor hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Guarantor's right, title and interest in and to,
all deposits, moneys, securities and other property of Guarantor now or
hereafter in the possession of or on deposit with Lender, whether held in a
general or special account or deposit, whether held jointly with someone
else, or whether held for safekeeping or otherwise, excluding however all
IRA, Keogh, and trust accounts. Every such security interest and right of
setoff may be exercised without demand upon or notice to Guarantor. No
security interest or right of setoff shall be deemed to have been waived by
any act or conduct on the part of Lender or by any neglect to exercise such
right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full
force and effect until such right of setoff or security interest is
specifically waived or released by an instrument in writing executed by
Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes
insolvent. Guarantor hereby expressly subordinates any claim Guarantor may
have against Borrower, upon any account whatsoever, to any claim that
Lender may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or
acquire against Borrower or against any assignee or trustee in
<PAGE>
08-22-1996 COMMERCIAL GUARANTY Page 3
(CONTINUED)
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bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED AUGUST 22, 1996.
GUARANTOR:
X /s/ Osamah Bakhit X
---------------------------------- -----------------------------
Osamah Bakhit Heather Bucher
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<PAGE>
COMMERCIAL GUARANTY
<TABLE>
- ---------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OHC
- ---------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- ---------------------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
GUARANTOR: ADI CONSIGNMENT SALES, INC.
ONE WRIGLEY DRIVE
IRVINE, CA 92718
</TABLE>
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS FOUR MILLION FIVE HUNDRED
THOUSAND & 00/100 DOLLARS ($4,500,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, ADI CONSIGNMENT
SALES, INC. ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND
PROMISES TO PAY TO FAR EAST NATIONAL BANK ("LENDER") OR ITS ORDER, ON DEMAND,
IN LEGAL TENDER OF THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM
IS DEFINED BELOW) OF AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY.
THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation.
GUARANTOR. The word "Guarantor" means ADI CONSIGNMENT SALES, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated August 22, 1996.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME $4,500,000.00 PLUS ALL COSTS AND EXPENSES OF (a)
ENFORCEMENT OF THIS GUARANTY AND (b) COLLECTION AND SALE OF ANY COLLATERAL
SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
as the Guarantor hereby expressly agrees that recourse may be had against both
his or her separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing.
Guarantor's written notice of revocation must be delivered to Lender at the
address of Lender listed above or such other place as Lender may designate in
writing. Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set forth above, to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
<PAGE>
08-22-1996 COMMERCIAL GUARANTY PAGE 2
(CONTINUED)
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PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE
INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE
ORIGINAL LOAN TERM; (c) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS
GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE, FAIL
OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE
SUBSTITUTION OF NEW COLLATERAL; (d) TO RELEASE, SUBSTITUTE, AGREE NOT TO SUE,
OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (e) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (f) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF
SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY
THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER
IN ITS DISCRETION MAY DETERMINE; (g) TO SELL, TRANSFER, ASSIGN, OR GRANT
PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (h) TO ASSIGN OR
TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been
made to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of Guarantor's
assets, or any interest therein; (d) Lender has made no representation to
Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information provided to Lender
is true and correct in all material respects and fairly presents the
financial condition of Guarantor as of the dates thereof, and no material
adverse change has occurred in the financial condition of Guarantor since the
date of the financial statements; and (f) Guarantor has established adequate
means of obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately informed
from such means of any facts, events, or circumstances which might in any way
affect Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no obligation to
disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of
the Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional Indebtedness; (b)
proceed against any person, including Borrower, before proceeding against
Guarantor; (c) proceed against any collateral for the Indebtedness, including
Borrower's collateral, before proceeding against Guarantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the collateral pursuant
to the Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in Lender's
power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the
discharge of Borrower or any other guarantor or surety, or the Indebtedness,
or the loss or release of any collateral by operation of law or otherwise;
(l) any statute of limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the Indebtedness,
whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due
and any change in the interest rate, and including any such modification or
change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation. Until all Indebtedness is paid in full, Guarantor
waives all rights and any defenses Guarantor may have arising out of an
election of remedies by Lender even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower or any other guarantor or surety by operation of Section
580d and 726 of the California Code of Civil Procedure or otherwise. This
waiver includes, without limitation, any loss of rights Guarantor may suffer
by reason of any rights or protections of Borrower in connection with any
anti-deficiency laws or other laws limiting or discharging the Indebtedness
or Borrower's obligations (including, without limitation, Sections 726, 580b,
and 580d of the California Code of Civil Procedure). Until all Indebtedness
is paid in full, Guarantor waives any right to enforce any remedy Lender may
have against Borrower or any other guarantor, surety, or other person, and
further, Guarantor waives any right to participate in any collateral for the
Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in
favor of Lender and Borrower, and their respective successors, any claim or
right to payment Guarantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be
or become a "creditor" of Borrower within the meaning of 11 U.S.C. section
547(b), or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted
by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part
of Lender or by any neglect to exercise such right of setoff or to enforce
such security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment
for the benefit of creditors, by voluntary liquidation, or otherwise, the
assets of Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender to the
Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender
all claims which it may have or acquire against Borrower or against any
assignee or trustee in bankruptcy of Borrower; provided however, that such
assignment shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness. If Lender so requests, any notes
or credit agreements now or hereafter evidencing any debts or obligations of
Borrower to Guarantor shall be marked with a legend that the same are subject
to this Guaranty and shall be delivered to Lender. Guarantor agrees, and
Lender hereby is authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements and to
execute
<PAGE>
08-22-1996 COMMERCIAL GUARANTY PAGE 3
(CONTINUED)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
such other documents and to take such other actions as Lender deems necessary
or appropriate to perfect, preserve and enforce its rights under this
Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL
TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED AUGUST 22, 1996.
GUARANTOR:
ADI CONSIGNMENT SALES, INC.
By: /s/ Osamah Bakhit
----------------------------------------
OSAMAH BAKHIT, President
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OHC
$4,500,000.00 08-22-1996 03-31-1997
- -------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
</TABLE>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF AVIATION DISTRIBUTORS
INCORPORATED, A DELAWARE CORPORATION (THE "CORPORATION"), HEREBY CERTIFY that
the Corporation is organized and existing under and by virtue of the laws of
the State of Delaware as a corporation for profit, with its principal office
at One Wrigley Drive, Irvine, CA 92718, and is duly authorized to transact
business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called
and held on August 22, 1996, at which a quorum was present and voting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
Osamah Bakhit Chief Executive Officer X /s/ Osamah Bakhit
-----------------
acting for and on behalf of this Corporation and as its act and deed be, and
he or she hereby is, authorized and empowered:
BORROW MONEY. To borrow from time to time from Far East National Bank
("Lender"), on such terms as may be agreed upon between the officer,
employee, or agent and Lender, such sum or sums of money as in his or her
judgment should be borrowed; however, not exceeding at any one time the
amount of FOUR MILLION FIVE HUNDRED THOUSAND & 00/100 Dollars
($4,500,000.00), in addition to such sum or sums of money as may be
currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accommodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence 'the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which he
or she may in his or her discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as he or she may in his or her discretion deem reasonably
necessary or proper in order to carry into effect the provisions of these
Resolutions. The following person or persons are authorized to request
advances and authorize payments under the line of credit until Lender
receives written notice of revocation of their authority: Osamah Bakhit,
Chief Executive Officer.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Lender may rely on these Resolutions until written
notice of their revocation shall have been delivered to and received by
Lender. Any such notice shall not affect any of the Corporation's agreements
or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may
be, and occupies the position set opposite the name; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever. The Corporation has no corporate seal, and
therefore, no seal is affixed to this certificate.
<PAGE>
08-22-1996 CORPORATE RESOLUTION TO BORROW PAGE 2
(CONTINUED)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON AUGUST 22, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR
GENUINE SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X /s/ Osamah Bakhit
-----------------------------------
Secretary or Assistant Secretary
X /s/ ILLEGIBLE
-----------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
CORPORATE RESOLUTION TO GUARANTEE / GRANT COLLATERAL
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OHC
$4,500,000.00 08-22-1996 03-31-1997
- -------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
</TABLE>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
Guarantor: ADI CONSIGNMENT SALES, INC.
ONE WRIGLEY DRIVE
IRVINE, CA 92718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ADI CONSIGNMENT SALES,
INC. (THE "CORPORATION"), HEREBY CERTIFY AS FOLLOWS: The Corporation is
organized and existing under and by virtue of the laws of the State of
California. The Corporation has its principal office at One Wrigley Drive,
Irvine, CA 92718.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called
and held on July 21, 1995, at which a quorum was present and voting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers or employees
of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
OSAMAH BAKHIT President X /s/ Osamah Bakhit
------------------
acting for and on behalf of this Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered in the name of the Corporation:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation from Far East National Bank ("Lender") on such guarantee or
surety terms as may be agreed upon between the officers or employees of
this Corporation and Lender and in such sum or sums of money as in his or
her judgment should be guaranteed or assured, not exceeding, however, at
any one time the amount of FOUR MILLION FIVE HUNDRED THOUSAND & 00/100
Dollars ($4,500,000.00), in addition to such sum or sums of money as may be
currently guaranteed by the Corporation to Lender (the "Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty, any
property belonging to the Corporation or in which the Corporation may have
an interest, real, personal (tangible or intangible), or mixed. Such
property may be mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered at the time such loans are made or such indebtedness is
incurred, or at any other time or times, and may be either in addition to
or in lieu of any property theretofore mortgaged, pledged, transferred,
endorsed, hypothecated, or encumbered. The provisions of these Resolutions
authorizing or relating to the pledge, mortgage, transfer, endorsement,
hypothecation, granting of a security interest in, or in any way
encumbering, the assets of the Corporation shall include, without
limitation, doing so in order to lend collateral security for the
indebtedness, now or hereafter existing, and of any nature whatsoever, of
AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation to Lender. The
Corporation has considered the value to itself of lending collateral in
support of such indebtedness, and the Corporation represents to Lender that
the Corporation is benefited by doing so.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the form of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments, of
any kind or nature, which may be necessary or proper in connection with or
pertaining to the giving of liens and encumbrances.
FURTHER ACTS. To do and perform such other acts and things and to execute
and deliver such other documents as may in his or her discretion be deemed
reasonably necessary or proper in order to carry into effect any of the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the person named above is a principal officer of the
Corporation and occupies the position set opposite the name; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that they
are in full force and effect and have not been modified or revoked in any manner
whatsoever.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON AUGUST 22, 1996 AND ATTEST
THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE
SIGNATURES.
CERTIFIED TO AND ATTESTED
X /s/ Osamah Bakhit
--------------------------------
Secretary or Assistant Secretary
X /s/ ILLEGIBLE
--------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
AVIATION DISTRIBUTORS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of this 16th day of July, 1996
by and between MARK W. ASHTON, residing at 23015 Cecilia, Mission Viejo,
California 92691 ("Executive"), and AVIATION DISTRIBUTORS, INC., a Delaware
corporation, with offices at One Wrigley Drive, Irvine, California 92618 (the
"Company"), for the purpose of setting forth the terms and conditions of
Executive's employment by the Company and to protect the Company's knowledge,
expertise, customer relationships and the confidential information the Company
has developed regarding clients, customers, shareholders, option holders,
employees, products, business operations and services. As of the Effective
Date, this Agreement supersedes any prior understandings or agreements between
Executive and the Company or any of the Company's subsidiaries or affiliates.
The Board of Directors of the Company (the "Board") desires to provide for
the continued employment of Executive and to make certain changes in Executive's
employment arrangements with the Company which the Board has determined will
reinforce and encourage the continued attention and dedication to the Company of
Executive as a member of the Company's management, in the best interest of the
Company and its shareholders. Executive is willing to commit himself to
continue to serve the Company, on the terms and conditions herein provided,
although this Agreement may be amended any time by written agreement among the
parties.
In order to effect the foregoing, the Company and Executive wish to enter
into an employment agreement on the terms and conditions set forth below. In
consideration of the premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. TIME AND EFFORTS
1.1 Executive shall be employed as the Company's Vice President-
Finance and Chief Financial Officer, and shall devote his full-time attention to
the duties and responsibilities of Vice President-Finance and Chief Financial
Officer in furtherance of the Company's business.
<PAGE>
1.2 In the performance of all of his responsibilities hereunder,
Executive shall be subject to all of the Company's policies, rules, and
regulations applicable to its officers and employees generally and its Vice
President-Finance and Chief Financial Officer specifically. Executive shall
report to the Chief Executive Officer.
1.3 Executive shall continue to be a member of the Board during the
term of this Agreement.
1.4 Without the prior express authorization of the Board, Executive
shall not, directly or indirectly, during the term of this Agreement engage in
any activity competitive with or adverse to the Company's business, whether
alone, as a partner or independent contractor, or as an officer, director, or
employee of any other corporation. This Agreement shall not be interpreted to
prohibit Executive from making passive personal investments, conducting private
business affairs, or engaging in educational or charitable activities, if those
activities do not materially interfere with the services required hereunder.
1.5 In order to induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity; and (ii) Executive
is subject to no restraint, limitation or restriction by virtue of any agreement
or arrangement, or by virtue of any law or rule of law or otherwise which would
impair Executive's right or ability to enter the employ of the Company or to
perform fully his duties and obligations pursuant to this Agreement.
2. TERM
The initial term of employment of Executive under this Agreement shall
commence effective as of July 1, 1996 (the "Effective Date") and shall continue
in effect through December 31, 1999 (the "Term"), unless further extended or
sooner terminated as hereinafter provided. Commencing on January 1, 2000 and on
the third anniversary of each January 1 thereafter (each such January 1, an
"Anniversary Date"), the term of Executive's employment shall automatically be
extended for three
Page 2 of 19
<PAGE>
additional years unless, not later than the September 30 immediately preceding
an Anniversary Date, either party shall have given written notice (a "Nonrenewal
Notice") to the other party that it does not wish to extend this Agreement or
unless sooner terminated pursuant to Section 3. References hereinafter to the
"Term" of this Agreement shall refer to both the initial term and any extended
term of Executive's employment hereunder.
3. TERMINATION
Executive's employment hereunder may be terminated without breach of this
Agreement only under the following circumstances:
3.1 DEATH. Executive's employment hereunder shall terminate upon his
death.
3.2 DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six (6) consecutive
months, and within thirty (30) days after written Notice of Termination (as
defined in paragraph (3.5) below) is given (which may occur before or after the
end of such six (6) month period) shall not have returned to the performance of
his duties hereunder on a full-time basis, Executive's employment hereunder
shall terminate for "Disability."
3.3 CAUSE. The Company may terminate Executive's employment
hereunder for "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon (i) Executive's
conviction for the commission of an act or acts constituting a felony under the
laws of the United States or any state thereof, (ii) action by Executive toward
the Company involving dishonesty, (iii) Executive's refusal to abide by or
follow written directions of the Chief Executive Officer of the Board, (iv)
Executive's nonfeasance, or (v) failure of Executive to comply with the
provisions of Section 8 of this Agreement or other willful conduct by Executive
which has a material adverse impact on the Company.
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<PAGE>
3.4 TERMINATION BY EXECUTIVE.
3.4.1 Executive may terminate his employment hereunder for "Good
Reason." For purposes of this Agreement, Executive shall have "Good Reason" to
terminate his employment hereunder (i) upon a failure by the Company to comply
with any material provision of this Agreement which has not been cured within
ten (10) business days after notice of such noncompliance has been given by
Executive to the Company, (ii) upon action by the Company resulting in a
diminution of Executive's title or authority, or (iii) one year after a "Change
in Control of the Company" (as defined in paragraph 3.4.2 below). Executive may
terminate his employment voluntarily without Good Reason upon at least six
months' prior notice to the Company.
3.4.2 For purposes of this Agreement, a "Change in Control of
the Company" will be deemed to have occurred if:
A. any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than (i) the Company, (ii) any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or (iii) any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportion as their ownership of Shares), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting
power of the Company's then outstanding voting securities;
B. during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause
(A), (C), or (D) of this Section 3.4.2) whose election by
the Board or nomination for election by the Company's
stockholders was approved by a vote
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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
at least a majority thereof;
C. the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than (i) 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 or parent entity) 50% or more of
the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding
immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires 50% or
more of the combined voting power of the Company's then
outstanding securities; or
D. 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 of all or substantially all of
the Company's assets (or any transaction having a similar
effect).
3.5 NOTICE OF TERMINATION. Any termination of Executive's employment
by the Company or by Executive (other than termination under Section 3.1 hereof)
shall be communicated by written Notice of Termination to the other party hereto
in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
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<PAGE>
3.6 DATE OF TERMINATION. "Date of Termination" shall mean (i) if
Executive's employment is terminated by his death, the date of his death, (ii)
if Executive's employment is terminated pursuant to subsection (3.2) above,
thirty (30) days after Notice of Termination is given (provided that Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period), (iii) if Executive's employment is
terminated pursuant to subsection (3.3) or (3.4) above other than as provided in
(iv), the date specified in the Notice of Termination, and (iv) if Executive
receives from the Company a Nonrenewal Notice, the date the Agreement expires;
PROVIDED THAT, if within thirty (30) days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a binding and final arbitration award.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY
4.1 DISABILITY. During any period that Executive fails to perform
his duties hereunder as a result of Disability, Executive shall continue to
receive his full salary at the rate then in effect for such period until his
employment is terminated pursuant to Section 3.2 hereof. Subject to the
provisions of Section 8 hereof, in the event Executive's employment is
terminated pursuant to this Section 4.1 hereof, then
4.1.1 as soon as practicable thereafter, the Company shall pay
Executive all unpaid amounts, if any, to which Executive is entitled as of the
Date of Termination under Sections 5, 6.1 and 6.2 hereof and shall pay to
Executive, in accordance with the terms of the applicable plan or program, all
other unpaid amounts to which Executive is then entitled under any compensation
or benefit plan or program of the Company (collectively, "Accrued Obligations");
4.1.2 following the Date of Termination and for the longer of
eighteen (18) months thereafter or the balance of the Term as then in effect
(the "Severance Period"), the Company shall pay Executive monthly an amount
equal to (X) the quotient of (1) the sum of (A) Executive's annual base salary
at the rate in effect as of the Date of Termination and (B) the annual bonus
earned by Executive in the fiscal year of the Company ended immediately prior to
the Date of Termination, divided by (2)
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the greater of (C) the number of full months remaining in the Term or (D) the
number eighteen (18) (such quotient being referred to herein as the "Severance
Payments"), minus (Y) any amounts payable to Executive during any such month as
a disability benefit under any other disability plan, program or arrangement of
the Company; and
4.1.3 as of the Date of Termination, an additional number of
shares (if any) underlying outstanding stock options granted to Executive from
time to time during the Term shall become exercisable, such that the total
number of shares underlying each such grant which are exercisable is equal to
the product of (1) the total number of shares covered by such grant (whether or
not any portion of such grant has previously been exercised) and (2) a fraction
the numerator of which is the number of full months from the date of grant to
the end of the Severance Period and the denominator of which is the number of
full months from the date of grant to the date the option would otherwise have
become fully exercisable. Executive shall have the right to exercise any stock
option, to the extent then exercisable, for a period of one (1) year following
the Date of Termination, subject to such limitations on exercisability as may be
set forth in any plan or agreement covering such options, and to the extent not
exercisable, the option shall immediately terminate.
4.2 DEATH. If Executive's employment is terminated by his death,
4.2.1 the Company shall pay to the person(s) or entity set forth
in Section 11 hereof: (1) the Accrued Obligations, at the time(s) set forth in
Section 4.1.1 hereof; (2) as soon as practicable following Executive's death,
the amounts payable under any life insurance policy maintained by the Company on
Executive's life; and (3) as soon as practicable following the end of the fiscal
year of the Company in which Executive's death occurs, any incentive
compensation which would otherwise have been paid to Executive with respect to
such fiscal year; and
4.2.2 the additional vesting of stock options, as described in
Section 4.1.3 shall apply.
4.3 TERMINATION FOR CAUSE; VOLUNTARY TERMINATION WITHOUT GOOD REASON.
If Executive's employment is terminated by the Company for Cause or voluntarily
by Executive for other than Good
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Reason, the Company shall pay the Accrued Obligations to Executive at the
time(s) set forth in Section 4.1.1 hereof and the Company shall have no further
obligations to Executive under this Agreement.
4.4 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON;
NONRENEWAL. If (1) the Company shall terminate Executive's employment other
than for Disability pursuant to Section 4.2 or for Cause, (2) Executive shall
terminate his employment for Good Reason or (3) the Term of this Agreement
expires as a result of a Nonrenewal Notice having been provided by the Company,
then, subject to the provisions of Section 8 hereof:
1. the Company shall pay the Accrued Obligations to Executive at
the time(s) set forth in Section 4.1.1 hereof;
2. the Company shall pay to Executive the Severance Payments, as
defined and for the period set forth in Section 4.1.2 hereof
(except that in the case of the expiration of the Term, as
described in clause 4.4(3) above, the Severance Period shall
end on the first anniversary of the expiration of the Term
and, for purposes of determining the amount of Severance
Payments, the divisor shall be equal to twelve (12));
3. the additional vesting of stock options as described in
Section 4.1.3 shall apply (except that in the case of the
expiration of the Term, as described in clause 4.4(3) above,
the number of additional option Shares becoming exercisable
shall be determined by reference to the number of full months
from the date of grant to the first anniversary of the date of
such expiration);
4. Executive shall continue to be provided with the same medical
and life insurance coverage as existed immediately prior to
the applicable Notice of Termination or Notice of Nonrenewal,
as the case may be, such coverage to continue through the end
of the Severance Period (or, in the case of expiration of the
Term, as described in clause 4.4(3) above, through the
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first anniversary of the date of such expiration); PROVIDED
THAT, such coverage shall cease as of the date Executive
obtains new employment; and
5. Executive shall be provided with appropriate outplacement
services.
4.5 TERMINATION UPON A CHANGE IN CONTROL.
4.5.1 Upon the occurrence of a Change in Control of the Company
during the Term any then outstanding stock options granted to Executive shall
become fully exercisable, whether or not otherwise exercisable, and such options
shall be fully vested.
4.5.2 Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part)
by the Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and all other Severance
Payments shall thereafter be reduced (if necessary, to zero); PROVIDED, HOWEVER,
that the Executive may elect to have the noncash Severance Payments reduced (or
eliminated) prior to any reduction of the cash Severance Payments.
For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the meaning
of section 280G(b) of the Code shall be taken into account, (ii) no portion of
the Total Payments shall be taken into account which, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm
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which was, immediately prior to the Change in Control of the Company, the
Company's independent auditor (the "Auditor"), does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, including by
reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance
as deductions by reason of section 280G of the Code, in the opinion of Tax
Counsel, and (iv) the value of any noncash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of the Code.
If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms of this Section
4.5.2, the Total Payments paid to or for the Executive's benefit are in an
amount that would result in any portion of such Total Payments being subject to
the Excise Tax, then, if such repayment would result in (i) no portion of the
remaining Total Payments being subject to the Excise Tax and (ii) a dollar-for-
dollar reduction in the Executive's taxable income and wages for purposes of
federal, state and local income and employment taxes, the Executive shall have
an obligation to pay the Company upon demand an amount equal to the sum of (i)
the excess of the Total Payments paid to or for the Executive's benefit over the
Total Payments that could have been paid to or for the Executive's benefit
without any portion of such Total Payments being subject to the Excise Tax; and
(ii) interest on the amount set forth in clause (i) of this sentence at the rate
provided in section 1274(b)(2)(B) of the Code from the date of the Executive's
receipt of such excess until the date of such payment.
5. VACATION
During each calendar year of the term of this Agreement, Executive shall be
entitled to three weeks of paid vacation earned ratably over the term of each
calendar year during the Term. Executive shall be entitled to receive payment
for accrued vacation not taken during each calendar year during the term of this
Agreement or may accrue such vacation for use in a subsequent calendar year;
however Executive shall be subject to a maximum accrual of three (3) weeks of
paid vacation at which
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time Executive shall cease accruing vacation days until his vacation balance
falls below the minimum accrual.
6. CURRENT COMPENSATION
6.1 ANNUAL SALARY. For all services rendered by Executive under this
Agreement, the Company shall pay or cause to be paid to Executive, and Executive
shall accept the Annual Salary and Incentive Compensation, if any, all in
accordance with and subject to the terms of this Agreement. For purposes of
this Agreement, the term "Compensation" shall mean the Annual Salary and
Incentive Compensation, if any. Executive shall be entitled to receive as
current compensation an Annual salary in the amount of $120,000 per annum
(hereinafter referred to as the "Annual Salary"). References in this Agreement
to "annual" or "per annum" or "Annual" and similar phrases shall mean the
twelve-month period commencing on July 1st of each year during the term of this
Agreement unless otherwise indicated.
6.2 INCENTIVE COMPENSATION. In addition, Executive shall be entitled
to annual Incentive Compensation in accordance with the Company's Executive
Incentive Compensation Plan. The Company acknowledges the current Executive
Incentive Compensation Plan provides for the contribution of 7.5% of the
Company's earnings before taxes to a senior management bonus pool to be
allocated among the senior management in accordance with the determination of
the Board of Directors, not to exceed the contribution of $250,000 annually.
6.3 401(k) PLAN. Executive shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan.
6.4 PAYMENTS OF CURRENT COMPENSATION. The payment of Executive's
Annual Salary shall be made in semi-monthly installments on the then prevailing
pay days of the Company. Any payment for Incentive Compensation will be made in
accordance with the Executive Incentive Compensation Plan, and payment will be
made in one lump sum concurrently with payments made to others in senior
management. All payments are subject to the customary withholding tax and other
employment taxes as required with respect to compensation paid to an employee.
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7. MISCELLANEOUS BENEFITS
7.1 MEDICAL INSURANCE. Executive and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its executive employees.
7.2 BUSINESS EXPENSES. Executive shall be reimbursed for all
reasonable expenses incurred by Executive in connection with Executive's
attendance at business meetings and promotion of Company business upon
presentation by Executive to the Company of an expense report and adequate
records or other documentation substantiating the expenditures, not less
frequently than monthly. Any such amounts disallowed as a business expense for
federal or state income tax purposes shall be deemed additional salary to
Executive. The fact that the Company may not reimburse Executive for an expense
is not an indication that the Company determined that the expense was not
incurred on its behalf or in connection with the Company's business.
7.3 LIFE INSURANCE. During the term of this Agreement, the Company
shall pay for and maintain on a continuous basis life insurance in the amount of
$1,000,000 on the life of Executive naming the Company as beneficiary.
8. RESTRICTIVE COVENANTS
8.1 CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder he occupies a position of trust and confidence. During the
Term, and thereafter, Executive shall not, except as may be required to perform
his duties hereunder or as required by applicable law, and except for
information which is or becomes publicly available other than as a result of a
breach by the Executive of the provisions hereof, disclose to others or use,
whether directly or indirectly, any Confidential Information. "Confidential
Information" shall mean information about the Company, its subsidiaries and
affiliates, and their respective suppliers, clients and customers that is not
disclosed by the Company for financial reporting purposes and that was learned
by Executive in the course of his employment hereunder, including (without
limitation) proprietary knowledge, trade secrets, market research, data,
formulae, information and supplier, client and customer lists and all papers,
resumes,
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and records (including computer records) of the documents containing such
Confidential Information. Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Company,
and that such information gives the Company a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information (and all copies thereof)
furnished by the Company or any of its subsidiaries or affiliates or prepared by
the Executive during the term of his employment by the Company.
8.2 BUSINESS DIVERSION. During the Term and for thirty (30) months
thereafter, Executive shall not, directly or indirectly, influence or attempt to
influence customers or suppliers of the Company or any of its subsidiaries or
affiliates to divert their business to any Competitor of the Company.
8.3 NONSOLICITATION. Executive recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates, relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and inter-personal
relationships with suppliers and customers of the Company. Executive recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company and will be acquired by
him because of his business position with the Company. Executive agrees that,
during the Term and for thirty (30) months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, its subsidiaries or affiliates to any other person.
8.4 If Executive breaches, or threatens to commit breach of, any of
the provisions of Section 8 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to the following:
8.4.1 Specific Performance. The right and remedy to have the
Restrictive
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Covenants specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Company or its subsidiaries and that money
damages would not provide an adequate remedy to the Company or its subsidiaries.
8.4.2 Accounting. The right and remedy to require Executive to
account for and pay over to the Company or its subsidiaries, as the case may be,
all compensation, profits, monies, accruals, increments or other benefits
derived or received by Executive as result of any transaction constituting a
breach of the Restrictive Covenants.
8.4.3 Severability of Restrictive Covenants. Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect without regard to the invalid
portions.
8.4.4 Blue-Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
8.4.5 Enforceability of Jurisdictions. The obligations contained
in this Section 8 shall survive the termination of Executive's employment or
expiration of this Agreement and shall be fully enforceable thereafter.
Executive intends to and hereby confers jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic scope of
such Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of Executive that such
determination not bar or in any way affect the right of the Company or its
subsidiaries to the relief provided above in the courts of any other
jurisdiction within the geographic scope of such Restrictive Covenants, as to
breaches of such Restrictive Covenants in such other respective jurisdictions,
such Restrictive Covenants as they relate to each jurisdiction being, for this
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purpose, severable into diverse and independent Restrictive Covenants.
9. PARTICIPATION IN STOCK AND OPTION EXECUTIVE COMPENSATION PLAN
Executive shall be granted an option to purchase 10,000 shares of Common
Stock of the Company (the "Option Shares") pursuant to the terms and conditions
contained in the Company's 1996 Stock Option and Incentive Award Plan (the
"Plan"). The exercise price for the Option Shares will be equal to $7.00, and
the options will vest ratably over a three-year period commencing six months
after the closing of the Company's initial public offering.
10. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company, the
termination of that employment, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Los Angeles, California according to the Employment Dispute
Resolution Rules and procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or causes of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
of an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state Constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the National Labor Relations
Act, as amended, the Labor-Management Relations Act, as amended, the Worker
Retraining and Notification Act of 1988, the Americans With Disabilities Act of
1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of
1967, as amended, and the California Fair Employment and Housing Act, as
amended.
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11. ASSIGNMENT
Neither this Agreement nor any rights hereunder shall be assignable or
otherwise subject to hypothecation by Executive (except by will or by operation
of the law of intestate succession) or by the Company except that the Company
may require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance reasonably
satisfactory to Executive, 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
it if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 11 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts would still be payable to
him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to Executive's estate.
12. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first-class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any
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party may change its address for purposes of this paragraph by giving the other
party written notice of the new address in the manner set forth above.
13. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
14. AMENDMENT MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part, but
only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
15. HEADINGS
The headings in this Agreement are inserted for convenience only and are
not to be considered in construction of the provisions hereof.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Executive and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
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17. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the arbitrator
or ruling court.
18. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as is
necessary or appropriate to effectuate the provisions of this Agreement.
19. CONTROLLING LAW
This Agreement and the rights of the parties hereunder shall be governed by
and construed and enforced in accordance with laws of the State of Delaware
(excluding its conflict of laws principles, statutes or other similar laws)
including all matters of construction, validity, performance and enforcement.
20. WAIVER
A waiver by either party of any of the terms and conditions hereof shall
not be construed as a general waiver by such party, and such party shall be free
to reinstate such part or clause, with or without notice to the other party.
21. INDEMNIFICATION
To the fullest extent permitted by law and the Company's certificate of
incorporation and by-laws, the Company shall indemnify Executive for all amounts
(including, without limitation, judgments, fines, settlement payments, losses,
damages, costs and expenses (including reasonable attorneys' fees)) incurred or
paid by Executive in connection with any action, proceeding, suit or
investigation
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arising out of or relating to the performance by Executive of services for, or
acting as a director, officer or employee of, the Company or any subsidiary
thereof.
THE COMPANY: EXECUTIVE:
AVIATION DISTRIBUTORS, INC.,
a Delaware corporation
By: /s/ Osamah S. Bahit /s/ Mark W. Ashton
---------------------------- ------------------------------
Osamah S. Bahit, MARK W. ASHTON
Chief Executive Officer
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AVIATION DISTRIBUTORS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of this 16th day of July, 1996
by and between JEFFREY G. WARD, residing at 22 Amarante, Laguna Niguel,
California 92677 ("Executive"), and AVIATION DISTRIBUTORS, INC., a Delaware
corporation, with offices at One Wrigley Drive, Irvine, California 92618 (the
"Company"), for the purpose of setting forth the terms and conditions of
Executive's employment by the Company and to protect the Company's knowledge,
expertise, customer relationships and the confidential information the Company
has developed regarding clients, customers, shareholders, option holders,
employees, products, business operations and services. As of the Effective
Date, this Agreement supersedes any prior understandings or agreements between
Executive and the Company or any of the Company's subsidiaries or affiliates.
The Board of Directors of the Company (the "Board") desires to provide for
the continued employment of Executive and to make certain changes in Executive's
employment arrangements with the Company which the Board has determined will
reinforce and encourage the continued attention and dedication to the Company of
Executive as a member of the Company's management, in the best interest of the
Company and its shareholders. Executive is willing to commit himself to
continue to serve the Company, on the terms and conditions herein provided,
although this Agreement may be amended at any time by written agreement among
the parties.
In order to effect the foregoing, the Company and Executive wish to enter
into an employment agreement on the terms and conditions set forth below. In
consideration of the premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. TIME AND EFFORTS
1.1 Executive shall be employed as the Company's Executive Vice
President, and shall devote his full-time attention to the duties and
responsibilities of Executive Vice President in furtherance of the Company's
business.
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1.2 In the performance of all of his responsibilities hereunder,
Executive shall be subject to all of the Company policies, rules, and
regulations applicable to its officers and employees generally and its Executive
Vice President specifically. Executive shall report to the Chief Executive
Officer.
1.3 Executive shall continue to be a member of the Board during the
term of this Agreement.
1.4 Without the prior express authorization of the Board, Executive
shall not, directly or indirectly, during the term of this Agreement engage in
any activity competitive with or adverse to the Company's business, whether
alone, as a partner or independent contractor, or as an officer, director, or
employee of any other corporation. This Agreement shall not be interpreted to
prohibit Executive from making passive personal investments, conducting private
business affairs, or engaging in educational or charitable activities, if those
activities do not materially interfere with the services required hereunder.
1.5 In order to induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity; and (ii) Executive
is subject to no restraint, limitation or restriction by virtue of any agreement
or arrangement, or by virtue of any law or rule of law or otherwise which would
impair Executive's right or ability to enter the employ of the Company or to
perform fully his duties and obligations pursuant to this Agreement.
2. TERM
The initial term of employment of Executive under this Agreement shall
commence effective as of July 1, 1996 (the "Effective Date") and shall continue
in effect through December 31, 1999 (the "Term"), unless further extended or
sooner terminated as hereinafter provided. Commencing on January 1, 2000 and on
the third anniversary of each January 1 thereafter (each such January 1, an
"Anniversary Date"), the term of Executive's employment shall automatically be
extended for three additional years unless, not later than the September 30
immediately preceding an Anniversary Date,
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either party shall have given written notice (a "Nonrenewal Notice") to the
other party that it does not wish to extend this Agreement or unless sooner
terminated pursuant to Section 3. References hereinafter to the "Term" of this
Agreement shall refer to both the initial term and any extended term of
Executive's employment hereunder.
3. TERMINATION
Executive's employment hereunder may be terminated without breach of this
Agreement only under the following circumstances:
3.1 DEATH. Executive's employment hereunder shall terminate upon his
death.
3.2 DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six (6) consecutive
months, and within thirty (30) days after written Notice of Termination (as
defined in paragraph (3.5) below) is given (which may occur before or after the
end of such six (6) month period) shall not have returned to the performance of
his duties hereunder on a full-time basis, Executive's employment hereunder
shall terminate for "Disability."
3.3 CAUSE. The Company may terminate Executive's employment
hereunder for "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon (i) Executive's
conviction for the commission of an act or acts constituting a felony under the
laws of the United States or any state thereof, (ii) action by Executive toward
the Company involving dishonesty, (iii) Executive's refusal to abide by or
follow written directions of the Chief Executive Officer of the Board, (iv)
Executive's nonfeasance, or (v) failure of Executive to comply with the
provisions of Section 8 of this Agreement or other willful conduct by Executive
which has a material adverse impact on the Company.
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3.4 TERMINATION BY EXECUTIVE.
3.4.1 Executive may terminate his employment hereunder for "Good
Reason." For purposes of this Agreement, Executive shall have "Good Reason" to
terminate his employment hereunder (i) upon a failure by the Company to comply
with any material provision of this Agreement which has not been cured within
ten (10) business days after notice of such noncompliance has been given by
Executive to the Company, (ii) upon action by the Company resulting in a
diminution of Executive's title or authority, or (iii) one year after a "Change
in Control of the Company" (as defined in paragraph 3.4.2 below). Executive may
terminate his employment voluntarily without Good Reason upon at least six
months' prior notice to the Company.
3.4.2 For purposes of this Agreement, a "Change in Control of
the Company" will be deemed to have occurred if:
A. any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than (i) the Company, (ii) any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or (iii) any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportion as their ownership of Shares), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting
power of the Company's then outstanding voting securities;
B. during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause
(A), (C), or (D) of this Section 3.4.2) whose election by
the Board or nomination for election by the Company's
stockholders was approved by a vote
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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
at least a majority thereof;
C. the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than (i) 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 or parent entity) 50% or more of
the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding
immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires 50% or
more of the combined voting power of the Company's then
outstanding securities; or
D. 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 of all or substantially all of
the Company's assets (or any transaction having a similar
effect).
3.5 NOTICE OF TERMINATION. Any termination of Executive's employment
by the Company or by Executive (other than termination under Section 3.1 hereof)
shall be communicated by written Notice of Termination to the other party hereto
in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
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3.6 DATE OF TERMINATION. "Date of Termination" shall mean (i) if
Executive's employment is terminated by his death, the date of his death, (ii)
if Executive's employment is terminated pursuant to subsection (3.2) above,
thirty (30) days after Notice of Termination is given (provided that Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period), (iii) if Executive's employment is
terminated pursuant to subsection (3.3) or (3.4) above, other than as provided
in (iv), the date specified in the Notice of Termination, and (iv) if Executive
receives from the Company a Nonrenewal Notice, the date the Agreement expires;
PROVIDED THAT, if within thirty (30) days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a binding and final arbitration award.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY
4.1 DISABILITY. During any period that Executive fails to perform
his duties hereunder as a result of Disability, Executive shall continue to
receive his full salary at the rate then in effect for such period until his
employment is terminated pursuant to Section 3.2 hereof. Subject to the
provisions of Section 8 hereof, in the event Executive's employment is
terminated pursuant to this Section 4.1 hereof, then
4.1.1 as soon as practicable thereafter, the Company shall pay
Executive all unpaid amounts, if any, to which Executive is entitled as of the
Date of Termination under Sections 5, 6.1 and 6.2 hereof and shall pay to
Executive, in accordance with the terms of the applicable plan or program, all
other unpaid amounts to which Executive is then entitled under any compensation
or benefit plan or program of the Company (collectively, "Accrued Obligations");
4.1.2 following the Date of Termination and for the longer of
eighteen (18) months thereafter or the balance of the Term as then in effect
(the "Severance Period"), the Company shall pay Executive monthly an amount
equal to (X) the quotient of (1) the sum of (A) Executive's annual base salary
at the rate in effect as of the Date of Termination and (B) the annual bonuses
earned by Executive in the fiscal year of the Company ended immediately prior to
the Date of Termination, divided
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by (2) the greater of (C) the number of full months remaining in the Term or (D)
the number eighteen (18) (such quotient being referred to herein as the
"Severance Payments"), minus (Y) any amounts payable to Executive during any
such month as a disability benefit under any other disability plan, program or
arrangement of the Company; and
4.1.3 as of the Date of Termination, an additional number of
shares (if any) underlying outstanding stock options granted to Executive from
time to time during the Term shall become exercisable, such that the total
number of shares underlying each such grant which are exercisable is equal to
the product of (1) the total number of shares covered by such grant (whether or
not any portion of such grant has previously been exercised) and (2) a fraction
the numerator of which is the number of full months from the date of grant to
the end of the Severance Period and the denominator of which is the number of
full months from the date of grant to the date the option would otherwise have
become fully exercisable. Executive shall have the right to exercise any stock
option, to the extent then exercisable, for a period of one (1) year following
the Date of Termination, subject to such limitations on exercisability as may be
set forth in any plan or agreement covering such options, and to the extent not
exercisable, the option shall immediately terminate.
4.2 DEATH. If Executive's employment is terminated by his death,
4.2.1 the Company shall pay to the person(s) or entity set forth
in Section 11 hereof: (1) the Accrued Obligations, at the time(s) set forth in
Section 4.1.1 hereof; (2) as soon as practicable following Executive's death,
the amounts payable under any life insurance policy maintained by the Company on
Executive's life; and (3) as soon as practicable following the end of the fiscal
year of the Company in which Executive's death occurs, any incentive
compensation which would otherwise have been paid to Executive with respect to
such fiscal year; and
4.2.2 the additional vesting of stock options, as described in
Section 4.1.3 shall apply.
4.3 TERMINATION FOR CAUSE; VOLUNTARY TERMINATION WITHOUT GOOD
REASON. If Executive's employment is terminated by the Company for Cause or
voluntarily by Executive for other than Good
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Reason, the Company shall pay the Accrued Obligations to Executive at the
time(s) set forth in Section 4.1.1 hereof and the Company shall have no further
obligations to Executive under this Agreement.
4.4 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON;
NONRENEWAL. If (1) the Company shall terminate Executive's employment other
than for Disability pursuant to Section 4.2 or for Cause, (2) Executive shall
terminate his employment for Good Reason or (3) the Term of this Agreement
expires as a result of a Nonrenewal Notice having been provided by the Company,
then, subject to the provisions of Section 8 hereof:
1. the Company shall pay the Accrued Obligations to
Executive at the time(s) set forth in Section 4.1.1
hereof;
2. the Company shall pay to Executive the Severance
Payments, as defined and for the period set forth in
Section 4.1.2 hereof (except that in the case of the
expiration of the Term, as described in clause 4.4(3)
above, the Severance Period shall end on the first
anniversary of the expiration of the Term and, for
purposes of determining the amount of Severance
Payments, the divisor shall be equal to twelve (12));
3. the additional vesting of stock options as described in
Section 4.1.3 shall apply (except that in the case of
the expiration of the Term, as described in clause
4.4(3) above, the number of additional option Shares
becoming exercisable shall be determined by reference
to the number of full months from the date of grant to
the first anniversary of the date of such expiration);
4. Executive shall continue to be provided with the same
medical and life insurance coverage as existed
immediately prior to the applicable Notice of
Termination or Notice of Nonrenewal, as the case may
be, such coverage to continue through the end of the
Severance Period (or, in the case of expiration of the
Term, as described in clause 4.4(3) above, through the
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first anniversary of the date of such expiration);
PROVIDED THAT, such coverage shall cease as of the date
Executive obtains new employment; and
5. Executive shall be provided with appropriate
outplacement services.
4.5 TERMINATION UPON A CHANGE IN CONTROL.
4.5.1 Upon the occurrence of a Change in Control of the Company
during the Term, any then outstanding stock options granted to Executive shall
become fully exercisable, whether or not otherwise exercisable, and such options
shall be fully vested.
4.5.2 Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part)
by the Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and all other Severance
Payments shall thereafter be reduced (if necessary, to zero); PROVIDED, HOWEVER,
that the Executive may elect to have the noncash Severance Payments reduced (or
eliminated) prior to any reduction of the cash Severance Payments.
For purposes of this limitation, (i) no portion of the
Total Payments the receipt or enjoyment of which the Executive shall have waived
at such time and in such manner as not to constitute a "payment" within the
meaning of section 280G(b) of the Code shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm
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which was, immediately prior to the Change in Control of the Company, the
Company's independent auditor (the "Auditor"), does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, including by
reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance
as deductions by reason of section 280G of the Code, in the opinion of Tax
Counsel, and (iv) the value of any noncash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of the Code.
If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding that, notwithstanding the
good faith of the Executive and the Company in applying the terms of this
Section 4.5.2, the Total Payments paid to or for the Executive's benefit are in
an amount that would result in any portion of such Total Payments being subject
to the Excise Tax, then, if such repayment would result in (i) no portion of the
remaining Total Payments being subject to the Excise Tax and (ii) a dollar-for-
dollar reduction in the Executive's taxable income and wages for purposes of
federal, state and local income and employment taxes, the Executive shall have
an obligation to pay the Company upon demand an amount equal to the sum of (i)
the excess of the Total Payments paid to or for the Executive's benefit over the
Total Payments that could have been paid to or for the Executive's benefit
without any portion of such Total Payments being subject to the Excise Tax; and
(ii) interest on the amount set forth in clause (i) of this sentence at the rate
provided in section 1274(b)(2)(B) of the Code from the date of the Executive's
receipt of such excess until the date of such payment.
5. VACATION
During each calendar year of the term of this Agreement, Executive shall be
entitled to three weeks of paid vacation earned ratably over the term of each
calendar year during the Term. Executive shall be entitled to receive payment
for accrued vacation not taken during each calendar year during the term of this
Agreement or may accrue such vacation for use in a subsequent calendar year;
however Executive shall be subject to a maximum accrual of three (3) weeks of
paid vacation, at which
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time Executive shall cease accruing vacation days until his vacation balance
falls below the maximum accrual period.
6. CURRENT COMPENSATION
6.1 ANNUAL SALARY. For all services rendered by Executive under this
Agreement, the Company shall pay or cause to be paid to Executive, and Executive
shall accept the Annual Salary and Incentive Compensation, if any, all in
accordance with the subject to the terms of this Agreement. For purposes of
this Agreement, the term "Compensation" shall mean the Annual Salary and
Incentive Compensation, if any. Executive shall be entitled to receive as
current compensation an Annual salary in the amount of $120,000 per annum
(hereinafter referred to as the "Annual Salary"). References in this Agreement
to "annual" or "per annum" or "Annual" and similar phrases shall mean the
twelve-month period commencing on July 1st of each year during the term of this
Agreement unless otherwise indicated.
6.2 INCENTIVE COMPENSATION. In addition, Executive shall be entitled
to annual Incentive Compensation in accordance with the Company's Executive
Incentive Compensation Plan. The Company acknowledges the current Executive
Incentive Compensation Plan provides for the contribution of 7.5% of the
Company's earnings before taxes to a senior management bonus pool to be
allocated among the senior management in accordance with the determination of
the Board of Directors, not to exceed the contribution of $250,000 annually.
Executive shall also be entitled to a commission on sales to those customers
identified in Exhibit "A," a copy of which is attached hereto and incorporated
herein by reference, equal to 1.25% of such sales.
6.3 401(k) PLAN. Executive shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan.
6.4 PAYMENTS OF CURRENT COMPENSATION. The payment of Executive's
Annual Salary shall be made in semi-monthly installments on the then prevailing
pay days of the Company. Any payment for Incentive Compensation will be made in
accordance with the Executive Incentive Compensation Plan, and payment will be
made in one lump sum concurrently with payments made to
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others in senior management. All payments are subject to the customary
withholding tax and other employment taxes as required with respect to
compensation paid to an employee.
7. MISCELLANEOUS BENEFITS
7.1 MEDICAL INSURANCE. Executive and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its executive employees.
7.2 BUSINESS EXPENSES. Executive shall be reimbursed for all
reasonable expenses incurred by Executive in connection with Executive's
attendance at business meetings and promotion of Company business upon
presentation by Executive to the Company of an expense report and adequate
records or other documentation substantiating the expenditures, not less
frequently than monthly. Any such amounts disallowed as a business expense for
federal or state income tax purposes shall be deemed additional salary to
Executive. The fact that the Company may not reimburse Executive for an expense
is not an indication that the Company determined that the expense was not
incurred on its behalf or in connection with the Company's business.
8. RESTRICTIVE COVENANTS
8.1 CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder he occupies a position of trust and confidence. During the
Term, and thereafter, Executive shall not, except as may be required to perform
his duties hereunder or as required by applicable law, and except for
information which is or becomes publicly available other than as a result of a
breach by the Executive of the provisions hereof, disclose to others or use,
whether directly or indirectly, any Confidential Information. "Confidential
Information" shall mean information about the Company, its subsidiaries and
affiliates, and their respective suppliers, clients and customers that is not
disclosed by the Company for financial reporting purposes and that was learned
by Executive in the course of his employment hereunder, including (without
limitation) proprietary knowledge, trade secrets, market research, data,
formulae, information and supplier, client and customer lists and all papers,
resumes, and records (including computer records) of the documents containing
such Confidential Information.
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Executive acknowledges that such Confidential Information is specialized, unique
in nature and of great value to the Company, and that such information gives the
Company a competitive advantage. The Executive agrees to deliver or return to
the Company, at the Company's request at any time or upon termination or
expiration of his employment or as soon thereafter as possible, all documents,
computer tapes and disks, records, lists, data, drawings, prints, notes and
written information (and all copies thereof) furnished by the Company or any of
its subsidiaries or affiliates or prepared by the Executive during the term of
his employment by the Company.
8.2 BUSINESS DIVERSION. During the Term and for thirty (30) months
thereafter, Executive shall not, directly or indirectly, influence or attempt to
influence customers or suppliers of the Company or any of its subsidiaries or
affiliates to divert their business to any Competitor of the Company.
8.3 NONSOLICITATION. Executive recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates, relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and inter-personal
relationships with suppliers and customers of the Company. Executive recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company and will be acquired by
him because of his business position with the Company. Executive agrees that,
during the Term and for thirty (30) months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, its subsidiaries or affiliates to any other person.
8.4 If Executive breaches, or threatens to commit breach of, any of
the provisions of Section 8 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to the following:
8.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach
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or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company or its subsidiaries and that money damages would not provide an
adequate remedy to the Company or its subsidiaries.
8.4.2 Accounting. The right and remedy to require Executive to
account for and pay over to the Company or its subsidiaries, as the case may be,
all compensation, profits, monies, accruals, increments or other benefits
derived or received by Executive as result of any transaction constituting a
breach of the Restrictive Covenants.
8.4.3 Severability of Restrictive Covenants. Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect without regard to the invalid
portions.
8.4.4 Blue-Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
8.4.5 Enforceability of Jurisdictions. The obligations
contained in this Section 8 shall survive the termination of Executive's
employment or expiration of this Agreement and shall be fully enforceable
thereafter. Executive intends to and hereby confers jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the geographic
scope of such Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of Executive that such
determination not bar or in any way affect the right of the Company or its
subsidiaries to the relief provided above in the courts of any other
jurisdiction within the geographic scope of such Restrictive Covenants, as to
breaches of such Restrictive Covenants in such other respective jurisdictions,
such Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent Restrictive Covenants.
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9. PARTICIPATION IN STOCK AND OPTION EXECUTIVE COMPENSATION PLAN
Executive shall be granted an option to purchase 15,000 shares of Common
Stock of the Company (the "Option Shares") pursuant to the terms and conditions
contained in the Company's 1996 Stock Option and Incentive Award Plan (the
"Plan"). The exercise price for the Option Shares will be equal to $7.00, and
the options will vest ratably over a three-year period commencing six months
after the closing of the Company's initial public offering.
10. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company, the
termination of that employment, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Los Angeles, California according to the Employment Dispute
Resolution Rules and procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or causes of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
of an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state Constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the National Labor Relations
Act, as amended, the Labor-Management Relations Act, as amended, the Worker
Retraining and Notification Act of 1988, the Americans With Disabilities Act of
1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of
1967, as amended, and the California Fair Employment and Housing Act, as
amended.
11. ASSIGNMENT
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Neither this Agreement nor any rights hereunder shall be assignable or
otherwise subject to hypothecation by Executive (except by will or by operation
of the law of intestate succession) or by the Company except that the Company
may require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance reasonably
satisfactory to Executive, 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
it if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 11 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts would still be payable to
him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to Executive's estate.
12. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first-class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
Page 16 of 19
<PAGE>
13. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
14. AMENDMENT MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part, but
only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
15. HEADINGS
The headings in this Agreement are inserted for convenience only and are
not to be considered in construction of the provisions hereof.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Executive and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
17. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the arbitrator
or ruling court.
Page 17 of 19
<PAGE>
18. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as is
necessary or appropriate to effectuate the provisions of this Agreement.
19. CONTROLLING LAW
This Agreement and the rights of the parties hereunder shall be governed by
and construed and enforced in accordance with laws of the State of Delaware
(excluding its conflict of laws principles, statutes or other similar laws)
including all matters of construction, validity, performance and enforcement.
20. WAIVER
A waiver by either party of any of the terms and conditions hereof shall
not be construed as a general waiver by such party, and such party shall be free
to reinstate such part or clause, with or without notice to the other party.
21. INDEMNIFICATION
To the fullest extent permitted by law and the Company's certificate of
incorporation and by-laws, the Company shall indemnify Executive for all amounts
(including, without limitation, judgments, fines, settlement payments, losses,
damages, costs and expenses (including reasonable attorneys' fees)) incurred or
paid by Executive in connection with any action, proceeding, suit or
investigation arising out of or relating to the performance by Executive of
services for, or acting as a director, officer or employee of, the Company or
any subsidiary thereof.
Page 18 of 19
<PAGE>
THE COMPANY: EXECUTIVE:
AVIATION DISTRIBUTORS, INC.,
a Delaware corporation
By: /s/ Osamah S. Bahit /s/ Jeffrey G. Ward
---------------------------- ----------------------------
Osamah S. Bahit, JEFFREY G. WARD
Chief Executive Officer
Page 19 of 19
<PAGE>
BUSINESS LOAN AGREEMENT Exh 10.11
<TABLE>
- -------------------------------------------------------------------------------------------------------------
PRINCIPLE LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC Illegible
- -------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
==============================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT BETWEEN AVIATION DISTRIBUTORS INCORPORATED, A
DELAWARE CORPORATION ("BORROWER") AND FAR EAST NATIONAL BANK ("LENDER") IS
MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS
RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A
COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE
WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT.
ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS
AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS
AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS."
BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING
ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR
EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S
SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL
REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of AUGUST 31, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Business
Loan Agreement from time to time.
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in the
paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or indirectly,
whether granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether Borrower
may be liable individually or jointly with others; whether Borrower may
be obligated as a guarantor, surety, or otherwise; whether recovery upon
such Indebtedness may be or hereafter may become barred by any statute
of limitations; and whether such Indebtedness may be or hereafter may
become otherwise unenforceable.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with
the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form of
a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether
<PAGE>
08-31-1996 BUSINESS LOAN AGREEMENT Page 2
(CONTINUED)
===============================================================================
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any guaranties described below
and any subordinations described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance
a condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in
which it is presently engaged or presently proposes to engage.
Borrower also is duly qualified as a foreign corporation and is in
good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial
condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no
material adverse change in Borrower's financial condition subsequent
to the date of the most recent financial statement supplied to Lender.
Borrower has no material contingent obligations except as disclosed in
such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled
in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
Division 20 of the California Health and Safety Code, Section 25100,
et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of,
or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or from
the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or
from any of the properties; and any such activity shall be conducted
in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of
the properties with this section of the Agreement. Any inspections or
tests made by Lender shall be at Borrower's expense and for Lender's
purposes only and shall not be construed to create any responsibility
or liability on the part of Lender to Borrower or to any other person.
The representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and
waives any future claims against Lender for indemnity or contribution
in the event Borrower becomes liable for cleanup or other costs under
any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership
or interest in the properties, whether or not the same was or should
have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination or expiration of this
Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or
otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect Borrower's
financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
<PAGE>
08-31-1996 BUSINESS LOAN AGREEMENT
(CONTINUED)
- ------------------------------------------------------------------------------
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon
Borrower's successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, and (iii) no steps have been
taken to terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at One Wrigley Drive, Irvine, CA 92718. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTORS AMOUNTS
---------- -------
ADI CONSIGNMENT SALES,INC. $2,000,000.00
OSAMAH BAKHIT $2,000,000.00
SUBORDINATION. Prior to disbursement of any Loan proceeds, deliver to
Lender a subordination agreement on Lender's forms, executed by Borrower's
creditor named below, subordinating all of Borrower's indebtedness to such
creditor, or such lesser amount as may be agreed to by Lender in writing,
and any security interests in collateral securing that indebtedness to the
Loans and security interests of Lender.
NAME OF CREDITOR AMOUNTS
---------------- -------
OSAMAH BAKHIT $2,000,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all lawful
claims that, if unpaid, might become a lien or charge any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy,
lien or claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such
contested assessment, tax, charge, levy, lien, or claim in accordance
with generally accepted accounting practices. Borrower, upon demand of
Lender, will furnish to Lender evidence of payment of the assessments,
taxes, charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income, or profits.
<PAGE>
08-31-1996 BUSINESS LOAN AGREEMENT
(CONTINUED)
- ------------------------------------------------------------------------------
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents
in a timely manner, and promptly notify Lender if Borrower learns of
the occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender
of any change in executive and management personnel; conduct its
business affairs in a reasonable and prudent manner and in compliance
with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses
and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to
Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities, shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets, or (c)
sell with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default
has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in
the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership
of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital
structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender.
ADVANCES TO STOCKHOLDERS AND AFFILIATES. During the term of the Loan, the
Borrower shall not make any advances to any stockholder or affiliated or
related entity (including but not limited to, partnerships, joint ventures,
joint stock companies, corporations, parent companies or subsidiaries). In
the event that such advances are made, the lender shall not make any
further Disbursements to the Borrower under the Loan without the prior
written approval of EXIM Bank.
DIVIDEND RESTRICTIONS. The Borrower shall not declare, pay or set apart any
funds for the payment of any dividends (other than dividends payable in
shares of the Borrower's stock) on any class of shares of the Borrower's
stock, or apply any of its funds, property or assets to, or set apart any
funds, property or assets for, the purchase, redemption or other retirement
of, or make any other distribution, by reduction of capital or otherwise,
in respect of any class of shares of the Borrower's stock, or with respect
to any other funds or assets without prior written consent of the Lender
and EXIM Bank. Notwithstanding the foregoing and given the fact that the
Borrower is an S-Corporation, the Borrower is permitted to pay dividends to
the stockholders only for the purpose of paying income taxes and in an
amount not to exceed the tax liability of the current tax year.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however, all IRA, Keogh, and trust accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any
payment when due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
08-31-1996 BUSINESS LOAN AGREEMENT PAGE 5
(Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. IF any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE
COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose OF the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
08-31-1996 BUSINESS LOAN AGREEMENT Page 6
(Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
notice purposes, Borrower agrees to keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 31, 1996.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
--------------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
LENDER:
FAR EAST NATIONAL BANK
By:
--------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. &, T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [CA-C40 ADI.LN)
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC /s/ Illegible
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
====================================================================================================================================
PRINCIPAL AMOUNT: $2,000,000.00 INITIAL RATE: 9.250% DATE OF NOTE: AUGUST 31, 1996
</TABLE>
PROMISE TO PAY. AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation
("Borrower") promises to pay to Far East National Bank ("Lender"), or
order, in lawful money of the United States of America, the principal
amount of Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
one payment of all outstanding principal plus all accrued unpaid interest
on August 31, 1997. In addition, Borrower will pay regular monthly payments
of accrued unpaid interest beginning September 30, 1996, and all subsequent
interest payments are due on the same day of each month after that.
Interest on this Note is computed on a 365/360 simple interest basis; that
is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to any unpaid collection costs and any
late charges, then to any unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may
or may not be the lowest rate available from Lender at any given time.
Lender will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each day. THE
INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE
POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.250% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject
to refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower's obligation to continue to make payments of
accrued unpaid interest. Rather, they will reduce the principal balance
due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $5.00, whichever is greater.
LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Upon
Borrower's failure to pay all amounts declared due pursuant to this
section, including failure to pay upon final maturity, Lender, at its
option, may also, if permitted under applicable law, increase the variable
interest rate on this Note to 3.000 percentage points over the Index.
Lender may hire or pay someone else to help collect this Note if Borrower
does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Borrower also will pay
any court costs, in addition to all other sums provided by law. THIS NOTE
HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF
CALIFORNIA THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA, Keogh, and trust accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's
accounts, may be requested orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests
be confirmed in writing. The following party or parties are authorized to
request advances under the line of credit until Lender receives from
Borrower at Lender's address shown above written notice of revocation of
their authority: OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER. Borrower agrees to
be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; or (d) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms
of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this
loan, or release any party or guarantor or collateral; or impair, fail to
realize upon or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this
loan without the consent of or notice to anyone other than the party with
whom the modification is made.
<PAGE>
08-31-1996 PROMISSORY NOTE Page 2
(Continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
---------------------------------
Osamah Bakhit, Chief Executive Officer
================================================================================
<PAGE>
DISBURSMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC /s/ Illegible
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
LOAN TYPE. This is a Variable Rate (1.000% over US major banks' prime rate,
making an initial rate of 9.250%), Revolving Line of Credit Loan to a
Corporation for $2,000,000.00 due on August 31, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
/ / Personal, Family, or Household Purposes or Personal Investment.
/x/ Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,000,000.00 as follows:
Amount paid on Borrower's account: $2,000,000.00
$2,000,000.00 Payment on Loan
# 691-002111/30133
---------------
NOTE PRINCIPAL: $2,000,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
PREPAID FINANCE CHARGES PAID IN CASH: $50,000.00
$50,000.00 Loan Fee (Debit 691-002675)
---------------
TOTAL CHARGES PAID IN CASH: $50,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED AUGUST 31, 1996.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/Osamah Bakhit
--------------------------------------
Osamah Bakhit, Chief Executive Officer
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<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC /s/ Illegible
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT is entered into between AVIATION
DISTRIBUTORS INCORPORATED, a Delaware corporation (referred to below as
"Grantor"); and Far East National Bank (referred to below as "Lender"). For
valuable consideration, Grantor grants to Lender a security interest in the
Collateral to secure the Indebtedness and agrees that Lender shall have the
rights stated in this Agreement with respect to the Collateral, in addition
to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated August 31,
1996, in the principal amount of $2,000,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the
<PAGE>
08-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
(CONTINUED)
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account debtor; there shall be no setoffs or counterclaims against any
such account; and no agreement under which any deductions or discounts
may be claimed shall have been made with the account debtor except
those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property being
rented or leased by Grantor; (c) all storage facilities owned, rented,
leased, or being used by Grantor; and (d) all other properties where
Collateral is or may be located. Except in the ordinary course of its
business, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to
any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall immediately
deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require,
including without limitation names and addresses of account debtors
and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall deliver
to Lender, as often as Lender shall require, such lists, descriptions,
and designations of such Collateral as Lender may require to identify
the nature, extent, and location of such Collateral. Such information
shall be submitted for Grantor and each of its subsidiaries or related
companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges' that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender
as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to
the ownership, production, disposition, or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral,
in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those terms
are defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through
7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include,
without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating
the Collateral for hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to
indemnify shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without
at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may
require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not
be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will
cover only Lender's
<PAGE>
08-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
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interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly
to Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole discretion, shall
deem appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve
any rights in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the California Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
<PAGE>
08-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
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SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions at the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by
<PAGE>
08-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 5
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lender of a provision of this Agreement shall not prejudice or constitute
a waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or of any of Lender's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 31,
1996.
GRANTOR:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
-------------------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
OHC
</TABLE>
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: AVIATION DISTRIBUTORS INCORPORATED, Lender: Far East National Bank
a Delaware corporation 4699 Jamboree Road
One Wrigley Drive Newport Beach, CA 92660
Irvine, CA 92718
Guarantor: Osamah Bakhit and Heather Bucher
28841 Glen Ridge
Mission Viejo, CA 92692
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. The amount of this Guaranty is Two Million & 00/100
Dollars ($2,000,000.00).
CONTINUING GUARANTY. For good and valuable consideration, Osamah Bakhit and
Heather Bucher ("Guarantor") absolutely and unconditionally guarantee and
promise to pay, jointly and severally, to Far East National Bank ("Lender")
or its order, on demand, in legal tender of the United States of America, the
Indebtedness (as that term is defined below) of AVIATION DISTRIBUTORS
INCORPORATED, a Delaware corporation ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. The obligations of Guarantor under
this Guaranty are continuing.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation.
Guarantor. The word "Guarantor" means Osamah Bakhit and Heather Bucher, who
are signing this Guaranty jointly and severally.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated August 31, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means Far East National Bank, its successors and
assigns.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME $2,000,000.00 PLUS ALL COSTS AND EXPENSES OF
(a) ENFORCEMENT OF THIS GUARANTY AND (b) COLLECTION AND SALE OF ANY
COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one
time. If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all
guaranties shall be cumulative. This Guaranty shall not (unless specifically
provided below to the contrary) affect or invalidate any such other
guaranties. The liability of Guarantor will be the aggregate liability of
Guarantor under the terms of this Guaranty and any such other unterminated
guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness within the limits set forth in the preceding section of
this Guaranty. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection
with any remaining portions of the Indebtedness or any of the Indebtedness
which subsequently arises or is thereafter incurred or contracted. Any
married person who signs this Guaranty as the Guarantor hereby expressly
agrees that recourse may be had against both his or her separate property and
community property. The obligations of Guarantors shall be joint and several.
Lender may proceed against any of the Guarantors individually, against any
group of Guarantors, or against all the Guarantors in one action, without
affecting the right of Lender to proceed against other Guarantors for amounts
that are covered by this Guaranty. Any inability of Lender to proceed against
any Guarantor (whether caused by actions of a Guarantor or of Lender) will
not affect Lender's right to proceed against any or all remaining Guarantors
for all or part of the amounts covered by this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness
incurred or contracted before receipt by Lender of any notice of revocation
shall have been fully and finally paid and satisfied and all other
obligations of Guarantor under this Guaranty shall have been performed in
full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so
in writing. Guarantor's written notice of revocation must be delivered to
Lender at the address of Lender listed above or such other place as Lender
may designate in writing. Written revocation of this Guaranty will apply only
to advances or new indebtedness created after actual receipt by Lender of
Guarantor's written revocation. For this purpose and without limitation, the
term "new Indebtedness" does not include Indebtedness which at the time of
notice of revocation is contingent, unliquidated, undetermined or not due and
which later becomes absolute, liquidated, determined or due. Notice of
revocation shall be effective only as to the particular Guarantor providing
the notice, and shall not affect the liability of other guarantors. This
Guaranty will continue to bind Guarantor for all Indebtedness incurred by
Borrower or committed by Lender prior to receipt of Guarantor's written
notice of revocation, including any extensions, renewals, substitutions or
modifications of the Indebtedness. All renewals, extensions, substitutions,
and modifications of the Indebtedness granted after Guarantor's revocation,
are contemplated under this Guaranty and, specifically will not be considered
to be new Indebtedness. This Guaranty shall bind the estate of Guarantor as
to Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death. Subject
to the foregoing, Guarantor's executor or administrator or other legal
representative may terminate this Guaranty in the same manner in which
Guarantor might have terminated it and with the same effect. Release of any
other guarantor or termination of any other guaranty of the Indebtedness
shall not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty. It is anticipated
that fluctuations may occur in the aggregate amount of Indebtedness covered
by this Guaranty, and it is specifically acknowledged and agreed by Guarantor
that reductions in the amount of Indebtedness, even to zero dollars ($0.00),
prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
<PAGE>
08-31-1996 COMMERCIAL GUARANTY PAGE 2
(Continued)
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening Guarantor's liability under this Guaranty, from time to time: (a)
prior to revocation as set forth above, to make one or more additional
secured or unsecured loans to Borrower, to lease equipment or other goods to
Borrower, or otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or more times
the time for payment or other terms of the indebtedness or any part of the
indebtedness, including increases and decreases of the rate of interest on
the indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
indebtedness; (f) to apply such security and direct the order or manner of
sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust, as Lender
in its discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or any part of the indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been
made to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of Guarantor's
assets, or any interest therein; (d) Lender has made no representation to
Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information provided to Lender
is true and correct in all material respects and fairly presents the
financial condition of Guarantor as of the dates thereof, and no material
adverse change has occurred in the financial condition of Guarantor since the
date of the financial statements; and (f) Guarantor has established adequate
means of obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately informed
from such means of any facts, events, or circumstances which might in any way
affect Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no obligation to
disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of
the Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional Indebtedness; (b)
proceed against any person, including Borrower, before proceeding against
Guarantor; (c) proceed against any collateral for the Indebtedness, including
Borrower's collateral, before proceeding against Guarantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the collateral pursuant
to the Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in Lender's
power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the
discharge of Borrower or any other guarantor or surety, or the Indebtedness,
or the loss or release of any collateral by operation of law or otherwise;
(I) any statute of limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the Indebtedness,
whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due
and any change in the interest rate, and including any such modification or
change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation. Until all Indebtedness is paid in full, Guarantor
waives all rights and any defenses Guarantor may have arising out of an
election of remedies by Lender even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower or any other guarantor or surety by operation of Section
580d and 726 of the California Code of Civil Procedure or otherwise. This
waiver includes, without limitation, any loss of rights Guarantor may suffer
by reason of any rights or protections of Borrower in connection with any
anti-deficiency laws or other laws limiting or discharging the Indebtedness
or Borrower's obligations (including, without limitation, Sections 726, 580b,
and 580d of the California Code of Civil Procedure). Until all Indebtedness
is paid in full, Guarantor waives any right to enforce any remedy Lender may
have against Borrower or any other guarantor, surety, or other person, and
further, Guarantor waives any right to participate in any collateral for the
Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in
favor of Lender and Borrower, and their respective successors, any claim or
right to payment Guarantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be
or become a "creditor" of Borrower within the meaning of 11 U.S.C. section
547(b), or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. IF any such waiver is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted
by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part
of Lender or by any neglect to exercise such right of setoff or to enforce
such security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment
for the benefit of creditors, by voluntary liquidation, or otherwise, the
assets of Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender to the
Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender
all claims which it may have or acquire against Borrower or against any
assignee or trustee in
<PAGE>
08-31-1996 COMMERCIAL GUARANTY Page 3
(Continued)
________________________________________________________________________________
________________________________________________________________________________
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower
to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and shall be delivered to Lender. Guarantor agrees, and
Lender hereby is authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its rights under
this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees
that this Guaranty, together with any exhibits or schedules
incorporated herein, fully incorporates the agreements and
understandings of Guarantor with Lender with respect to the subject
matter hereof and all prior negotiations, drafts, and other
extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that
Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by
Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parol evidence is not
required to interpret the terms of this Guaranty. Guarantor hereby
indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or
incurred by Lender as a result of any breach by Guarantor of the
warranties, representations and agreements of this paragraph. No
alteration or amendment to this Guaranty shall be effective unless
given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and
accepted by Lender in the State of California. If there is a
lawsuit, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of Orange County, State of California.
This Guaranty shall be governed by and construed in accordance with
the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all
of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Guaranty. Lender may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all
court costs and such additional fees as may be directed by the
court.
NOTICES. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimilie, and, except for revocation notices by Guarantor,
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the
United States mail, first class postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above
or to such other addresses as either party may designate to the
other in writing. All revocation notices by Guarantor shall be in
writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If
there is more than one Guarantor, notice to any Guarantor will
constitute notice to all Guarantors. For notice purposes, Guarantor
agrees to keep Lender informed at all times of Guarantor's current
address.
INTERPRETATION. In all cases where there is more than one Borrower
or Guarantor, then all words used in this Guaranty in the singular
shall be deemed to have been used in the plural where the context
and construction so require; and where there is more than one
Borrower named in this Guaranty or when this Guaranty is executed
by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words
"Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are
not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision
of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances, and all
provisions of this Guaranty in all other respects shall remain
valid and enforceable. If any one or more of Borrower or Guarantor
are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Guaranty shall not
prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of
dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to
any future transactions. Whenever the consent of Lender is required
under this Guaranty, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE
UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE. THIS GUARANTY IS DATED AUGUST 31, 1996.
GUARANTOR:
X /s/ Osamah Bakhit X /s/ Heather Bucher
----------------------- -----------------------
OSAMAH BAKHIT HEATHER BUCHER
________________________________________________________________________________
________________________________________________________________________________
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [CA-E20 ADI.LN]
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
- -------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C>
OHC
- -------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, a Lender: FAR EAST NATIONAL BANK
Delaware Corporation 4699 Jamboree Road
One Wrigley Drive Newport Beach, CA 92660
Irvine, CA 92718
Guarantor: ADI CONSIGNMENT SALES, INC.
One Wrigley Drive
Irvine, CA 92718
________________________________________________________________________________
________________________________________________________________________________
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS TWO MILLION & 00/100
DOLLARS ($2,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, ADI
CONSIGNMENT SALES, INC. ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY
GUARANTEES AND PROMISES TO PAY TO FAR EAST NATIONAL BANK ("LENDER") OR
ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE UNITED STATES OF AMERICA,
THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF AVIATION
DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION ("BORROWER") TO LENDER
ON THE TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY. THE OBLIGATIONS
OF GUARANTOR UNDER THIS GUARANTY ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when
used in this Guaranty:
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS
INCORPORATED, a Delaware corporation.
GUARANTOR. The word "Guarantor" means ADI CONSIGNMENT SALES, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated August 31, 1996.
INDEBTEDNESS. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to
Lender, now existing or hereinafter incurred or created, including,
without limitation, all loans, advances, interest, costs, debts,
overdraft indebtedness, credit card indebtedness, lease
obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or
any of them; and whether any such Indebtedness is voluntarily or
involuntarily incurred, due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined; whether
Borrower may be liable individually or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether
recovery on the Indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and
whether the Indebtedness arises from transactions which may be
voidable on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means Far East National Bank, its
successors and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME $2,000,000.00 PLUS ALL COSTS AND EXPENSES
OF (a) ENFORCEMENT OF THIS GUARANTY AND (b) COLLECTION AND SALE OF ANY
COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one
time. If Lender presently holds one or more guaranties, or hereafter
receives additional guaranties from Guarantor, the rights of Lender under
all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any such
other guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any such other
unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness within the limits set forth in the preceding section of
this Guaranty. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection
with any remaining portions of the Indebtedness or any of the Indebtedness
which subsequently arises or is thereafter incurred or contracted. Any
married person who signs this Guaranty as the Guarantor hereby expressly
agrees that recourse may be had against both his or her separate property
and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
delivered to Lender at the address of Lender listed above or such other
place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after
actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation,
including any extensions, renewals, substitutions or modifications of the
Indebtedness. All renewals, extensions, substitutions, and modifications of
the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death.
Subject to the foregoing, Guarantor's executor or administrator or other
legal representative may terminate this Guaranty in the same manner in
which Guarantor might have terminated it and with the same effect. Release
of any other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this
Guaranty. It is anticipated that fluctuations may occur in the aggregate
amount of Indebtedness covered by this Guaranty, and it is specifically
acknowledged and agreed by Guarantor that reductions in the amount of
Indebtedness, even to zero dollars ($0.00), prior to written revocation of
this Guaranty by Guarantor shall not constitute a termination of this
Guaranty. This Guaranty is binding upon Guarantor and Guarantor's heirs,
successors and assigns so long as any of the guaranteed Indebtedness
remains unpaid and even though the Indebtedness guaranteed may from time to
time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening Guarantor's liability under this Guaranty, from time to time: (a)
prior to revocation as set forth above, to make one or more additional
secured or unsecured loans to Borrower, to lease equipment or other goods
to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for
<PAGE>
08-31-1996 COMMERCIAL GUARANTY PAGE 2
(CONTINUED)
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Payment or other terms of the Indebtedness or any part of the Indebtedness,
including increases and decreases of the rate of interest on the
Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of
sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust, as lender
in its discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or any part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been
made to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of Guarantor's
assets, or any interest therein; (d) Lender has made no representation to
Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such, financial information provided to Lender
is true and correct in all material respects and fairly presents the
financial condition of Guarantor as of the dates thereof, and no material
adverse change has occurred in the financial condition of Guarantor since the
date of the financial statements; and (f) Guarantor has established adequate
means of obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately informed
from such means of any facts, events, or circumstances which might in any way
affect Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no obligation to
disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of
the Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional Indebtedness; (b)
proceed against any person, including Borrower, before proceeding against
Guarantor; (c) proceed against any collateral for the Indebtedness, including
Borrower's collateral, before proceeding against Guarantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the collateral pursuant
to the Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in Lender's
power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the
discharge of Borrower or any other guarantor or surety, or the Indebtedness,
or the loss or release of any collateral by operation of law or otherwise;
(l) any statute of limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the Indebtedness,
whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due
and any change in the interest rate, and including any such modification or
change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation. Until all Indebtedness is paid in full, Guarantor
waives all rights and any defenses Guarantor may have arising out of an
election of remedies by Lender even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower or any other guarantor or surety by operation of Section
580d and 726 of the California Code of Civil Procedure or otherwise. This
waiver includes, without limitation, any loss of rights Guarantor may suffer
by reason of any rights or protections of Borrower in connection with any
anti-deficiency laws or other laws limiting or discharging the Indebtedness
or Borrower's obligations (including, without limitation, Sections 726, 580b,
and 580d of the California Code of Civil Procedure). Until all Indebtedness
is paid in full, Guarantor waives any right to enforce any remedy Lender may
have against Borrower or any other guarantor, surety, or other person, and
further, Guarantor waives any right to participate in any collateral for the
Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in
favor of Lender and Borrower, arid their respective successors, any claim or
right to payment Guarantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be
or become a "creditor" of Borrower within the meaning of 11 U.S.C. section
547(b), or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted
by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part
of Lender or by any neglect to exercise such right of setoff or to enforce
such security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment
for the benefit of creditors, by voluntary liquidation, or otherwise, the
assets of Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender to the
Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender
all claims which it may have or acquire against Borrower or against any
assignee or trustee in bankruptcy of Borrower; provided however, that such
assignment shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness. If Lender so requests, any notes
or credit agreements now or hereafter evidencing any debts or obligations of
Borrower to Guarantor shall be marked with a legend that the same are subject
to this Guaranty and shall be delivered to Lender. Guarantor agrees, and
Lender hereby is authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements and to
execute
<PAGE>
08-31-1996 COMMERCIAL GUARANTY Page 3
(Continued)
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such other documents and to take such other actions as Lender deems necessary
or appropriate to perfect, preserve and enforce its rights under this
Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL
TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED AUGUST 31, 1996.
GUARANTOR:
ADI CONSIGNMENT SALES, INC.
By: /s/ Osamah Bakhit
---------------------------------
OSAMAH BAKHIT, President
<PAGE>
SUBORDINATION AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: AVIATION DISTRIBUTORS Lender: Far East National Bank
INCORPORATED, a 4699 Jamboree Road
Delaware corporation Newport Beach, CA 92660
One Wrigley Drive
Irvine, CA 92718
Creditor: Osamah Bakhit
28841 Glen Ridge, Mission Viejo, CA 92692
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
THIS SUBORDINATION AGREEMENT is entered into among AVIATION DISTRIBUTORS
INCORPORATED, a Delaware corporation ("Borrower"), whose address is One
Wrigley Drive, Irvine, CA 92718; Far East National Bank ("Lender"), whose
address is 4699 Jamboree Road, Newport Beach, CA 92660; and Osamah Bakhit
("Creditor"), whose address is 28841 Glen Ridge, Mission Viejo, CA 92692,.
As of this date, August 31, 1996, Borrower is indebted to Creditor in the
aggregate amount of Two Million & 00/100 Dollars ($2,000,000.00). This
amount is the total indebtedness of every kind from Borrower to Creditor.
Borrower and Creditor each want Lender to provide financial accommodations
to Borrower in the form of (a) new credit or loan advances, (b) an
extension of time to pay or other compromises regarding all or part of
Borrower's present indebtedness to Lender, or (c) other benefits to
Borrower. Borrower and Creditor each represent and acknowledge to Lender
that Creditor will benefit as a result of these financial accommodations
from Lender to Borrower, and Creditor acknowledges receipt of valuable
consideration for entering into this Agreement. Based on the
representations and acknowledgments contained in this Agreement, Creditor
and Borrower agree with Lender as follows:
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
AGREEMENT. The word "Agreement" means this Subordination Agreement, as this
Subordination Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Subordination
Agreement from time to time.
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation.
CREDITOR. The word "Creditor" means Osamah Bakhit.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SUBORDINATED INDEBTEDNESS. The words "Subordinated Indebtedness" mean and
include without limitation all present and future indebtedness,
obligations, liabilities, claims, rights, and demands of any kind which may
be now or hereafter owing from Borrower to Creditor. The term "Subordinated
Indebtedness" is used in its broadest sense and includes without limitation
all principal, all interest, all costs and attorneys' fees, all sums paid
for the purpose of protecting the rights of a holder of security (such as a
secured party paying for insurance on collateral if the owner fails to do
so), all contingent obligations of Borrower (such as a guaranty), and all
other obligations, secured or unsecured, of any nature whatsoever.
SUPERIOR INDEBTEDNESS. The words "Superior Indebtedness" mean and include
without limitation all present and future indebtedness, obligations,
liabilities, claims, rights, and demands of any kind which may be now or
hereafter owing from Borrower to Lender. The term "Superior Indebtedness"
is used in its broadest sense and includes without limitation all
principal, all interest, all costs and attorneys' fees, all sums paid for
the purpose of protecting Lender's rights in security (such as paying for
insurance on collateral if the owner fails to do so), all contingent
obligations of Borrower (such as a guaranty), all obligations arising by
reason of Borrower's accounts with Lender (such as an overdraft on a
checking account), and all other obligations of Borrower to Lender, secured
or unsecured, of any nature whatsoever.
SUBORDINATION. All Subordinated Indebtedness of Borrower to Creditor is and
shall be subordinated in all respects to all Superior Indebtedness of
Borrower to Lender. If Creditor holds one or more Security Interests,
whether now existing or hereafter acquired, in any of Borrower's real
property or personal property, Creditor also subordinates all its Security
Interests to all Security Interests held by Lender, whether the Lender's
Security Interest or Interests exist now or are acquired later.
PAYMENTS TO CREDITOR. Borrower will not make and Creditor will not accept,
at any time while any Superior Indebtedness is owing to Lender, (a) any
payment upon any Subordinated Indebtedness, (b) any advance, transfer, or
assignment of assets to Creditor in any form whatsoever that would reduce
at any time or in any way the amount of Subordinated Indebtedness, or (c)
any transfer of any assets as security for the Subordinated Indebtedness,
except upon Lender's prior written consent.
In the event of any distribution, division, or application, whether partial
or complete, voluntary or involuntary, by operation of law or otherwise, of
all or any part of Borrower's assets, or the proceeds of Borrower's assets,
in whatever form, to creditors of Borrower or upon any indebtedness of
Borrower, whether by reason of the liquidation, dissolution or other
winding-up of Borrower, or by reason of any execution sale, receivership,
insolvency, or bankruptcy proceeding, assignment for the benefit of
creditors, proceedings for reorganization, or readjustment of Borrower or
Borrower's properties, then and in such event, (a) the Superior
Indebtedness shall be paid in full before any payment is made upon the
Subordinated Indebtedness, and (b) all payments and distributions, of any
kind or character and whether in cash, property, or securities, which shall
be payable or deliverable upon or in respect of the Subordinated
Indebtedness shall be paid or delivered directly to Lender for application
in payment of the amounts then due on the Superior Indebtedness until the
Superior Indebtedness shall have been paid in full.
In order that Lender may establish its right to prove claims and recover
for its own account dividends based on the Subordinated Indebtedness,
Creditor does hereby assign all its right, title, and interest in such
claims to Lender. Creditor further agrees to supply such information and
evidence, provide access to and copies of such of Creditor's records as may
pertain to the Subordinated Indebtedness, and execute such instruments as
may be required by Lender to enable Lender to enforce all such claims and
collect all dividends, payments, or other disbursements which may be made
on account of the Subordinated Indebtedness. For such purposes, Creditor
hereby irrevocably authorizes Lender in its discretion to make and present
for or on behalf of Creditor such proofs of claims on account of the
Subordinated Indebtedness as Lender may deem expedient and proper and to
vote such claims in any such proceeding and to receive and collect any and
all dividends, payments, or other disbursements made thereon in whatever
<PAGE>
08-31-1996 SUBORDINATION AGREEMENT Page 2
(Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
form the same may be paid or issued and to apply the same on account of the
Superior Indebtedness.
Should any payment, distribution, security, or proceeds thereof be received
by Creditor at any time on the Subordinated Indebtedness contrary to the
terms of this Agreement, Creditor immediately will deliver the same to
Lender in precisely the form received (except for the endorsement or
assignment of Creditor where necessary), for application on or to secure
the Superior Indebtedness, whether it is due or not due, and until so
delivered the same shall be held in trust by Creditor as property of
Lender. In the event Creditor fails to make any such endorsement or
assignment, Lender, or any of its officers on behalf of Lender, is hereby
irrevocably authorized by Creditor to make the same.
CREDITOR'S NOTES. Creditor agrees to deliver to Lender, at Lender's
request, all notes of Borrower to Creditor, or other evidence of the
Subordinated Indebtedness, now held or hereafter acquired by Creditor,
while this Agreement remains in effect. At Lender's request, Borrower also
will execute and deliver to Creditor a promissory note evidencing any book
account or claim now or hereafter owed by Borrower to Creditor, which note
also shall be delivered by Creditor to Lender. Creditor agrees not to sell,
assign, pledge or otherwise transfer any of such notes except subject to
all the terms and conditions of this Agreement.
CREDITOR'S REPRESENTATIONS AND WARRANTIES. Creditor represents and warrants
to Lender that: (a) no representations or agreements of any kind have been
made to Creditor which would limit or qualify in any way the terms of this
Agreement; (b) this Agreement is executed at Borrower's request and not at
the request of Lender; (c) Lender has made no representation to Creditor as
to the creditworthiness of Borrower; and (d) Creditor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Creditor agrees to keep
adequately informed from such means of any facts, events, or circumstances
which might in any way affect Creditor's risks under this Agreement, and
Creditor further agrees that Lender shall have no obligation to disclose to
Creditor information or material acquired by Lender in the course of its
relationship with Borrower.
CREDITOR'S WAIVERS. Creditor waives any right to require Lender: (a) to
make, extend, renew, or modify any loan to Borrower or to grant any other
financial accommodations to Borrower whatsoever; (b) to make any
presentment, protest, demand, or notice of any kind, including notice of
any nonpayment of the Superior Indebtedness or of any nonpayment related to
any Security Interests, or notice of any action or nonaction on the part of
Borrower, Lender, any surety, endorser, or other guarantor in connection
with the Superior Indebtedness, or in connection with the creation of new
or additional Superior Indebtedness; (c) to resort for payment or to
proceed directly or at once against any person, including Borrower; (d) to
proceed directly against or exhaust any Security Interests held by Lender
from Borrower, any other guarantor, or any other person; (e) to pursue any
other remedy within Lender's power; or (f) to commit any act or omission of
any kind, at any time, with respect to any matter whatsoever.
LENDER'S RIGHTS. Lender may take or omit any and all actions with respect
to the Superior Indebtedness or any Security Interests for the Superior
Indebtedness without affecting whatsoever any of Lender's rights under this
Agreement. In particular, without limitation, Lender may, without notice of
any kind to Creditor, (a) make one or more additional secured or unsecured
loans to Borrower; (b) repeatedly alter, compromise, renew, extend,
accelerate, or otherwise change the time for payment or other terms of the
Superior Indebtedness or any part thereof, including increases and
decreases of the rate of interest on the Superior Indebtedness; extensions
may be repeated and may be for longer than the original loan term; (c) take
and hold Security Interests for the payment of the Superior Indebtedness,
and exchange, enforce, waive, and release any such Security Interests, with
or without the substitution of new collateral; (d) release, substitute,
agree not to sue, or deal with any one or more of Borrower's sureties,
endorsers, or guarantors on any terms or manner Lender chooses; (e)
determine how, when and what application of payments and credits, shall be
made on the Superior Indebtedness; (f) apply such security and direct the
order or manner of sale thereof, as Lender in its discretion may determine;
and (g) assign this Agreement in whole or in part.
DEFAULT BY BORROWER. If Borrower becomes insolvent or bankrupt, this
Agreement shall remain in full force and effect. In the event of a
corporate reorganization or corporate arrangement of Borrower under the
provisions of the Bankruptcy Code, as amended, this Agreement shall remain
in full force and effect and the court having jurisdiction over the
reorganization or arrangement is hereby authorized to preserve such
priority and subordination in approving any such plan of reorganization or
arrangement.
DURATION AND TERMINATION. This Agreement will take effect when received by
Lender, without the necessity of any acceptance by Lender, in writing or
otherwise, and will remain in full force and effect until Creditor shall
notify Lender in writing at the address shown above to the contrary. Any
such notice shall not affect the Superior Indebtedness owed Lender by
Borrower at the time of such notice, nor shall such notice affect Superior
Indebtedness thereafter granted in compliance with a commitment made by
Lender to Borrower prior to receipt of such notice, nor shall such notice
affect any renewals of or substitutions for any of the foregoing. Such
notice shall affect only indebtedness of Borrower to Lender arising after
receipt of such notice and not arising from financial assistance granted by
Lender to Borrower in compliance with Lender's obligations under a
commitment. Any notes lodged with Lender pursuant to the section titled
"Creditor's Notes" above need not be returned until this Agreement has no
further force or effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Creditor and Borrower agree upon Lender's request to submit to the
jurisdiction of the courts of Orange County, State of California.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. No provision contained in this
Agreement shall be construed (a) as requiring Lender to grant to
Borrower or to Creditor any financial assistance or other
accommodations, or (b) as limiting or precluding Lender from the
exercise of Lender's own judgment and discretion about amounts and
times of payment in making loans or extending accommodations to
Borrower.
AMENDMENTS. This Agreement constitutes the entire understanding and
agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall
be effective unless made in writing and signed by Lender, Borrower,
and Creditor.
ATTORNEYS' FEES; EXPENSES. Creditor and Borrower agree to pay upon
demand all of Lender's costs and expenses, including attorneys' fees
and Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to help
enforce this Agreement, and Creditor and Borrower shall pay the costs
and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Creditor and Borrower also shall pay all court
costs and such additional fees as may be directed by the court.
SUCCESSORS. This Agreement shall extend to and bind the respective
heirs, personal representatives, successors and assigns of the parties
to this Agreement, and the covenants of Borrower and Creditor
respecting subordination of the Subordinated Indebtedness in favor of
Lender shall extend to, include, and be enforceable by any transferee
or endorsee to whom Lender may transfer any or all of the Superior
Indebtedness.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Creditor, shall constitute a waiver of any of
Lender's rights or of any of Creditor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
<PAGE>
08-31-1996 SUBORDINATION AGREEMENT
(Continued)
Page 3
BORROWER AND CREDITOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR AGREE TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF AUGUST 31, 1996.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation
By: /s/ Osamah Bakhit
-----------------------------------
Osamah Bakhit, Chief Executive Officer
CREDITOR:
Osamah Bakhit
By: /s/ Osamah Bakhit
-----------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [CA-F10 ADI.LN]
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
OHC
$2,000,000.00 08-31-1996 08-31-1997
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</TABLE>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, a Lender: Far East National Bank
Delaware corporation 4699 Jamboree Road
One Wrigley Drive Newport Beach, CA 92660
Irvine, CA 92718
INSURANCE REQUIREMENTS. AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation ("Grantor") understands that insurance coverage is required in
connection with the extending of a loan or the providing of other
financial accommodations to Grantor by Lender. These requirements are set
forth in the security documents. The following minimum insurance coverages
must be provided on the following described collateral (the "Collateral"):
Collateral: All Inventory and Equipment.
Type. All risks, including fire, theft and liability.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Lender's loss payable clause with stipulation
that coverage will not be cancelled or diminished without a
minimum of ten (10) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Lender.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on or
before closing, evidence of the required insurance as provided above, with
an effective date of August 31, 1996, or earlier. Grantor acknowledges and
agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Lender may do so at Grantor's expense as
provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be
added to the indebtedness as provided in the security document. GRANTOR
ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE
WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL,
UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL
MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC
LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Lender to provide to any person (including any insurance
agent or company) all information Lender deems appropriate, whether
regarding the Collateral, the loan or other financial accommodations, or
both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST
31, 1996.
GRANTOR:
AVIATION DISTRIBUTORS INCORPORATED, a Delaware corporation
By: /s/ Osamah Bakhit
--------------------------------------
Osamah Bakhit, Chief Executive Officer
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
------------------- ---------------
AGENT'S NAME:
-----------------------------------------------------------
INSURANCE COMPANY:
-----------------------------------------------------
POLICY NUMBER:
----------------------------------------------------------
EFFECTIVE DATES:
--------------------------------------------------------
COMMENTS:
---------------------------------------------------------------
- ----------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices,
Inc. All rights reserved. [CA-110 ADI.LN]
<PAGE>
CORPORATE RESOLUTION TO GUARANTEE / GRANT COLLATERAL
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
OHC
$2,000,000.00 08-31-1996 08-31-1997
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</TABLE>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, a Lender: Far East National Bank
Delaware corporation 4699 Jamboree Road
One Wrigley Drive Newport Beach, CA 92660
Irvine, CA 92718
Guarantor: ADI CONSIGNMENT SALES, INC.
One Wrigley Drive
Irvine, CA 92718
I, the undersigned Secretary or Assistant Secretary of ADI CONSIGNMENT
SALES, INC. (the "Corporation"), HEREBY CERTIFY as follows: The
Corporation is organized and existing under and by virtue of the laws of the
State of California. The Corporation has its principal office at One
Wrigley Drive, Irvine, CA 92718.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
(or by other duly authorized corporate action in lieu of a meeting),
duly called and held on August 31, 1996, at which a quorum was present and
voting, the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers or
employees of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
OSAMAH BAKHIT President /s/ OSAMAH BAKHIT
-----------------
acting for and on behalf of this Corporation and as its act and deed
be, and he or she hereby is, authorize d empowered in the name of the
Corporation:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation from Far East National Bank ("Lender") on such guarantee or
surety terms as may be agreed upon between the officers or employees of
this Corporation and Lender and in such sum or sums of money as in his
or her judgment should be guaranteed or assured, not exceeding,
however, at any one time the amount of TWO MILLION & 00/100 DOLLARS
($2,000,000.00), in addition to such sum or sums of money as may be
currently guaranteed by the Corporation to Lender (the "Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty,
any property belonging to the Corporation or in which the Corporation
may have an interest, real, personal (tangible or intangible), or
mixed. Such property may be mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered at the time such loans are made or such
indebtedness is incurred, or at any other time or times, and may be
either in addition to or in lieu of any property theretofore mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered. The
provisions of these Resolutions authorizing or relating to the pledge,
mortgage, transfer, endorsement, hypothecation, granting of a security
interest in, or in any way encumbering, the assets of the Corporation
shall include, without limitation, doing so in order to lend collateral
security for the indebtedness, now or hereafter existing, and of any
nature whatsoever, of AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation to Lender. The Corporation has considered the value to
itself of lending collateral in support of such indebtedness, and the
Corporation represents to Lender that the Corporation is benefited by
doing so.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the form
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
submitted by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of
them, are given; and also to execute and deliver to Lender any other
written instruments, of any kind or nature, which may be necessary or
proper in connection with or pertaining to the giving of liens and
encumbrances.
FURTHER ACTS. To do and perform such other acts and things and to
execute and deliver such other documents as may in his or her
discretion be deemed reasonably necessary or proper in order to carry
into effect any of the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Lender may rely on these Resolutions until written
notice of their revocation shall have been delivered to and received by
Lender. Any such notice shall not affect any of the Corporation's agreements
or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the person named above is a principal officer of the
Corporation and occupies the position set opposite the name; that the
foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN TESTIMONY WHEREOF, I have hereunto set my hand on August 31, 1996 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ illegible
----------------------------
*Secretary or Assistant Secretary
X
----------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices,
Inc. All rights reserved. [CA-C20 ADI.LN]
<PAGE>
EXHIBIT 10.11
CORPORATE RESOLUTION TO BORROW
DISBURSMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 08-31-1996 08-31-1997 OHC
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF AVIATION DISTRIBUTORS
INCORPORATED, A DELAWARE CORPORATION (THE "CORPORATION"), HEREBY CERTIFY that
the Corporation is organized and existing under and by virtue of the laws of
the State of Delaware as a corporation for profit, with its principal office
at One Wrigley Drive, Irvine, CA 92718, and is duly authorized to transact
business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called
and held on August 31, 1996, at which a quorum was present and voting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
Osamah Bakhit Chief Executive Officer x /s/ Osamah Bakhit
-----------------
acting for and on behalf of this Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
BORROW MONEY. To borrow from time to time from Far East National Bank
("Lender"), on such terms as may be agreed upon between the officer,
employee, or agent and Lender, such sum or sums of money as in his or her
judgment should be borrowed; however, not exceeding at any one time the
amount of TWO MILLION & 00/100 DOLLARS ($2,000,000.00), in addition to such
sum or sums of money as may be currently borrowed by the Corporation from
Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accomodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accomodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which he
or she may in his or her discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as he or she may in his or her discretion deem reasonably
necessary or proper in order to carry into effect the provisions of these
Resolutions. The following person or persons are authorized to request
advances and authorize payments under the line of credit until Lender
receives written notice of revocation of their authority: Osamah Bakhit,
Chief Executive Officer.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing Resolutions
now stand of record on the books of the Corporation; and that the Resolutions
are in full force and effect and have not been modified or revoked in any manner
whatsoever. The Corporation has no corporate seal, and therefore, no seal is
affixed to this certificate.
<PAGE>
08-31-1996 CORPORATE RESOLUTION TO BORROW PAGE 2
(CONTINUED)
===============================================================================
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON AUGUST 31, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR
GENUINE SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
x /s/Illegible
---------------------------------
*Secretary or Assistant Secretary
x__________________________________
*NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable
to have this certificate signed by a second Officer or Director of the
Corporation.
<PAGE>
[LETTERHEAD]
November 6, 1996
Aviation Distributors Incorporated (ADI)
One Wrigley Drive
Irvine, CA 92718
Attention: Laura Birgbauer, Chief Accounting Officer
Re: ADI's $1,700,000 Non-revolving Commercial Loan
Dear Laura:
The above captioned loan was provided by Far East National Bank to ADI for the
sole purpose of issuing a Standby Letter of Credit in the amount of $1,700,000
to Qantas Airways Limited to guaranty payment on various aircraft spare parts
purchased by ADI as evidenced by the Equipment Sale Agreement dated February 9,
1996 between ADI and Qantas. Once ADI has paid all of its obligation to Qantas,
the Standby LC and the loan will be terminated instantaneously.
The facility is non-revolving and could not be used for cash advance, working
capital, or issuance of another Standby Letter of Credit.
If Qantas draws on the LC, the drawn amount will represent a loan to ADI and
will be charged at FENB Prime Rate (currently 8.25%) plus 2.0%. Such loan shall
be paid in full by ADI on or before 10/31/97, which is the maturity date of the
loan.
Sincerely,
/s/ Snowden Mananzan
Snowden Mananzan
Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
Exh 10.12
BUSINESS LOAN AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPLE LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,700,000.00 08-22-1996 10-31-1997 OHC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT between AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation ("Borrower") and Far East National Bank ("Lender") is
made and executed on the following terms and conditions. Borrower has
received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations, including
those which may be described on any exhibit or schedule attached to this
Agreement. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are
referred to in this Agreement individually as the "Loan" and collectively
as the "Loans." Borrower understands and agrees that: (a) in granting,
renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender
at all times shall be subject to Lender's sole judgment and discretion; and
(c) all such Loans shall be and shall remain subject to the following terms
and conditions of this Agreement.
TERM. This Agreement shall be effective as of August 22, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the paragraph
titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether
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08-22-1996 BUSINESS LOAN AGREEMENT PAGE 2
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created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Loan Advance and each subsequent Loan Advance under this Agreement
shall be subject to the fulfillment to Lender's satisfaction of all of the
conditions set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of
Loan proceeds, as of the date of any renewal, extension or modification of
any Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Borrower's ownership or interest
in the properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the termination or expiration of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the properties, whether
by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
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08-22-1996 BUSINESS LOAN AGREEMENT Page 3
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LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, and (iii) no steps have been taken to terminate
any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at One Wrigley Drive, Irvine, CA 92718. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTORS AMOUNTS
---------- -------
ADI CONSIGNMENT SALES, INC. $1,700,000.00
Osamah Bakhit $1,700,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT Page 4
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respecting its properties, charters, businesses and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets, or (c)
sell with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default
has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in
the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership
of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital
structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However,
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08-22-1996 BUSINESS LOAN AGREEMENT PAGE 5
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this Event of Default shall not apply if there is a good faith dispute by
Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written
notice of the creditor or forfeiture proceeding and furnishes reserves or a
surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE
COUNTY, THE STATE OF CALIFORNIA THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
<PAGE>
08-22-1996 BUSINESS LOAN AGREEMENT PAGE 6
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 22, 1996.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
---------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
LENDER:
Far East National Bank
By: /s/ ILLEGIBLE
---------------------------------------
AUTHORIZED OFFICER
<PAGE>
PROMISSORY NOTE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$1,700,000.00 08-22-1996 10-31-1997 OHC
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, LENDER: FAR EAST NATIONAL BANK
A DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
===============================================================================
PRINCIPAL AMOUNT:$1,700,000.00 INITIAL RATE:10.250% DATE OF NOTE:AUGUST 22, 1996
PROMISE TO PAY. AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
("BORROWER") PROMISES TO PAY TO FAR EAST NATIONAL BANK ("LENDER"), OR
ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL
AMOUNT OF ONE MILLION SEVEN HUNDRED THOUSAND & 00/100 DOLLARS
($1,700,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON
THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE,
IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID
INTEREST ON OCTOBER 31, 1997. IN ADDITION, BORROWER WILL PAY REGULAR
MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING AUGUST 31, 1996, AND
ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH
AFTER THAT. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise
agreed or required by applicable law, payments will be applied first to any
unpaid collection costs and any late charges, then to any unpaid interest,
and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is Lender's
Prime Rate (the "Index"). This is the rate Lender charges, or would charge,
on 90-day unsecured loans to the most creditworthy corporate customers.
This rate may or may not be the lowest rate available from Lender at any
given time. Lender will tell Borrower the current index rate upon
Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often
than each day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE
TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A
RATE OF 2.000 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL
RATE OF 10.250% PER ANNUM. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be
charged 5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS
GREATER.
LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid interest
immediately due, without notice, and then Borrower will pay that amount.
Upon Borrower's failure to pay all amounts declared due pursuant to this
section, including failure to pay upon final maturity, Lender, at its
option, may also, if permitted under applicable law, increase the variable
interest rate on this Note to 4.000 percentage points over the Index.
Lender may hire or pay someone else to help collect this Note if Borrower
does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Borrower also will pay
any court costs, in addition to all other sums provided by law. THIS NOTE
HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF
CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA, Keogh, and trust accounts.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the
total amount of principal has been advanced, Borrower is not entitled to
further loan advances. Advances under this Note, as well as directions for
payment from Borrower's accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not, require that
all oral requests be confirmed in writing. The following party or parties
are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER.
Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing
on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs. Lender
will have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or any
agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes
other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms
of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this
loan, or release any party or guarantor or collateral; or impair, fail to
realize upon or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this
loan without the consent of or notice to anyone other than the party with
whom the modification is made.
<PAGE>
08-22-1996 PROMISSORY NOTE PAGE 2
(CONTINUED)
==============================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
BY: /s/ OSAMAH BAKHIT
------------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
==============================================================================
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000.00 08-22-1996 10-31-1997 OHC
- --------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
EXHIBIT 10-12.2338E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN AVIATION
DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION (REFERRED TO BELOW AS
"GRANTOR"); AND FAR EAST NATIONAL BANK (REFERRED TO BELOW AS "LENDER"). FOR
VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION
TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL
INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means AVIATION DISTRIBUTORS INCORPORATED, a
Delaware corporation, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Far East National Bank, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated August 22,
1996, in the principal amount of $1,700,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
(CONTINUED)
account debtor; there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral from
its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
State of Delaware, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale in the
ordinary course of Grantor's business does not include a transfer in partial
or total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any
lien, security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason) shall
be held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall immediately
deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's rights
in the Collateral against the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including such
information as Lender may require, including without limitation names and
addresses of account debtors and agings of accounts and general intangibles.
Insofar as the Collateral consists of inventory and equipment, Grantor shall
deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall have the right at
all reasonable times to examine, inspect, and audit the Collateral wherever
located. Grantor shall immediately notify Lender of all cases involving the
return, rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events
affecting the Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in Lender's
sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash,
a sufficient corporate surety bond or other security satisfactory to Lender
in an amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities,
now or hereafter in effect, applicable to the ownership, production,
disposition, or use of the Collateral. Grantor may contest in good faith any
such law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's interest in
the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien on
the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum by-products
or any fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating the
Collateral for hazardous wastes and substances. Grantor hereby (a) releases
and waives any future claims against Lender for indemnity or contribution in
the event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any and
all claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnify shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender
from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
canceled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
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APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly
to Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole discretion, shall
deem appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve
any rights in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Delaware Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
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SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
<PAGE>
08-22-1996 COMMERCIAL SECURITY AGREEMENT PAGE 5
(CONTINUED)
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GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
AUGUST 22, 1996.
GRANTOR:
AVIATION DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION
By: /s/ Osamah Bakhit
---------------------------------------
OSAMAH BAKHIT, CHIEF EXECUTIVE OFFICER
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<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
OHC
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References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
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</TABLE>
Borrower: AVIATION DISTRIBUTORS Lender: FAR EAST NATIONAL BANK
INCORPORATED, A 4699 JAMBOREE ROAD
DELAWARE CORPORATION NEWPORT BEACH, CA 92660
ONE WRIGLEY DRIVE
IRVINE, CA 92718
Guarantor: OSAMAH BAKHIT AND HEATHER BUCHER
28841 GLEN RIDGE
MISSION VIEJO, CA 92692
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AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS ONE MILLION SEVEN
HUNDRED THOUSAND & 00/100 DOLLARS ($1,700,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, OSAMAH BAKHIT AND
HEATHER BUCHER ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEE AND
PROMISE TO PAY, JOINTLY AND SEVERALLY, TO FAR EAST NATIONAL BANK ("LENDER")
OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE UNITED STATES OF AMERICA,
THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF AVIATION DISTRIBUTORS
INCORPORATED, A DELAWARE CORPORATION ("BORROWER") TO LENDER ON THE TERMS
AND CONDITIONS SET FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR
UNDER THIS GUARANTY ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when
used in this Guaranty:
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS INCORPORATED,
a Delaware corporation.
GUARANTOR. The word "Guarantor" means Osamah Bakhit and Heather Bucher,
who are signing this Guaranty jointly and severally.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated August 22, 1996.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or
hereinafter incurred or created, including, without limitation, all
loans, advances, interest, costs, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities
of Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such Indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined;
whether Borrower may be liable individually or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether recovery on
the Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness arises
from transactions which may be voidable on account of infancy, insanity,
ultra vires, or otherwise.
LENDER. The word "Lender" means Far East National Bank, its successors
and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME $1,700,000.00 PLUS ALL COSTS AND EXPENSES
OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION AND SALE OF ANY
COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one
time. If Lender presently holds one or more guaranties, or hereafter
receives additional guaranties from Guarantor, the rights of Lender under
all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any such
other guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any such other
unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness within the limits set forth in the preceding section of
this Guaranty. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection
with any remaining portions of the Indebtedness or any of the Indebtedness
which subsequently arises or is thereafter incurred or contracted. Any
married person who signs this Guaranty as the Guarantor hereby expressly
agrees that recourse may be had against both his or her separate property
and community property. The obligations of Guarantors shall be joint and
several. Lender may proceed against any of the Guarantors individually,
against any group of Guarantors, or against all the Guarantors in one
action, without affecting the right of Lender to proceed against other
Guarantors for amounts that are covered by this Guaranty. Any inability of
Lender to proceed against any Guarantor (whether caused by actions of a
Guarantor or of Lender) will not affect Lender's right to proceed against
any or all remaining Guarantors for all or part of the amounts covered by
this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
delivered to Lender at the address of Lender listed above or such other
place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after
actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. Notice of revocation shall be
effective only as to the particular Guarantor providing the notice, and
shall not affect the liability of other guarantors. This Guaranty will
continue to bind Guarantor for all Indebtedness incurred by Borrower or
committed by Lender prior to receipt of Guarantor's written notice of
revocation, including any extensions, renewals, substitutions or
modifications of the Indebtedness. All renewals, extensions, substitutions,
and modifications of the Indebtedness granted after Guarantor's revocation,
are contemplated under this Guaranty and, specifically will not be
considered to be new Indebtedness. This Guaranty shall bind the estate of
Guarantor as to Indebtedness created both before and after the death or
incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in
the same manner in which Guarantor might have terminated it and with the
same effect. Release of any other guarantor or termination of any other
guaranty of the Indebtedness shall not affect the liability of Guarantor
under this Guaranty. A revocation received by Lender from any one or more
Guarantors shall not affect the liability of any remaining Guarantors under
this Guaranty. It is anticipated that fluctuations may occur in the
aggregate amount of Indebtedness covered by this Guaranty, and it is
specifically acknowledged and agreed by Guarantor that reductions in the
amount of Indebtedness, even to zero dollars ($0.00), prior to written
revocation of this Guaranty by Guarantor shall not constitute a termination
of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor's
heirs, successors and assigns so long as any of the guaranteed Indebtedness
remains unpaid and even though the Indebtedness guaranteed may from time to
time be zero dollars ($0.00).
<PAGE>
08-22-1996 COMMERCIAL GUARANTY PAGE 2
(CONTINUED)
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GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening Guarantor's liability under this Guaranty, from time to time: (a)
prior to revocation as set forth above, to make one or more additional
secured or unsecured loans to Borrower, to lease equipment or other goods
to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any
part of the Indebtedness, including increases and decreases of the rate of
interest on the Indebtedness; extensions may be repeated and may be for
longer than the original loan term; (c) to take and hold security for the
payment of this Guaranty or the Indebtedness, and exchange, enforce, waive,
subordinate, fail or decide not to perfect, and release any such security,
with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner
Lender may choose; (e) to determine how, when and what application of
payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may
determine; (g) to sell, transfer, assign, or grant participations in all or
any part of the Indebtedness; and (h) to assign or transfer this Guaranty
in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind
have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's request
and not at the request of Lender; (c) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (d) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; (e)
upon Lender's request, Guarantor will provide to Lender financial and
credit information in form acceptable to Lender, and all such financial
information provided to Lender is true and correct in all material respects
and fairly presents the financial condition of Guarantor as of the dates
thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request
for information, Lender shall have no obligation to disclose to Guarantor
any information or documents acquired by Lender in the course of its
relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender to (a) make any presentment, protest,
demand, or notice of any kind, including notice of change of any terms of
repayment of the Indebtedness, default by Borrower or any other guarantor
or surety, any action or nonaction taken by Borrower, Lender, or any other
guarantor or surety of Borrower, or the creation of new or additional
Indebtedness; (b) proceed against any person, including Borrower, before
proceeding against Guarantor; (c) proceed against any collateral for the
Indebtedness, including Borrower's collateral, before proceeding against
Guarantor; (d) apply any payments or proceeds received against the
Indebtedness in any order; (e) give notice of the terms, time, and place of
any sale of the collateral pursuant to the Uniform Commercial Code or any
other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or
surety, or about any action or nonaction of Lender; or (g) pursue any
remedy or course of action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of
(h) any disability or other defense of Borrower, any other guarantor or
surety or any other person; (i) the cessation from any cause whatsoever,
other than payment in full, of the Indebtedness; (j) the application of
proceeds of the Indebtedness by Borrower for purposes other than the
purposes understood and intended by Guarantor and Lender; (k) any act of
omission or commission by Lender which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor or surety,
or the Indebtedness, or the loss or release of any collateral by operation
of law or otherwise; (l) any statute of limitations in any action under
this Guaranty or on the Indebtedness; or (m) any modification or change in
terms of the Indebtedness, whatsoever, including without limitation, the
renewal, extension, acceleration, or other change in the time payment of
the Indebtedness is due and any change in the interest rate, and including
any such modification or change in terms after revocation of this Guaranty
on Indebtedness incurred prior to such revocation. Until all Indebtedness
is paid in full, Guarantor waives all rights and any defenses Guarantor may
have arising out of an election of remedies by Lender even though that
election of remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed Guarantor's rights of
subrogation and reimbursement against Borrower or any other guarantor or
surety by operation of Section 580d and 726 of the California Code of Civil
Procedure or otherwise. This waiver includes, without limitation, any loss
of rights Guarantor may suffer by reason of any rights or protections of
Borrower in connection with any anti-deficiency laws or other laws limiting
or discharging the Indebtedness or Borrower's obligations (including,
without limitation, Sections 726, 580b, and 580d of the California Code of
Civil Procedure). Until all Indebtedness is paid in full, Guarantor waives
any right to enforce any remedy Lender may have against Borrower or any
other guarantor, surety, or other person, and further, Guarantor waives any
right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so
that at no time shall Guarantor be or become a "creditor" of Borrower
within the meaning of 11 U.S.C. section 547(b), or any successor provision
of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable
law or public policy, such waiver shall be effective only to the extent
permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of
setoff against the moneys, securities or other property of Guarantor given
to Lender by law, Lender shall have, with respect to Guarantor's
obligations to Lender under this Guaranty and to the extent permitted by
law, a contractual possessory security interest in and a right of setoff
against, and Guarantor hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Guarantor's right, title and interest in and to,
all deposits, moneys, securities and other property of Guarantor now or
hereafter in the possession of or on deposit with Lender, whether held in a
general or special account or deposit, whether held jointly with someone
else, or whether held for safekeeping or otherwise, excluding however all
IRA, Keogh, and trust accounts. Every such security interest and right of
setoff may be exercised without demand upon or notice to Guarantor. No
security interest or right of setoff shall be deemed to have been waived by
any act or conduct on the part of Lender or by any neglect to exercise such
right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full
force and effect until such right of setoff or security interest is
specifically waived or released by an instrument in writing executed by
Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes
insolvent. Guarantor hereby expressly subordinates any claim Guarantor may
have against Borrower, upon any account whatsoever, to any claim that
Lender may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or
acquire against Borrower or against any assignee or trustee in
<PAGE>
08-22-1996 COMMERCIAL GUARANTY Page 3
(Continued)
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bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has read
and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this Guaranty;
the Guaranty fully reflects Guarantor's intentions and parol evidence is not
required to interpret the terms of this Guaranty. Guarantor hereby indemnifies
and holds Lender harmless from all losses, claims, damages, and costs (including
Lender's attorneys' fees) suffered or incurred by Lender as a result of any
breach by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective unless
given in writing and signed by the parties sought to be charged or bound by the
alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Orange County,
State of California. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Guaranty. Lender may pay
someone else to help enforce this Guaranty, and Guarantor shall pay the costs
and expenses of such enforcement. Costs and expenses include Lender's attorneys'
fees and legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all court costs and
such additional fees as may be directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimilie, and, except
for revocation notices by Guarantor, shall be effective when actually delivered
or when deposited with a nationally recognized overnight courier, or when
deposited in the United States mail, first class postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above or to
such other addresses as either party may designate to the other in writing. All
revocation notices by Guarantor shall be in writing and shall be effective only
upon delivery to Lender as provided above in the section titled "DURATION OF
GUARANTY." If there is more than one Guarantor, notice to any Guarantor will
constitute notice to all Guarantors. For notice purposes, Guarantor agrees to
keep Lender informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or Guarantor,
then all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and where
there is more than one Borrower named in this Guaranty or when this Guaranty is
executed by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision of this
Guaranty to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
Indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this Guaranty
unless such waiver is given in writing and signed by Lender. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a provision of this
Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise
to demand strict compliance with that provision or any other provision of this
Guaranty. No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Guaranty, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED AUGUST 22, 1996.
GUARANTOR:
Osamah Bakhit X
- ----------------------------------------- ---------------------------------
Osamah Bakhit Heather Bucher
- ------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [CA-E20 ADI.LN]
<PAGE>
COMMERCIAL GUARANTY
- --------------------------------------------------------------------------------
PRINCIPLE LOAN MATURITY LOAN CALL COLLATERAL ACCOUNT OFFICER INITIALS
DATE NO OHC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
GUARANTOR: ADI CONSIGNMENT SALES, INC.
ONE WRIGLEY DRIVE
IRVINE, CA 92718
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS ONE MILLION SEVEN
HUNDRED THOUSAND & 00/100 DOLLARS ($1,700,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, ADI
CONSIGNMENT SALES, INC. ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY
GUARANTEES AND PROMISES TO PAY TO FAR EAST NATIONAL BANK ("LENDER") OR
ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE UNITED STATES OF AMERICA,
THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF AVIATION
DISTRIBUTORS INCORPORATED, A DELAWARE CORPORATION ("BORROWER") TO
LENDER ON THE TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY. THE
OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when
used in this Guaranty:
BORROWER. The word "Borrower" means AVIATION DISTRIBUTORS
INCORPORATED, a Delaware corporation.
GUARANTOR. The word "Guarantor" means ADI CONSIGNMENT SALES, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated August 22, 1996.
INDEBTEDNESS. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of Borrower's
liabilities, obligations, debts, and indebtedness to Lender, now
existing or hereinafter incurred or created, including, without
limitation, all loans, advances, interest, costs, debts, overdraft
indebtedness, credit card indebtedness, lease obligations, other
obligations, and liabilities of Borrower, or any of them, and any
present or future judgments against Borrower, or any of them; and
whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be
liable individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether recovery on the
Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness
arises from transactions which may be voidable on account of infancy,
insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means Far East National Bank, its successors
and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS
GUARANTY SHALL NOT EXCEED AT ANY ONE TIME $1,700,000.00 PLUS ALL COSTS AND
EXPENSES OF (a) ENFORCEMENT OF THIS GUARANTY AND (b) COLLECTION AND SALE OF
ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of
the Indebtedness of Borrower to Lender either in the aggregate or at any
one time. If Lender presently holds one or more guaranties, or hereafter
receives additional guaranties from Guarantor, the rights of Lender under
all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any such
other guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any such other
unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be
open and continuous for so long as this Guaranty remains in force.
Guarantor intends to guarantee at all times the performance and prompt
payment when due, whether at maturity or earlier by reason of acceleration
or otherwise, of all Indebtedness within the limits set forth in the
preceding section of this Guaranty. Accordingly, no payments made upon the
Indebtedness will discharge or diminish the continuing liability of
Guarantor in connection with any remaining portions of the Indebtedness or
any of the Indebtedness which subsequently arises or is thereafter incurred
or contracted. Any married person who signs this Guaranty as the Guarantor
hereby expressly agrees that recourse may be had against both his or her
separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
delivered to Lender at the address of Lender listed above or such other
place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after
actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation,
including any extensions, renewals, substitutions or modifications of the
Indebtedness. All renewals, extensions, substitutions, and modifications of
the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death.
Subject to the foregoing, Guarantor's executor or administrator or other
legal representative may terminate this Guaranty in the same manner in
which Guarantor might have terminated it and with the same effect. Release
of any other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this
Guaranty. It is anticipated that fluctuations may occur in the aggregate
amount of Indebtedness covered by this Guaranty, and it is specifically
acknowledged and agreed by Guarantor that reductions in the amount of
Indebtedness, even to zero dollars ($0.00), prior to written revocation of
this Guaranty by Guarantor shall not constitute a termination of this
Guaranty. This Guaranty is binding upon Guarantor and Guarantor's heirs,
successors and assigns so long as any of the guaranteed Indebtedness
remains unpaid and even though the Indebtedness guaranteed may from time to
time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening Guarantor's liability under this Guaranty, from time to time: (a)
prior to revocation as set forth above, to make one or more additional
secured or unsecured loans to Borrower, to lease equipment or other goods
to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for
<PAGE>
08-22-1996 COMMERCIAL GUARANTY
(CONTINUED)
PAGE 2
payment or other terms of the Indebtedness or any part of the
Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer
than the original loan term; (c) to take and hold security for the
payment of this Guaranty or the Indebtedness, and exchange, enforce,
waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to
release, substitute, agree not to sue, or deal with any one or more of
Borrower's sureties, endorsers, or other guarantors on any terms or in
any manner Lender may choose; (e) to determine how, when and what
application of payments and credits shall be made on the Indebtedness;
(f) to apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust, as
Lender in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or any part of the Indebtedness; and (h) to
assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind
have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's
request and not at the request of Lender; (c) Guarantor has not and will
not, without the prior written consent of Lender, sell, lease, assign,
encumber, hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein; (d)
Lender has made no representation to Guarantor as to the creditworthiness
of Borrower; (e) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of
Guarantor as of the dates thereof, and no material adverse change has
occurred in the financial condition of Guarantor since the date of the
financial statements; and (f) Guarantor has established adequate means of
obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which
might in any way affect Guarantor's risks under this Guaranty, and
Guarantor further agrees that, absent a request for information, Lender
shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with
Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender to (a) make any presentment, protest,
demand, or notice of any kind, including notice of change of any terms of
repayment of the Indebtedness, default by Borrower or any other guarantor
or surety, any action or nonaction taken by Borrower, Lender, or any
other guarantor or surety of Borrower, or the creation of new or
additional Indebtedness; (b) proceed against any person, including
Borrower, before proceeding against Guarantor; (c) proceed against any
collateral for the Indebtedness, including Borrower's collateral, before
proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms,
time, and place of any sale of the collateral pursuant to the Uniform
Commercial Code or any other law governing such sale; (f) disclose any
information about the Indebtedness, the Borrower, the collateral, or any
other guarantor or surety, or about any action or nonaction of Lender; or
(g) pursue any remedy or course of action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of
(h) any disability or other defense of Borrower, any other guarantor or
surety or any other person; (i) the cessation from any cause whatsoever,
other than payment in full, of the Indebtedness; (j) the application of
proceeds of the Indebtedness by Borrower for purposes other than the
purposes understood and intended by Guarantor and Lender; (k) any act of
omission or commission by Lender which directly or indirectly results in
or contributes to the discharge of Borrower or any other guarantor or
surety, or the Indebtedness, or the loss or release of any collateral by
operation of law or otherwise; (l) any statute of limitations in any
action under this Guaranty or on the Indebtedness; or (m) any
modification or change in terms of the Indebtedness, whatsoever,
including without limitation, the renewal, extension, acceleration, or
other change in the time payment of the Indebtedness is due and any
change in the interest rate, and including any such modification or
change in terms after revocation of this Guaranty on Indebtedness
incurred prior to such revocation. Until all Indebtedness is paid in
full, Guarantor waives all rights and any defenses Guarantor may have
arising out of an election of remedies by Lender even though that
election of remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed Guarantor's rights of
subrogation and reimbursement against Borrower or any other guarantor or
surety by operation of Section 580d and 726 of the California Code of
Civil Procedure or otherwise. This waiver includes, without limitation,
any loss of rights Guarantor may suffer by reason of any rights or
protections of Borrower in connection with any anti-deficiency laws or
other laws limiting or discharging the Indebtedness or Borrower's
obligations (including, without limitation, Sections 726, 580b, and 580d
of the California Code of Civil Procedure). Until all Indebtedness is
paid in full, Guarantor waives any right to enforce any remedy Lender may
have against Borrower or any other guarantor, surety, or other person,
and further, Guarantor waives any right to participate in any collateral
for the Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b)
the Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise,
so that at no time shall Guarantor be or become a "creditor" of Borrower
within the meaning of 11 U.S.C. section 547(b), or any successor
provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public
policy or law. If any such waiver is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to
the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of
setoff against the moneys, securities or other property of Guarantor
given to Lender by law, Lender shall have, with respect to Guarantor's
obligations to Lender under this Guaranty and to the extent permitted by
law, a contractual possessory security interest in and a right of setoff
against, and Guarantor hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Guarantor's right, title and interest in and
to, all deposits, moneys, securities and other property of Guarantor now
or hereafter in the possession of or on deposit with Lender, whether held
in a general or special account or deposit, whether held jointly with
someone else, or whether held for safekeeping or otherwise, excluding
however all IRA, Keogh, and trust accounts. Every such security interest
and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to
have been waived by any act or conduct on the part of Lender or by any
neglect to exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and security
interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes
insolvent. Guarantor hereby expressly subordinates any claim Guarantor
may have against Borrower, upon any account whatsoever, to any claim that
Lender may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to
Lender and shall be first applied by Lender to the Indebtedness of
Borrower to Lender. Guarantor does hereby assign to Lender all claims
which it may have or acquire against Borrower or against any assignee or
trustee in bankruptcy of Borrower; provided however, that such assignment
shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness. If Lender so requests, any
notes or credit agreements now or hereafter evidencing any debts or
obligations of Borrower to Guarantor shall be marked with a legend that
the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of
Guarantor, from time to time to execute and file financing statements and
continuation statements and to execute
<PAGE>
08-22-1996 COMMERCIAL GUARANTY
(CONTINUED)
PAGE 3
such other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its rights under
this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
Integration, Amendment. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Orange
County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE
UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE. THIS GUARANTY IS DATED AUGUST 22, 1996.
GUARANTOR:
ADI CONSIGNMENT SALES, INC.
By:/s/ Osamah Bakhit
-----------------------
OSAMAH BAKHIT, President
<PAGE>
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPLE LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000 08-22-1996 10-31-1997 OHC
- ---------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
<S> <C> <C>
Borrower: AVIATION DISTRIBUTORS INCORPORATED, a Lender: FAR EAST NATIONAL
Delaware corporation 4699 Jamboree Road
One Wrigley Drive Newport Beach, CA 92660
Irvine, CA 92718
</TABLE>
I, the undersigned Secretary or Assistant Secretary of AVIATION
DISTRIBUTORS INCORPORATED, a Delaware corporation (the "Corporation"),
HEREBY CERTIFY that the Corporation is organized and existing under and by
virtue of the laws of the State of Delaware as a corporation for profit,
with its principal office at One Wrigley Drive, Irvine, CA 92718, and is
duly authorized to transact business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly
called and held on August 22, 1996, at which a quorum was present and
voting, the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signature is shown
below:
NAME POSITION ACTUAL SIGNATURE
---- -------- -----------------
Osamah Bakhit Chief Executive Officer /s/Osamah Bakhit
acting for and on behalf of this Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
BORROW MONEY. To borrow from time to time from Far East National Bank
("Lender"), on such terms as may be agreed upon between the officer,
employee, or agent and Lender, such sum or sums of money as in his or her
judgment should be borrowed; however, not exceeding at any one time the
amount of One Million Seven Hundred Thousand & 00/100 Dollars
($1,700,000.00), in addition to such sum or sums of money as may be
currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accomodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accomodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which he
or she may in his or her discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as he or she may in his or her discretion deem reasonably
necessary or proper in order to carry into effect the provisions of these
Resolutions. The following person or persons are authorized to request
advances and authorize payments under the line of credit until Lender
receives written notice of revocation of their authority: Osamah Bakhit,
Chief Executive Officer.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing Resolutions
now stand of record on the books of the Corporation; and that the Resolutions
are in full force and effect and have not been modified or revoked in any manner
whatsoever. The Corporation has no corporate seal, and therefore, no seal is
affixed to this certificate. <PAGE>
08-22-1996 CORPORATE RESOLUTION TO BORROW PAGE 2
(Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, I have hereunto set my hand on August 22, 1996 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/Illegible
---------------------------
Secretary or Assistant Secretary
X /s/Illegible
---------------------------
*NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable
to have this certificate signed by a second Officer or Director of the
Corporation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CORPORATE RESOLUTION TO GUARANTEE / GRANT COLLATERAL
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,700,000 08-22-1996 10-31-1997 OHC
- ------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: AVIATION DISTRIBUTORS INCORPORATED, A LENDER: FAR EAST NATIONAL BANK
DELAWARE CORPORATION 4699 JAMBOREE ROAD
ONE WRIGLEY DRIVE NEWPORT BEACH, CA 92660
IRVINE, CA 92718
GUARANTOR: ADI CONSIGNMENT SALES, INC.
ONE WRIGLEY DRIVE
IRVINE, CA 92718
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ADI CONSIGNMENT SALES,
INC. (THE "CORPORATION"), HEREBY CERTIFY AS FOLLOWS: The Corporation is
organized and existing under and by virtue of the laws of the State of
California. The Corporation has its principal office at One Wrigley Drive,
Irvine, CA 92718.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called
and held on July 21, 1995, at which a quorum was present and voting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers or employees
of this Corporation, whose actual signature is shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- -------------------
OSAMAH BAKHIT President X /s/ Osamah Bakhit
--------------------
acting for and on behalf of this Corporation and as its act and deed be, and
he or she hereby is, authorized and empowered in the name of the Corporation:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation from Far East National Bank ("Lender") on such guarantee or
surety terms as may be agreed upon between the officers or employees of
this Corporation and Lender and in such sum or sums of money as in his or her
judgment should be guaranteed or assured, not exceeding, however, at any
one time the amount of ONE MILLION SEVEN HUNDRED THOUSAND & 00/100 Dollars
($1,700,000.00), in addition to such sum or sums of money as may be currently
guaranteed by the Corporation to Lender (the "Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty, any
property belonging to the Corporation or in which the Corporation may have an
interest, real, personal (tangible or intangible), or mixed. Such property
may be mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered
at the time such loans are made or such indebtedness is incurred, or at any
other time or times, and may be either in addition to or in lieu of any
property theretofore mortgaged, pledged, transferred, endorsed, hypothecated,
or encumbered. The provisions of these Resolutions authorizing or relating
to the pledge, mortgage, transfer, endorsement, hypothecation, granting of
a security interest in, or in any way encumbering, the assets of the
Corporation shall include, without limitation, doing so in order to lend
collateral security for the indebtedness, now or hereafter existing, and of
any nature whatsoever, of AVIATION DISTRIBUTORS INCORPORATED, a Delaware
corporation to Lender. The Corporation has considered the value to itself of
lending collateral in support of such indebtedness, and the Corporation
represents to Lender that the Corporation is benefited by doing so.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the form of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and other
security agreements and financing statements which may be submitted by
Lender, and which shall evidence the terms and conditions under and pursuant
to which such liens and encumbrances, or any of them, are given; and also to
execute and deliver to Lender any other written instruments, of any kind or
nature, which may be necessary or proper in connection with or pertaining to
the giving of liens and encumbrances.
FURTHER ACTS. To do and perform such other acts and things and to execute and
deliver such other documents as may in his or her discretion be deemed
reasonably necessary or proper in order to carry into effect any of the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Lender may rely on these Resolutions until written
notice of their revocation shall have been delivered to and received by
Lender. Any such notice shall not affect any of the Corporation's agreements
or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the person named above is a principal officer of the
Corporation and occupies the position set opposite the name; that the
foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON AUGUST 22, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR
GENUINE SIGNATURES.
CERTIFIED TO AND ATTEST BY:
X /s/
--------------------------------
Secretary or Assistant Secretary
X /s/
--------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1996 CFI ProServices, Inc.
All rights reserved. [CA-C20 ADI.LN]
<PAGE>
AVIATION DISTRIBUTORS, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
as of this 16th day of July, 1996 by and between OSAMAH S. BAKHIT, residing at
28841 Glen Ridge, Mission Viejo, California 92692 ("Executive"), and AVIATION
DISTRIBUTORS, INC., a Delaware corporation, with offices at One Wrigley Drive,
Irvine, California 92618 (the "Company"), for the purpose of setting forth the
terms and conditions of Executive's employment by the Company and to protect the
Company's knowledge, expertise, customer relationships and the confidential
information the Company has developed regarding clients, customers,
shareholders, option holders, employees, products, business operations and
services. As of the Effective Date, this Agreement supersedes any prior
understandings or agreements between Executive and the Company or any of the
Company's subsidiaries or affiliates.
The Board of Directors of the Company (the "Board") recognizes that
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of
Executive and to make certain changes in Executive's employment arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of Executive as a member of
the Company's management, in the best interest of the Company and its
shareholders. Executive is willing to commit himself to continue to serve the
Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and Executive wish to enter
into an employment agreement on the terms and conditions set forth below. In
consideration of the premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. TIME AND EFFORTS
1.1 Executive shall be employed as the Company's Chairman of the
Board, President and Chief Executive Officer, and shall devote substantially all
of his working time and efforts to the duties and responsibilities of the
President and Chief Executive Officer in furtherance of the Company's business.
In this capacity, Executive shall have such duties and responsibilities as the
Board shall designate that are consistent with Executive's positions as
President and Chief Executive Officer of the Company. Executive shall perform
such duties and responsibilities in accordance with the practices and
<PAGE>
policies of the Company as in effect from time to time and in accordance with
Executive's employment arrangements with the Company. Executive shall report
directly to the Board.
1.2 Executive shall continue to be a member of the Board during the
term of this Agreement and to serve as its Chairman.
1.3 Without the prior express authorization of the Board (which
approval shall not be unreasonably withheld), Executive shall not, directly or
indirectly, during the term of this Agreement engage in any activity competitive
with or adverse to the Company's business, whether alone, as a partner or
independent contractor, or as an officer, director, or employee of any other
corporation. This Agreement shall not be interpreted to prohibit Executive from
making passive investments, conducting private business affairs, or engaging in
educational or charitable activities, if those activities do not materially
interfere with the services required hereunder.
1.4 In order to induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity; and (ii) Executive
is subject to no restraint, limitation or restriction by virtue of any agreement
or arrangement, or by virtue of any law or rule of law or otherwise which would
impair Executive's right or ability to enter the employ of the Company or to
perform fully his duties and obligations pursuant to this Agreement.
2. TERM
The initial term of employment of Executive under this Agreement shall
commence effective as of July 1, 1996 (the "Effective Date") and shall continue
in effect through December 31, 2001 (the "Term"), unless further extended or
sooner terminated as hereinafter provided. Commencing on January 1, 2002 and on
the fifth anniversary of each January 1 thereafter (each such January 1, an
"Anniversary Date"), the term of Executive's employment shall automatically be
extended for five additional years unless, not later than the September 30
immediately preceding an Anniversary Date, either party shall have given written
notice (a "Nonrenewal Notice") to the other party that it does not wish to
extend this Agreement or unless sooner terminated pursuant to Section 3.
References hereinafter to the "Term" of this Agreement shall refer to both the
initial term and any extended term of Executive's employment hereunder.
Page 2 of 18
<PAGE>
3. TERMINATION
Executive's employment hereunder may be terminated without breach of
this Agreement only under the following circumstances:
3.1 DEATH. Executive's employment hereunder shall terminate upon his
death.
3.2 DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six (6) consecutive
months, and within thirty (30) days after written Notice of Termination (as
defined in paragraph (3.5) below) is given (which may occur before or after the
end of such six (6) month period) shall not have returned to the performance of
his duties hereunder on a full-time basis, Executive's employment hereunder
shall terminate for "Disability."
3.3 CAUSE. The Company may terminate Executive's employment
hereunder for "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon (i) Executive's
conviction for the commission of an act or acts constituting a felony under the
laws of the United States or any state thereof, (ii) action by Executive toward
the Company involving dishonesty, (iii) Executive's refusal to abide by or
follow written directions of the Board, (iv) Executive's gross nonfeasance or
(v) failure of Executive to comply with the provisions of Section 8 of this
Agreement or other willful conduct by Executive which is intended to have and
does have a material adverse impact on the Company.
3.4 TERMINATION BY EXECUTIVE.
3.4.1 Executive may terminate his employment hereunder for "Good
Reason." For purposes of this Agreement, Executive shall have "Good
Reason" to terminate his employment hereunder (i) upon a failure by the
Company to comply with any material provision of this Agreement which has
not been cured within ten (10) business days after notice of such
noncompliance has been given by Executive to the Company, (ii) upon action
by the Company resulting in a diminution of Executive's title or authority,
(iii) upon the Company's relocation of Executive's principal place of
employment outside of the Irvine, California metropolitan area or (iv) one
year after a "Change in Control of the Company" (as defined in paragraph
3.4.2 below). Executive may terminate his employment voluntarily without
Good Reason upon at least six months' prior notice to the Company.
Page 3 of 18
<PAGE>
3.4.2 For purposes of this Agreement, a "Change in Control of
the Company" will be deemed to have occurred if:
A. any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than (i) the
Company, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the
Company or (iii) any corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportion as their ownership of
Shares), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company
representing 50% or more of the combined voting power
of the Company's then outstanding voting securities;
B. during any period of not more than two consecutive
years, individuals who at the beginning of such period
constitute the Board, and any new director (other than
a director designated by a person who has entered into
an agreement with the Company to effect a transaction
described in clause (A), (C), or (D) of this Section
3.4.2) whose election by the Board 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 at least a majority thereof;
C. the stockholders of the Company approve a merger or
consolidation of the Company with any other
corporation, other than (i) 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 or parent entity) 50% or
more of the combined voting power of the voting
securities of the Company or such surviving or parent
entity outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as
hereinabove defined) acquires 50% or more of the
combined voting power of the Company's then outstanding
securities; or
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D. 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 of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
3.5 NOTICE OF TERMINATION. Any termination of Executive's employment
by the Company or by Executive (other than termination under Section 3.1 hereof)
shall be communicated by written Notice of Termination to the other party hereto
in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
3.6 DATE OF TERMINATION. "Date of Termination" shall mean (i) if
Executive's employment is terminated by his death, the date of his death, (ii)
if Executive's employment is terminated pursuant to subsection (3.2) above,
thirty (30) days after Notice of Termination is given (provided that Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period), (iii) if Executive's employment is
terminated pursuant to subsection (3.3) or (3.4) above, other than as provided
in (iv), the date specified in the Notice of Termination; and (iv) if Executive
receives from the Company a Nonrenewal Notice, the date the Agreement expires;
PROVIDED THAT, if within thirty (30) days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a binding and final arbitration award.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
4.1 DISABILITY. During any period that Executive fails to perform
his duties hereunder as a result of Disability, Executive shall continue to
receive his full salary at the rate then in effect for such period until his
employment is terminated pursuant to Section 3.2 hereof. Subject to the
provisions of Section 8 hereof, in the event Executive's employment is
terminated pursuant to this Section 4.1 hereof, then
4.1.1 as soon as practicable thereafter, the Company shall pay
Executive all unpaid amounts, if any, to which Executive is entitled as of
the Date of Termination under Sections 5, 6.1 and 6.2 hereof and shall pay
to Executive, in accordance with the terms of the applicable plan or
program, all other unpaid amounts to which Executive is then entitled under
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<PAGE>
any compensation or benefit plan or program of the Company (collectively,
"Accrued Obligations");
4.1.2 following the Date of Termination and for the longer of
thirty (30) months thereafter or the balance of the Term as then in effect
(the "Severance Period"), the Company shall pay Executive monthly an amount
equal to (X) the quotient of (1) the sum of (A) Executive's annual base
salary at the rate in effect as of the Date of Termination and (B) the
average of the annual bonuses earned by Executive in the three fiscal years
of the Company ended immediately prior to the Date of Termination, divided
by (2) the greater of (C) the number of full months remaining in the Term
or (D) the number thirty (30) (such quotient being referred to herein as
the "Severance Payments"), minus (Y) any amounts payable to Executive
during such month as a disability benefit under any other disability plan,
program or arrangement of the Company; and
4.1.3 as of the Date of Termination, an additional number of
shares (if any) underlying outstanding stock options granted to Executive
from time to time during the Term shall become exercisable, such that the
total number of shares underlying each such grant which are exercisable is
equal to the product of (1) the total number of shares covered by such
grant (whether or not any portion of such grant has previously been
exercised) and (2) a fraction the numerator of which is the number of full
months from the date of grant to the end of the Severance Period and the
denominator of which is the number of full months from the date of grant to
the date the option would otherwise have become fully exercisable.
Executive shall have the right to exercise any stock option, to the extent
then exercisable, for a period of one (1) year following the Date of
Termination, subject to such limitations on exercisability as may be set
forth in any plan or agreement covering such options, and to the extent not
exercisable, the option shall immediately terminate.
4.2 DEATH. If Executive's employment is terminated by his death,
4.2.1 the Company shall pay to the person(s) or entity set forth
in Section 11 hereof: (1) the Accrued Obligations, at the time(s) set forth
in Section 4.1.1 hereof; (2) as soon as practicable following Executive's
death, the amounts payable under any life insurance policy maintained by
the Company on Executive's life; and (3) as soon as practicable following
the end of the fiscal year of the Company in which Executive's death
occurs, any incentive compensation which would otherwise have been paid to
Executive with respect to such fiscal year; and
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4.2.2 the additional vesting of stock options, as described in
Section 4.1.3 shall apply.
4.3 TERMINATION FOR CAUSE; VOLUNTARY TERMINATION WITHOUT GOOD REASON.
If Executive's employment is terminated by the Company for Cause or voluntarily
by Executive for other than Good Reason, the Company shall pay the Accrued
Obligations to Executive at the time(s) set forth in Section 4.1.1 hereof and
the Company shall have no further obligations to Executive under this Agreement.
4.4 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON;
NONRENEWAL. If (1) the Company shall terminate Executive's employment other
than for Disability pursuant to Section 4.2 or for Cause, (2) Executive shall
terminate his employment for Good Reason or (3) the Term of this Agreement
expires as a result of a Nonrenewal Notice having been provided by the Company,
then, subject to the provisions of Section 8 hereof:
1. the Company shall pay the Accrued Obligations to
Executive at the time(s) set forth in Section 4.1.1
hereof;
2. the Company shall pay to Executive the Severance
Payments, as defined and for the period set forth in
Section 4.1.2 hereof (except that in the case of the
expiration of the Term, as described in clause 4.4(3)
above, the Severance Period shall end on the first
anniversary of the expiration of the Term and, for
purposes of determining the amount of Severance
Payments, the divisor shall be equal to twelve (12));
3. the additional vesting of stock options as described in
Section 4.2.2 shall apply (except that in the case of
the expiration of the Term, as described in clause
4.4(3) above, the number of additional option Shares
becoming exercisable shall be determined by reference
to the number of full months from the date of grant to
the first anniversary of the date of such expiration);
4. Executive shall continue to be provided with the same
medical and life insurance coverage as existed
immediately prior to the applicable Notice of
Termination or Notice of Nonrenewal, as the case may
be, such coverage to continue through the end of the
Severance Period (or, in the case of expiration of the
Term, as described in clause 4.4(3) above, through the
first anniversary of the date of such expiration);
PROVIDED THAT, such
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coverage shall cease as of the date Executive obtains
new employment; and
5. Executive shall be provided with appropriate
outplacement services.
4.5 TERMINATION UPON A CHANGE IN CONTROL.
4.5.1 Upon the occurrence of a Change in Control of the
Company during the Term, any then outstanding stock options granted to
Executive shall become fully exercisable, whether or not otherwise
exercisable, and such options shall be fully vested.
4.5.2 In the event that any payment or benefit received or to
be received by Executive in connection with a Change in Control of the
Company or the termination of Executive's employment, whether such payments
or benefits are received pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any person whose
actions result in a Change in Control of the Company or any person
affiliated with the Company or such person (all such payments and benefits
being hereinafter called "Total Payments"), would be subject (in whole or
part) to the tax (the "Excise Tax") imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Company shall
pay to Executive such additional amounts (the "Gross-Up Payment") as may be
necessary to place Executive in the same after-tax position as if no
portion of the Total Payments had been subject to the Excise Tax. In the
event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder, Executive shall repay to the Company,
at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the Gross-Up
Payment being repaid by Executive to the extent that such repayment results
in a reduction in Excise Tax and/or a federal, state or local income tax
deduction) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Gross-Up Payment), the Company shall make
an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
Executive and the Company shall each reasonably cooperate with the other in
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<PAGE>
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments.
5. VACATION
During each calendar year of the term of this Agreement, Executive
shall be entitled four weeks of paid vacation. Executive shall be entitled to
receive payment for accrued vacation not taken during each calendar year during
the term of this Agreement or may accrue such vacation for use in a subsequent
calendar year; however Executive shall be subject to a maximum accrual of eight
(8) weeks of paid vacation, at which time Executive shall cease accruing
vacation days until his vacation balance falls below the maximum accrual.
6. CURRENT COMPENSATION
6.1 ANNUAL SALARY. For all services rendered by Executive under this
Agreement, the Company shall pay or cause to be paid to Executive, and Executive
shall accept the Annual Salary and Incentive Compensation, if any, all in
accordance with and subject to the terms of this Agreement. For purposes of
this Agreement, the term "Compensation" shall mean the Annual Salary and
Incentive Compensation, if any. Executive shall be entitled to receive as
current compensation an Annual salary in the amount of $225,000 per annum
(hereinafter referred to as the "Annual Salary"). References in this Agreement
to "annual" or "per annum" or "Annual" and similar phrases shall mean the
twelve-month period commencing on July 1st of each year during the term of this
Agreement unless otherwise indicated.
6.2 INCENTIVE COMPENSATION. In addition, Executive shall be entitled
to annual Incentive Compensation in accordance with the Company's Executive
Incentive Compensation Plan. The Company acknowledges the current Executive
Incentive Compensation Plan provides for the contribution of 7.5% of the
Company's earnings before taxes to a senior management bonus pool to be
allocated in accordance with the determination of the Board, not to exceed the
contribution of $250,000 annually. In addition, Executive shall be entitled to
bonus compensation declared at the discretion of the independent members of the
Board from time to time in an amount not to exceed two times the Executive's
Annual Salary per calendar year.
6.3 401(k) PLAN. Executive shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan.
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6.4 PAYMENTS OF CURRENT COMPENSATION. The payment of Executive's
Annual Salary shall be made in semi-monthly installments on the then prevailing
pay days of the Company. Any payment for Incentive Compensation will be made in
accordance with the Executive Incentive Compensation Plan, and payment will be
made in one lump sum concurrently with payments made to others in senior
management. All payments are subject to the customary withholding tax and other
employment taxes as required with respect to compensation paid to an employee.
7. MISCELLANEOUS BENEFITS
7.1 MEDICAL INSURANCE. Executive and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its executive employees.
7.2 BUSINESS EXPENSES. Executive shall be reimbursed for all
reasonable expenses incurred by Executive in connection with Executive's
attendance at business meetings and promotion of Company business upon
presentation by Executive to the Company of an expense report and adequate
records or other documentation substantiating the expenditures, not less
frequently than monthly. Any such amounts disallowed as a business expense for
federal or state income tax purposes shall be deemed additional salary to
Executive. The fact that the Company may not reimburse Executive for an expense
is not an indication that the Company determined that the expense was not
incurred on its behalf or in connection with the Company's business.
7.3 AUTOMOBILE ALLOWANCE. Executive shall be entitled to an
automobile allowance including lease payments for the automobile of Executive's
choice, taxes, licensing fees, insurance, and maintenance costs.
7.4 SERVICES FURNISHED. The Company shall furnish Executive with
office space, stenographic assistance and such other facilities and services as
shall be suitable to Executive's position and adequate for the performance of
his duties.
7.5 PLACE OF PERFORMANCE. In connection with Executive's employment
by the Company, Executive shall be based at the principal executive offices of
the Company to be located within a 15-mile radius of the Orange County John
Wayne Airport, except for required travel on Company business to an extent
substantially consistent with present business travel obligations.
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<PAGE>
7.8 LIFE INSURANCE. During the term of this Agreement, the Company
shall pay for and maintain on a continuous basis, "key-man" life insurance in
the amount of $3,000,000 on the life of Executive naming the Company as
beneficiary. During the term of this Agreement, the Company shall pay for and
maintain on a continuous basis, life insurance in the amount of $3,000,000 on
the life of Executive naming Executive's estate as beneficiary.
8. CONSULTANCY ARRANGEMENT/ RESTRICTIVE COVENANTS
8.1 RETENTION AS CONSULTANT. During the "Consulting Period" (as
defined in paragraph 8.2 below), (i) the Company shall retain the Executive and
the Executive shall serve the Company as an independent consultant on the terms
and conditions set forth herein and (ii) the Executive shall provide such
consulting services to the Company as the Company may reasonably request under
the direction of the Executive's Board consistent with its overall objectives in
an amount not to exceed (x) 40 hours per month for the first six (6) months of
the Consulting Period (as defined in paragraph 8.2 below) and (y) 20 hours per
month thereafter. Executive may perform his duties hereunder at such locations
as may be agreed upon between the Executive and the Company (PROVIDED, that if
requested to perform such duties in any location other than the Irvine,
California metropolitan area, the Company shall reimburse the Executive for his
reasonable out-of-pocket expenses incurred in connection therewith in accordance
with paragraph 7.2 hereof). As an independent consultant, the Executive shall
not be authorized to act for or enter into any agreement on behalf of the
Company without written authorization from the Board.
8.2 CONSULTING PERIOD. Upon the Executive's termination of
employment (i) due to Disability, (ii) by the Company without Cause, (iii) by
the Executive for Good Reason or (iv) as a result of a Nonrenewal Notice from
the Company, the Executive shall be retained by the Company as a consultant, in
which case the Executive shall provide the services specified in paragraph 8.1
for a period of thirty (30) months from the date of such termination (such date,
the "Effective Date," and such period, the "Consulting Period"); provided that,
the Consulting Period shall not extend beyond and shall be coterminous with the
Severance Period as described in paragraphs 4.1.2 and 4.4(2) hereof. Following
the termination of the Consulting Period, except as otherwise specifically
provided herein, (i) the Company's obligations under this Agreement shall cease
and the Company shall have no further obligations to Consultant under this
Agreement and (ii) Consultant's obligation to the Company to provide the
consulting services contemplated by Section 1 paragraph 8.2 shall cease.
8.3 CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder he occupies a position of trust and confidence. During the
Term, and thereafter, Executive shall
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not, except as may be required to perform his duties hereunder or as required by
applicable law, and except for information which is or becomes publicly
available other than as a result of a breach by the Executive of the provisions
hereof, disclose to others or use, whether directly or indirectly, any
Confidential Information. "Confidential Information" shall mean information
about the Company, its subsidiaries and affiliates, and their respective
suppliers, clients and customers that is not disclosed by the Company for
financial reporting purposes and that was learned by Executive in the course of
his employment hereunder, including (without limitation) proprietary knowledge,
trade secrets, market research, data, formulae, information and supplier, client
and customer lists and all papers, resumes, and records (including computer
records) of the documents containing such Confidential Information. Executive
acknowledges that such Confidential Information is specialized, unique in nature
and of great value to the Company, and that such information gives the Company a
competitive advantage. The Executive agrees to deliver or return to the
Company, at the Company's request at any time or upon termination or expiration
of his employment or as soon thereafter as possible, all documents, computer
tapes and disks, records, lists, data, drawings, prints, notes and written
information (and all copies thereof) furnished by the Company or any of its
subsidiaries or affiliates or prepared by the Executive during the term of his
employment by the Company.
8.4 NONCOMPETION. During the Term and for any Consulting Period
thereafter, Executive shall not, directly or indirectly, without the prior
written consent of the Company, provide consultative service to (with or without
pay), own, manage, operate, join, control, participate in, or be connected with
(as a stockholder, partner, officer, director, employee or otherwise) any
business, individual, partner, firm, corporation, or other entity that operates
one or more multi-unit restaurant chains in any geographic market in which the
Company or any of its subsidiaries then operates or that otherwise directly or
indirectly competes with the Company or any of its subsidiaries (a "Competitor
of the Company"); PROVIDED, HOWEVER, that the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms are
used in Rule 13d of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of not more than five
percent (5%) of the voting stock of any publicly held corporation shall not be a
violation of this Agreement. It is further expressly agreed that the Company
will or would suffer irreparable injury if Executive were to compete with the
Company or any subsidiary or affiliate of the Company in violation of this
Agreement and that the Company would by reason of such competition be entitled
to injunctive relief in a court of appropriate jurisdiction, and Executive
further consents and stipulates to the entry of such injunctive relief in such a
court prohibiting Executive from competing with the Company or any subsidiary or
affiliate of the Company in violation of this Agreement.
8.5 BUSINESS DIVERSION. During the Term and for thirty (30) months
thereafter, Executive shall not, directly or indirectly, influence or attempt to
influence customers or suppliers of the
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Company or any of its subsidiaries or affiliates to divert their business to any
Competitor of the Company.
8.6 NONSOLICITATION. Executive recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates, relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and inter-personal
relationships with suppliers and customers of the Company. Executive recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company and will be acquired by
him because of his business position with the Company. Executive agrees that,
during the Term and for thirty (30) months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, its subsidiaries or affiliates to any other person.
8.7 If Executive breaches or threatens to commit breach of, any of
the provisions of Section 8 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to the following:
8.7.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company or its
subsidiaries and that money damages would not provide an adequate remedy to
the Company or its subsidiaries.
8.7.2 Accounting. The right and remedy to require Executive
to account for and pay over to the Company or its subsidiaries, as the case
may be, all compensation, profits, monies, accruals, increments or other
benefits derived or received by Executive as result of any transaction
constituting a breach of the Restrictive Covenants.
8.7.3 Severability of Restrictive Covenants. Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and
valid in geographic and temporal scope and in all other respects. If any
court determines that any of the Restrictive Covenants, or any part
thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect
without regard to the invalid portions.
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8.7.4 Blue-Penciling. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall have
the power to reduce the duration or scope of such provision, as the case
may be, and, in its reduced form, such provision shall then be enforceable.
8.7.5 Enforceability of Jurisdictions. The obligations
contained in this Section 8 shall survive the termination of Executive's
employment or expiration of this Agreement and shall be fully enforceable
thereafter. Executive intends to and hereby confers jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction
within the geographic scope of such Restrictive Covenants. If the courts
of any one or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of Executive that such determination not bar or in any way
affect the right of the Company or its subsidiaries to the relief provided
above in the courts of any other jurisdiction within the geographic scope
of such Restrictive Covenants, as to breaches of such Restrictive Covenants
in such other respective jurisdictions, such Restrictive Covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse
and independent Restrictive Covenants.
9. PARTICIPATION IN STOCK OPTION AND INCENTIVE AWARD PLAN
Executive shall be granted an option to purchase 51,050 shares of Common
Stock of the Company (the "Option Shares") pursuant to the terms and conditions
contained in the Company's 1996 Stock Option and Incentive Award Plan (the
"Plan"). The exercise price for the Option Shares will be equal to $7.00, and
the options will vest six months after the closing of the Company's initial
public offering.
DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company, the
termination of that employment, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Los Angeles, California according to the Employment Dispute
Resolution Rules and procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
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between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or causes of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
of an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state Constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the National Labor Relations
Act, as amended, the Labor-Management Relations Act, as amended, the Worker
Retraining and Notification Act of 1988, the Americans With Disabilities Act of
1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of
1967, as amended, and the California Fair Employment and Housing Act, as
amended.
11. ASSIGNMENT
Neither this Agreement nor any rights hereunder shall be assignable or
otherwise subject to hypothecation by Executive (except by will or by operation
of the law of intestate succession) or by the Company except that the Company
may require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance reasonably
satisfactory to Executive, 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
it if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 11 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts would still be payable to
him hereunder if he had continued to live, all such amounts, unless otherwise
provided
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herein, shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to Executive's estate.
12. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first-class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
13. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
14. AMENDMENT MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part, but
only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
15. HEADINGS
The headings in this Agreement are inserted for convenience only and are
not to be considered in construction of the provisions hereof.
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16. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Executive and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
17. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the arbitrator
or ruling court.
18. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as is
necessary or appropriate to effectuate the provisions of this Agreement.
19. CONTROLLING LAW
This Agreement and the rights of the parties hereunder shall be governed by
and construed and enforced in accordance with laws of the State of Delaware
(excluding its conflict of laws principles, statutes or other similar laws)
including all matters of construction, validity, performance and enforcement.
20. WAIVER
A waiver by either party of any of the terms and conditions hereof shall
not be construed as a general waiver by such party, and such party shall be free
to reinstate such part or clause, with or without notice to the other party.
Page 17 of 18
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21. INDEMNIFICATION
To the fullest extent permitted by law and the Company's certificate of
incorporation and by-laws, the Company shall indemnify Executive for all amounts
(including, without limitation, judgments, fines, settlement payments, losses,
damages, costs and expenses (including reasonable attorneys' fees)) incurred or
paid by Executive in connection with any action, proceeding, suit or
investigation arising out of or relating to the performance by Executive of
services for, or acting as a director, officer or employee of, the Company or
any subsidiary thereof.
THE COMPANY: EXECUTIVE:
AVIATION DISTRIBUTORS, INC.,
a Delaware corporation
By: /s/ Mark W. Ashton /s/ Osamah S. Bakhit
-------------------------- ------------------------------
Mark W. Ashton OSAMAH S. BAKHIT
Chief Financial Officer
Page 18 of 18
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references made to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
November 5, 1996
<PAGE>
EXHIBIT 99.3
CONSENT OF WILLIAM T. WALKER, JR.
As a proposed director of Aviation Distributors, Inc., I hereby consent to
the use of my name in this registration statement.
WILLIAM T. WALKER, JR.
Los Angeles, California
November 6, 1996
