<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-8061
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVIATION DISTRIBUTORS INCORPORATED
(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 INCORPORATED
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>
PROSPECTUS [LOGO]
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
1,000,000 SHARES
AVIATION DISTRIBUTORS INCORPORATED
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 Incorporated, 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 and
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 Incorporated ("ADI" or 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. Sales have increased
from $7.8 million in the six month period ended June 30, 1995 to $11.7 million
in the six month period ended June 30, 1996.
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.
3
<PAGE>
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.
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 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................................. $ 16,369 $ 22,652 $ 7,845 $ 11,721
Cost of sales.............................................. 11,809 18,680 6,221 8,625
Gross profit............................................... 4,560 3,972 1,624 3,096
Selling and administrative expenses........................ 3,958 3,757 1,701 2,217
Income (loss) from operations.............................. 602 215 (77) 879
Interest expense, net...................................... 278 622 263 324
Net income (loss).......................................... 208 (215) (142) 397
Net income (loss) per share................................ 0.12 (0.12) (.08) 0.22
Shares used in computing net income (loss) per share....... 1,785,000 1,785,000 1,785,000 1,785,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
AS ADJUSTED
ACTUAL (1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 3 $ 1,283
Restricted cash....................................................................... 117 117
Working capital (deficit)............................................................. (213) 5,042
Total assets.......................................................................... 16,687 18,142
Total debt............................................................................ 13,296 9,496
Total stockholders' equity............................................................ 550 5,805
</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
June 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; HISTORICAL OPERATING LOSSES
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 $879,170
for the first six months of 1996, the Company has incurred operating losses in
the past. 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. All of the Company's sales were transacted in U.S. dollars in fiscal
year 1995. As of June 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.
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
6
<PAGE>
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 June 30, 1996 the Company had a
note receivable from one customer in the amount of approximately $5.4 million,
which is secured by an irrevocable letter of credit. See Note 5 of Notes to
Consolidated Financial Statements. For the years ended December 31, 1994 and
1995 and the six months ended June 30, 1996, the Company wrote off an aggregate
of approximately $93,000 as uncollected accounts receivable. See Note 13 of
Notes to Consolidated Financial Statements.
CERTAIN LITIGATION
The Company is a defendant in a pending action brought by a customer of the
Company arising out of a consignment agreement that was terminated in August
1995. The lawsuit alleges, among other things, breach of contract and fraud, and
seeks combined damages of $3,518,000, interest, attorneys fees, punitive damages
and treble damages under the Racketeer Influenced and Corrupt Organization Act
("R.I.C.O"). Although the Company intends to vigorously defend the lawsuit, the
ultimate outcome is uncertain and an adverse outcome could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Litigation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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
7
<PAGE>
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 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 $5.31
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") and approximately
$1.5 million 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 October 31, 1996. As of
July 31, 1996, $5.3 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 June 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>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total Short-Term Debt(1)............................................................. $ 8,093 $ 4,293
----------- -----------
----------- -----------
Long-Term Debt:
Note payable, net of current portion(2)............................................ 3,880 3,880
Mortgage, net of current portion(3)................................................ 929 929
Other, net of current portion(4)................................................... 394 394
----------- -----------
Total Long-Term Debt............................................................... $ 5,203 $ 5,203
----------- -----------
----------- -----------
Stockholder's Equity:
Common stock....................................................................... $ 18 $ 27
Additional paid in capital......................................................... 389 5,635
Retained earnings.................................................................. 143 143
----------- -----------
Total Stockholder's Equity....................................................... 550 5,805
----------- -----------
Total Capitalization............................................................. $ 5,753 $ 11,008
----------- -----------
----------- -----------
</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.
(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 June 30,
1996, was $550,000 or approximately $.31 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 June 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 June 30, 1996
would have been $5,805,000 or $2.19 per share. This represents an immediate
increase in pro forma net tangible book value of $1.88 per share to the existing
stockholder and an immediate dilution in net tangible book value of $5.31 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..................... $ .31
Increase per share attributable to new investors.......................... 1.88
Pro forma net tangible book value per share after the Offering.............. 2.19
---------
Dilution per share to new investors......................................... $ 5.31
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of June 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 and as of and for the six months ended June 30, 1996
and for the six months ended June 30, 1995 have been derived from the
Consolidated Financial Statements as audited by Arthur Andersen LLP, independent
public accountants. 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................................. $16,369 $22,652 $7,845 $11,721
Cost of sales.............................................. 11,809 18,680 6,221 8,625
Gross profit............................................... 4,560 3,972 1,624 3,096
Selling and administrative expenses........................ 3,958 3,757 1,701 2,217
Income (loss) from operations.............................. 602 215 (77) 879
Interest expense, net...................................... 278 622 263 324
Net income (loss).......................................... 208 (215) (142) 397
Net income (loss) per share................................ 0.12 (0.12) (0.08) 0.22
Shares used in computing net income (loss) per share....... 1,785,000 1,785,000 1,785,000 1,785,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
AS ADJUSTED
ACTUAL (1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 3 $ 1,283
Restricted cash....................................................................... 117 117
Working capital (deficit)............................................................. (213) 5,042
Total assets.......................................................................... 16,687 18,142
Total debt............................................................................ 13,296 9,496
Total stockholder's equity............................................................ 550 5,805
</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
June 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 $11.7 million
for the six months ended June 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>
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
The following table sets forth certain information relating to the Company's
operations for the six month period ended June 30, 1995 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales................. $ 6,989 89.0% $ 9,898 84.0%
Net sales on consignment and marketing agreements........ 856 11.0 1,823 16.0
--------- ----- --------- -----
Net sales................................................ 7,845 100.0 11,721 100.0
Cost of sales............................................ 6,221 79.3 8,625 73.6
--------- ----- --------- -----
Gross profit........................................... 1,624 20.7 3,096 26.4
Selling and administrative expenses...................... 1,701 21.7 2,217 18.9
--------- ----- --------- -----
Income (loss) from operations............................ (77) (1.0) 879 7.5
Interest expense, net.................................... 263 3.4 324 2.8
Net income (loss)........................................ (142) (1.8) 397 3.4
</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
increased from $7.0 million for the six months ended June 30, 1995 to $10.0
million for the six months ended June 30, 1996, an increase of $3.0 million or
43%. 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 two quarters of 1996, the addition of new
sales personnel and emphasis on development of new domestic customers and some
larger international customers. See "Net sales."
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 $856,000 for the six months ended June 30, 1995 to $1.8 million
for the six months ended June 30, 1996, an increase of $944,000 or 110.3%. This
increase was 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 increased from $7.8 million for the six months ended
June 30, 1995 to $11.7 million for the six months ended June 30, 1996, an
increase of $3.9 million or 50.0% This increase in net sales is due to the
reasons noted above. See "Distributed services and inventory sales" and "Net
sales on consignment and marketing agreements."
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 six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
AREA 1995 1996
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Pacific Rim.............................................................. 30.1% 18.9%
Europe................................................................... 21.8 22.3
Latin/South America...................................................... 24.0 16.9
Africa/Middle East....................................................... 6.6 7.5
Domestic................................................................. 17.5 34.4
--------- ---------
Total.................................................................. 100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
For the six months ended June 30, 1995, 82.5% of the Company's sales were to
international customers compared to 65.6% for the six months ended June 30,
1996. The decrease in the percentage of the Company's sales to international
customers was primarily due to the Company's purchase of
14
<PAGE>
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 increased from $6.2 million for the six months
ended June 30, 1995 to $8.6 million for the six months ended June 30, 1996, an
increase of $2.4 million or 38.7%. This increase was primarily the result of the
increase in net sales, somewhat offset by an improved profit margin attributable
to the bulk inventory purchases. As a percentage of net sales, cost of sales
decreased from 79.3% in the 1995 period to 73.6% in the 1996 period as a result
of improved pricing on inventory parts as a result of bulk inventory purchases.
See "Net sales."
GROSS PROFIT. Gross profit increased from $1.6 million, or 20.7% for the
six months ended June 30, 1995 to $3.1 million or 26.4% for the six months ended
June 30, 1996. The gross profit margin increased as a result of bulk inventory
purchases during the last quarter of 1995 and the first two quarters of 1996, an
increase in distributed services and inventory sales, which typically generate
higher profit margins than sales derived from consignment and marketing
agreements, the addition of new sales personnel and emphasis on development of
new domestic customers and some larger international customers. See "Cost of
sales."
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 $1.7 million for the six months ended June 30, 1995 to $2.2
million for the six months ended June 30, 1996, an increase of $500,000 or
29.4%. This increase in expenditures for the six months ended June 30, 1996
principally reflects higher personnel costs necessary to respond to the
Company's growth, including salaries, taxes, insurance and commission expenses,
in support of the sales increases realized during the first six months of 1996.
As a percentage of selling and administrative expenses, personnel and selling
expenses increased from 66.2% in the 1995 period to 74.1% in the 1996 period as
a result of significantly higher employee wages and associated benefits due to
additional personnel. 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 decreased from 21.7% in the six
months ended June 30, 1995 to 18.9% of net sales in the six months ended June
30, 1996 due to the Company's improved management of expenses. The Company does
not currently anticipate any future material impact upon general and
administrative expenses due to the Company's employment agreements with certain
members of senior management.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations for the six months ended June 30, 1996 increased $956,000 compared to
the six months ended June 30, 1995. The increase reflects the higher gross
profit margins realized in the first two quarters of 1996 compared to the first
two quarters of 1995. See "Gross profit."
INTEREST EXPENSES, NET. Net interest expense increased from $263,000, or
3.4% of net sales at June 30, 1995 to $324,000, or 2.8% of net sales at June 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. As a percentage of sales, interest expense
decreased 0.6% as a result of increased sales volume.
NET INCOME (LOSS). Net income (loss) increased from $(142,000) for the six
months ended June 30, 1995 to $397,000 for the six months ended June 30, 1996,
an increase of $539,000. This increase was attributable to increased sales,
increased gross profit margins, somewhat offset by increases in the Company's
selling and administrative expenses and interest expenses as discussed above.
See "Net sales," "Gross profit," "Selling and administrative expenses," and
"Interest expense, net."
15
<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."
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."
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
16
<PAGE>
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.
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 $3,000 as of December 31, 1994, 1995 and
June 30, 1996, respectively. The Company had restricted cash of $105,000,
$301,000 and $117,000 as of December 31, 1994, 1995 and June 30, 1996,
respectively. For the periods ended December 31, 1994 and 1995 and June 30,
1996, $1.1 million, $9.3 million and $(152,000), respectively, of cash was
provided by (used in) financing activities. Restricted cash was required for one
of the Credit Facilities until May 1996 and for letters of credit issued to
certain vendors.
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 $68,000 for 1994, 1995
and the six months ended June 30, 1996, respectively.
17
<PAGE>
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 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 October 31, 1996. Far East Bank has agreed to extend
the maturity date of the $2.0 million Credit Facility to March 31, 1997, subject
to the Company extending its coverage pursuant to its export credit insurance
policy, which extension the Company is in the process of obtaining. 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. 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. 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 six months
ended June 30, 1996, the Company was in compliance with all of its requirements
under the Credit Facilities.
In February 1996, an action was brought against the Company arising out of a
dispute relating to a consignment agreement between the Company and one of its
customers. During August 1996, the Company made a settlement payment to such
customer in the amount of $166,000, which was financed through additional
borrowings under the Credit Facilities. The Company anticipates that any
potential future settlement payments, if necessary, will also be financed
through additional borrowings under the Credit Facilities.
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.
18
<PAGE>
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. Sales have increased from $7.8
million in the six month period ended June 30, 1995 to $11.7 million in the six
month period ended June 30, 1996.
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.
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<PAGE>
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 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.
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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 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 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
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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 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
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<PAGE>
which the Company markets vendors' inventory which remains in the vendors'
possession. Through 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.
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 June
30, 1996, the Company listed 204,000 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. 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
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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 July 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.
FACILITIES
As of July 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
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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
On February 14, 1996, an action was brought in the United States District
Court for the Central District of California (CV #96-140 (EEX)) by a customer of
the Company against the Company, its wholly owned subsidiary, ADI Consignment
Sales, Inc. ("ADICS"), and Mr. Bakhit. The action arises out of a dispute
relating to a consignment agreement between ADICS and the customer whereby ADICS
agreed to hold certain aircraft parts inventory of such customer on consignment
for sale. The complaint generally alleges causes of action arising out of breach
of contract and fraud. For its damages, the plaintiff is claiming $3,518,000,
interest, attorneys fees, punitive damages and treble damages under R.I.C.O.
Discovery has only recently commenced and the Company has not yet had the
opportunity to obtain discovery regarding the substance of the claims brought by
the customer. The Company, ADICS and Mr. Bakhit deny liability for the claims
brought by the customer and intend to vigorously defend such claims. ADICS has
also filed a counterclaim against the customer for breach of contract, fraud and
negligent misrepresentation stemming from the same dispute. ADICS seeks punitive
damages as part of its counterclaim.
There can be no assurance as to the ultimate outcome of this litigation and
an adverse outcome could have a material adverse effect on the Company's
business, financial condition and results of operations. However, on August 13,
1996, Mr. Bakhit met with representatives of the customer for purposes of
resolving their dispute with one another. The Company intends to continue
pursuing settlement negotiations.
In addition, the Company is involved in certain other 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
</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.
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.
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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. 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.
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 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
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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 approximately
$328,700 from the Company for personal use. The full amount of such loan,
including any unpaid interest, will be repaid by Mr. Bakhit upon the
consummation of the Offering. In 1994, Mr. Bakhit received an annual salary
of $106,000. See "Certain Transactions."
(2) Compensation consists of automobile lease payments and automobile insurance
paid by the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an 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 of his choice at the expense of the Company, 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 at an option price of $7 per share. This option vests six months
after the closing of the Offering.
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
28
<PAGE>
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 at an option price of $7 per share. This option vests six months after the
closing of the Offering.
The Ashton Agreement contains nonsolicitation, noncompetition 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 at an
option price of $7 per share. This option vests 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, noncompetition 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 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.
29
<PAGE>
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
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
30
<PAGE>
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 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).
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<PAGE>
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 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.
32
<PAGE>
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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<PAGE>
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
34
<PAGE>
the participant to purchase such Common Stock. The Company will be entitled to a
deduction at the time 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
35
<PAGE>
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 status or service as directors of
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them, as to which they could be indemnified, and to obtain director's
and officer's insurance, if available on reasonable terms. 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.
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<PAGE>
CERTAIN TRANSACTIONS
The Company loaned approximately $328,700 to Mr. Bakhit for personal use in
December 1995. As of June 30, 1996, approximately $328,700 principal amount was
outstanding on the loan. The full amount of such loan, including any unpaid
interest, will be repaid by Mr. Bakhit upon the consummation of the Offering.
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.
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,
1 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."
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
37
<PAGE>
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."
38
<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
39
<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.
40
<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
41
<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 sheets of the Company as of December 31, 1995 and
June 30, 1996 and the related consolidated statements of operations,
stockholder's equity and cash flows for the years ended December 31, 1994 and
1995 and for the six months ended June 30, 1995 and 1996 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
42
<PAGE>
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees. 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.
43
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1995 and 1996.................................. F-4
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1994
and 1995 and for the six months ended June 30, 1995 and 1996......................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1995 and 1996.................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Aviation Distributors Incorporated:
We have audited the accompanying consolidated balance sheets of AVIATION
DISTRIBUTORS INCORPORATED (a Delaware corporation) and subsidiaries as of
December 31, 1995 and June 30, 1996, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 and 1996. 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
Incorporated and subsidiaries as of December 31, 1995 and June 30, 1996, and the
results of their operations and their cash flows for the years ended December
31, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
August 9, 1996
(Except with respect to the matter
discussed in Note 15, as to which
the date is August 16, 1996)
F-2
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 867,721 $ 3,037
Restricted cash.......................................................... 301,175 116,884
Accounts receivable, net of allowance for doubtful accounts of $48,607 at
December 31, 1995 and $17,000 at June 30, 1996.......................... 4,437,112 5,901,378
Other receivables........................................................ 141,287 217,420
Inventories.............................................................. 2,209,262 2,791,780
Current portion of notes receivable...................................... 1,466,224 1,539,663
Current portion of note receivable from officer.......................... 65,744 65,744
Prepaid expenses......................................................... 51,700 84,866
------------ -----------
Total current assets................................................... 9,540,225 10,720,772
------------ -----------
PROPERTY AND EQUIPMENT 1,663,378 1,779,375
Less -- Accumulated depreciation......................................... 170,140 238,744
------------ -----------
1,493,238 1,540,631
------------ -----------
Notes receivable, net of current portion................................... 4,674,491 3,879,568
Note receivable from officer, net of current portion....................... 262,974 262,974
Other assets............................................................... 43,765 282,635
------------ -----------
4,981,230 4,425,177
------------ -----------
$ 16,014,693 $16,686,580
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented for payment.............................. $ 574,888 $ 651,856
Accounts payable......................................................... 2,185,188 1,719,358
Accrued liabilities...................................................... 370,833 274,764
Income tax payable....................................................... -- 195,000
Lines of credit.......................................................... 4,667,784 5,288,531
Current portion of long-term debt........................................ 1,815,220 2,780,029
Current portion of capital lease obligations............................. 26,178 24,664
------------ -----------
Total current liabilities.............................................. 9,640,091 10,934,202
------------ -----------
Long-term debt, net of current portion..................................... 6,168,356 5,159,383
------------ -----------
Capital lease obligations, net of current portion.......................... 53,240 43,203
------------ -----------
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 earnings (deficit).............................................. (253,994) 142,792
------------ -----------
Total stockholder's equity............................................. 153,006 549,792
------------ -----------
$ 16,014,693 $16,686,580
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1995 1996
YEAR ENDED DECEMBER 31, ------------- -------------
------------------------------
1994 1995
-------------- --------------
<S> <C> <C> <C> <C>
DISTRIBUTED SERVICES AND INVENTORY SALES........... $ 13,530,167 $ 21,544,983 $ 6,988,863 $ 9,897,785
NET SALES ON CONSIGNMENT AND MARKETING
AGREEMENTS........................................ 2,838,800 1,107,327 856,377 1,823,507
-------------- -------------- ------------- -------------
TOTAL NET SALES.................................... 16,368,967 22,652,310 7,845,240 11,721,292
COST OF SALES...................................... 11,809,104 18,679,924 6,220,871 8,625,477
-------------- -------------- ------------- -------------
Gross profit................................... 4,559,863 3,972,386 1,624,369 3,095,815
SELLING AND ADMINISTRATIVE EXPENSES................ 3,957,897 3,757,073 1,701,426 2,216,645
-------------- -------------- ------------- -------------
Income (loss) from operations.................. 601,966 215,313 (77,057) 879,170
OTHER EXPENSES (INCOME):
Interest expense................................. 281,260 867,030 269,992 608,748
Interest income.................................. (2,835) (245,332) (6,856) (284,268)
Other expense (income)........................... 12,603 (88,232) (99,975) (11,730)
-------------- -------------- ------------- -------------
Income (loss) before provision (benefit) for
income taxes.................................. 310,938 (318,153) (240,218) 566,420
PROVISION (BENEFIT) FOR INCOME TAXES............... 102,460 (103,320) (97,730) 169,634
-------------- -------------- ------------- -------------
Net income (loss).............................. $ 208,478 $ (214,833) $ (142,488) $ 396,786
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
Earnings (loss) per share.......................... $ .12 $ (.12) $ (.08) $ .22
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
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 INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK
---------------------- ADDITIONAL RETAINED TOTAL
NUMBER PAID EARNINGS 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............................... -- -- -- (142,488) (142,488)
----------- --------- -------------- ------------- -------------
Balance at June 30, 1995................. 1,785,000 17,850 389,150 (181,649) 225,351
Net loss............................... -- -- -- (72,345) (72,345)
----------- --------- -------------- ------------- -------------
Balance at December 31, 1995............. 1,785,000 17,850 389,150 (253,994) 153,006
Net income............................. -- -- -- 396,786 396,786
----------- --------- -------------- ------------- -------------
Balance at June 30, 1996................. 1,785,000 $ 17,850 $ 389,150 $ 142,792 $ 549,792
----------- --------- -------------- ------------- -------------
----------- --------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1996
YEAR ENDED DECEMBER 31, ----------- -----------
------------------------
1994 1995
----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 208,478 $ (214,833) $ (142,488) $ 396,786
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Sale in exchange for note receivable.................... -- (6,617,406) -- --
Principal payments of notes receivable.................. -- 482,691 -- 715,484
Borrowings on notes payable related to inventory
purchases.............................................. -- 845,950 -- 1,088,906
Principal payments on notes payable related to inventory
purchases.............................................. -- -- -- (200,000)
Reduction in amount due on notes payable related to
inventory purchases.................................... -- -- -- (210,950)
Non-cash portion of nonrecurring loss on settlement..... 230,075 -- -- --
Depreciation and amortization of debt discount.......... 91,972 87,628 39,900 107,780
Changes in assets and liabilities:
Accounts receivable, net.............................. (1,650,155) (707,814) (779,655) (1,464,266)
Other receivables..................................... (250,601) 109,314 138,822 (76,133)
Inventories........................................... (199,540) (1,833,509) 37,664 (582,518)
Other assets.......................................... (70,071) (44,919) (291,210) (266,036)
Checks issued not yet presented for payment........... 680,632 (105,744) (226,361) 76,968
Accounts payable...................................... 29,273 908,668 134,202 (465,830)
Accrued liabilities................................... 34,769 327,167 25,645 (96,069)
Income tax payable.................................... 105,330 (105,330) (100,930) 195,000
----------- ----------- ----------- -----------
Net cash used in operating activities............... (789,838) (6,868,137) (1,164,411) (780,878)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (120,086) (1,257,103) (1,197,179) (115,997)
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) 105,000 184,291
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities......................................... (225,086) (1,787,996) (1,098,179) 68,294
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit............................. 1,072,250 8,988,103 9,867,914 12,304,964
Principal payments on lines of credit..................... -- (6,769,388) (8,793,570) (11,684,217)
Borrowings on long-term debt.............................. 68,233 8,465,682 1,011,232 --
Principal payments of long-term debt...................... (9,272) (1,391,767) (18,518) (761,296)
Principal payments of capital lease obligations........... (9,120) (19,965) (8,408) (11,551)
Contributed capital....................................... 10,000 -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities......................................... 1,132,091 9,272,665 2,058,650 (152,100)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 117,167 616,532 (203,940) (864,684)
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 $ 47,249 $ 3,037
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 275,210 $ 786,725 $ 234,946 $ 597,287
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 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Aviation Distributors Incorporated ("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 six months ended June
30, 1995 and 1996, approximately 72.4%, 90.3%, 82.5% and 65.6%, respectively, of
the Company's net sales were export sales. These export sales by region were
approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pacific Rim................................................................ 19.2% 22.4% 30.1% 18.9%
Europe..................................................................... 25.0 15.7 21.8 22.3
Latin/South America........................................................ 16.6 17.4 24.0 16.9
Africa/Middle East......................................................... 11.6 34.8 6.6 7.5
--- --- --- ---
72.4% 90.3% 82.5% 65.6%
--- --- --- ---
--- --- --- ---
</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.
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.
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
F-7
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 June 30, 1996 and 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 outstanding irrevocable letters of credit in the amount of
$1,850,000 as of June 30, 1996. These letters of credit, which have terms from
one to two years, collateralize the Company's obligations to third parties for
the purchase of inventory. The fair value of these letters of credit is
estimated to be the same as the contract values 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.
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
F-8
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
determined whether it will implement the fair value-based accounting method or
continue accounting for stock options under APB Opinion No. 25. As of June 30,
1996 the Company has not granted any stock options.
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 from time to time on the outstanding
balance. This officer who is also the Company's sole stockholder did not draw a
salary during 1995.
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>
JUNE 30,
1996
DECEMBER 31, -------------
1995
-------------
<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 $ 5,419,231
Note receivable from an individual........................................ 6,000 --
------------- -------------
6,140,715 5,419,231
Less -- Current portion................................................... 1,466,224 1,539,663
------------- -------------
$ 4,674,491 $ 3,879,568
------------- -------------
------------- -------------
</TABLE>
NOTE 6 -- PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -------------
1995
-------------
<S> <C> <C>
Buildings................................................................. $ 1,087,834 $ 1,093,862
Computer equipment and software........................................... 236,417 279,523
Machinery and equipment................................................... 172,072 238,935
Furniture and fixtures.................................................... 81,822 81,822
Auto...................................................................... 85,233 85,233
------------- -------------
$ 1,663,378 $ 1,779,375
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- LINES OF CREDIT:
The Company has revolving lines of credit with a financial institution,
summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -------------
1995
-------------
<S> <C> <C>
Revolving line of credit, interest at prime rate (8.25 percent at June 30, 1996)
plus 1.5 percent, due monthly, principal due October 31, 1996, extended to March
31, 1997 on July 22, 1996, secured by substantially all of the Company's assets,
except cash, maximum borrowings are $4,500,000..................................... $ 3,181,671 $ 3,439,378
Revolving line of credit, interest at prime rate (8.25 percent at June 30, 1996)
plus one percent, due monthly, principal due October 31, 1996, in process of being
extended to March 31, 1997, secured by substantially all of the Company's assets,
except cash, maximum borrowings are $2,000,000..................................... 1,284,200 1,849,153
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 $ 5,288,531
------------- -------------
------------- -------------
</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, 1995 and for the six months ended June 30, 1995
and 1996 were approximately $1,904,000, $3,555,000, $3,184,000 and $5,225,000,
respectively. Maximum amounts outstanding at the end of the months during 1994,
1995 and for the six months ended June 30, 1995 and 1996 were $2,449,069,
$4,667,784, $3,560,047 and $5,910,839, respectively. The weighted average
interest rates during 1994, 1995 and for the six months ended June 30, 1995 and
1996 were approximately 12.0%, 10.7%, 11.1% and 9.8%, respectively. The weighted
average interest rates at December 31, 1994 and 1995 and at June 30, 1995 and
1996 were approximately 12.5%, 9.8%, 11.4% and 9.6%, respectively.
F-10
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------- -------------
<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 $ 5,419,231
Note payable to a financial institution, secured by a building, due in monthly
installments of $7,729 (principal and interest) to May 1999, with a balloon
payment, interest at Moody's A Bond Index (7.875% at June 30, 1996) plus .125
percent.......................................................................... 950,585 942,631
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 and $83,791 at
December 31, 1995 and June 30, 1996, respectively................................ 845,950 666,209
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 $83,139. (see Note 10)............................................... -- 896,874
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 3,888
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 10,579
------------- -------------
7,983,576 7,939,412
Less -- Current portion............................................................. 1,815,220 2,780,029
------------- -------------
$ 6,168,356 $ 5,159,383
------------- -------------
------------- -------------
</TABLE>
Future annual principal payments on long-term debt at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------------
<S> <C>
1997..................... $ 2,780,029
1998..................... 1,935,548
1999..................... 2,901,736
2000..................... 322,099
2001..................... --
-------------
$ 7,939,412
-------------
-------------
</TABLE>
F-11
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES:
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------------------
1994 1995 1995 1996
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................................ $ 77,721 $ (77,100) $ (77,100) $ 163,000
State.................................. 29,209 (6,056) 2,400 52,000
----------- ------------ ---------- -----------
106,930 (83,156) (74,700) 215,000
----------- ------------ ---------- -----------
Deferred:
Federal................................ (3,334) (14,164) (16,645) (39,000)
State.................................. (1,136) (6,000) (6,385) (6,366)
----------- ------------ ---------- -----------
(4,470) (20,164) (23,030) (45,366)
----------- ------------ ---------- -----------
Total:............................... $ 102,460 $ (103,320) $ (97,730) $ 169,634
----------- ------------ ---------- -----------
----------- ------------ ---------- -----------
</TABLE>
At June 30, 1995 and 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, JUNE 30,
------------------------- -----------------------
1994 1995 1995 1996
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Tax at U.S. Federal statutory rates...... $ 105,719 $ (108,173) $ (81,674) $ 192,583
State income taxes, net of federal
effect.................................. 19,085 (18,898) (14,745) 34,767
Net operating losses..................... -- -- -- (71,558)
Other, net............................... (22,344) 23,751 (1,311) 13,842
----------- ------------ ---------- -----------
$ 102,460 $ (103,320) $ (97,730) $ 169,634
----------- ------------ ---------- -----------
----------- ------------ ---------- -----------
</TABLE>
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 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Depreciation...................................................... $ (28,192) $ (34,000)
------------ ------------
Gross deferred tax liabilities.................................. (28,192) (34,000)
------------ ------------
Inventory reserve................................................. 29,840 42,693
Allowance for doubtful accounts................................... 19,442 6,800
State taxes....................................................... -- 17,434
Inventory capitalization.......................................... -- 17,174
Operating accruals................................................ 3,544 19,899
Net operating loss carryforwards.................................. 82,528 --
------------ ------------
Gross deferred tax assets....................................... 135,354 104,000
------------ ------------
Deferred tax assets valuation allowance......................... (82,528) --
------------ ------------
$ 24,634 $ 70,000
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES: (CONTINUED)
Net deferred tax assets are included in other assets in the accompanying
balance sheets.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
The Company leases equipment and facilities under noncancelable operating
and capital leases. As of June 30, 1996, the annual minimum lease commitments
are:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, CAPITAL OPERATING
------------ ----------- -----------
<S> <C> <C>
1997................................................................ $ 34,269 $ 22,541
1998................................................................ 24,108 17,359
1999................................................................ 19,833 6,326
2000................................................................ 8,466 --
2001................................................................ -- --
----------- -----------
86,676 $ 46,226
-----------
-----------
Less -- Amount representing interest................................ 18,809
-----------
67,867
Less -- Current portion............................................. 24,664
-----------
$ 43,203
-----------
-----------
</TABLE>
Rent expense for the years ended December 31, 1994, and 1995 and for the six
months ended June 30, 1995 and 1996 was $181,572, $135,568, $54,020 and $39,675,
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.
As of June 30, 1996, the Company had received $1,088,906 of inventory under this
agreement (see Note 8).
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.
In February 1996, an action was brought against the Company arising out of a
dispute relating to a consignment agreement between the Company and a customer.
The plaintiff is claiming damages of $3,518,000, interest, attorney fees,
punitive damages and treble damages under R.I.C.O. Management believes they have
adequately accrued ($166,000 as of June 30, 1996) for the Company's potential
liability and denies liability for the remaining claims. The Company, based upon
discussions with legal counsel, believes they have substantial defenses to the
remaining claims from this customer and plans to vigorously defend these
remaining claims. The Company has also filed a counterclaim against this
customer for breach of contract, fraud and negligent misrepresentation. This
estimate could change in the near term and that change could be material to the
financial statements.
F-13
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has entered into an employment agreement with the Chief
Executive Officer (CEO) providing for a base salary of $225,000, an automobile
of his choice, 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.
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.
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
and 32 percent of total assets at December 31, 1995 and June 30, 1996,
respectively.
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.
F-14
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. -- VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1994 and 1995 and six months ended June 30,
1995 and 1996, activity with respect to the Company's allowance for doubtful
accounts is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ----------------------
1994 1995 1995 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning balance............................ $ -- $ 12,207 $ 12,207 $ 48,607
Charged to expense........................... 19,707 86,400 77,793 3,642
Amounts written off.......................... (7,500) (50,000) (50,000) (35,249)
--------- --------- ---------- ----------
Ending balance............................... $ 12,207 $ 48,607 $ 40,000 $ 17,000
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
NOTE 14. -- SUBSEQUENT EVENTS
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. See Note
15. 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.
NOTE 15. -- 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.
F-15
<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.................................................................. 19
Management................................................................ 26
Certain Transactions...................................................... 37
Principal and Selling Stockholder......................................... 37
Shares Eligible for Future Sale........................................... 37
Description of Capital Stock.............................................. 39
Underwriting.............................................................. 41
Legal Matters............................................................. 42
Experts................................................................... 42
Additional Information.................................................... 42
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 INCORPORATED
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.
The Indemnification Agreements also provide, among other things, for advancement
by the Company of expenses incurred by the director or officer in defending
certain litigation.
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................................................. *
Printing and engraving expenses............................................ *
Legal fees and expenses.................................................... *
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.
*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 Facilities, dated October 20, 1995, 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.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Counsel (included in Exhibit 5.1).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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
</TABLE>
- ------------------------
* 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 29th day of
August, 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 August 29, 1996
Osamah S. Bakhit Director (Principal Executive Officer)
* Chief Financial Officer, Vice President,
------------------------------------ Finance and Director (Principal Financial August 29, 1996
Mark W. Ashton Officer)
*
------------------------------------ Treasurer (Principal Accounting Officer) August 29, 1996
Laura M. Birgbauer
*
------------------------------------ Secretary and Director August 29, 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.............................................................
*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 Facilities, dated October 20, 1995, 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.......................................................
23.1 Consent of Arthur Andersen LLP................................................................
*23.2 Consent of Counsel (included in Exhibit 5.1)..................................................
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....................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AVIATION DISTRIBUTORS INCORPORATED
1. The name of the Corporation is Aviation Distributors Incorporated.
2. The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is the Corporation
Trust Company.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the
"GCL").
4. The total number of shares of capital stock that the Corporation shall
have authority to issue is 10,000,000 shares of Common Stock, each having a par
value of one penny ($.01), and 3,000,000 shares of Preferred Stock, each having
a par value of one penny ($.01).
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of Preferred Stock in one or more classes or series, and to
fix for each such class or series such voting powers, full or limited, or no
voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series and as may be permitted by the GCL, including,
without limitation, the authority to provide that any such class or series may
be (i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series: or (iii) entitled to such rights upon the dissolution of,
or upon
<PAGE>
any distribution of the assets of, the Corporation, all as may be stated in such
resolution or resolutions.
5. The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
5.1 The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
5.2 In furtherance of, and not in limitation of, the powers conferred
by law, the Board of Directors is expressly authorized and empowered:
5.2.1 to adopt, amend or repeal the By-Laws of the
Corporation; provided, however, that the stockholders shall also have
the power to adopt, amend or repeal the By-Laws of the Corporation by
the affirmative vote of the holders of two-thirds of the then
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a
single class; and
5.2.2 from time to time to determine whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of
them, shall be open to inspection of stockholders; and, except as so
determined, or as expressly provided in this Amended and Restated
Certificate of Incorporation, no stockholder shall have any right to
inspect any account, book or document of the Corporation other than
such rights as may be conferred by applicable law.
The Corporation may in its By-Laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
2
<PAGE>
5.3 The Board of Directors shall consist of not less than three nor
more than twelve directors, with the exact number of directors to be
determined from time to time by resolution adopted by the affirmative vote
of a majority of the directors then in office. The directors shall be
divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. The
term of the initial Class l directors shall terminate on the date of the
1997 annual meeting of stockholders; the term of the initial Class II
directors shall terminate on the date of the 1998 annual meeting of
stockholders; and the term of the initial Class III directors shall
terminate on the date of the 1999 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1997, successors to the class
of directors whose term expires at that annual meeting shall be elected for
a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, but in no
case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting
for the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors
then in office, provided that a quorum is present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his or her predecessor.
Directors of the Corporation may be removed by the stockholders of the
Corporation only for cause. Notwithstanding the foregoing, whenever
3
<PAGE>
the holders of any one or more classes or series of preferred stock issued
by the Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Amended and
Restated Certificate of Incorporation applicable thereto, except that such
directors so elected shall not be divided into classes pursuant to this
Section 5.3 unless expressly provided by the terms of the certificate of
designations therefor.
5.4 No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) pursuant to Section 174 of the GCL or (d) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article 5.4 by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
6. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
7. 7.1 The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by the GCL, as the same exists or may
hereafter be amended, and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligat-
4
<PAGE>
ed to indemnify any director or officer (or his or her heirs, executors or
administrators) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation. The right to indemnification
conferred in this Article 7 shall include the right to receive from the
Corporation advances in respect of the expenses incurred in defending or
otherwise participating in any proceeding in advance of its final disposition,
subject to a written undertaking to repay such advances as required by the GCL.
7.2 The Corporation may, to the extent authorized from time to time
by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation who are
not directors or officers similar to those conferred in this Article 7 to
directors and officers of the Corporation.
7.3 The rights to indemnification and to the advancement of expenses
conferred in this Article 7 shall not be exclusive of any other right which
any person may have or hereafter acquire under this Amended and Restated
Certificate of Incorporation, the By-Laws, any statute, agreement, vote of
stockholders or disinterested directors, or otherwise.
7.4 Any repeal or modification of this Article 7 by the stockholders
of the Corporation shall not adversely affect any rights to indemnification
and advancement of expenses of a director or officer of the Corporation
existing pursuant to this Article 7 with respect to any acts or omissions
occurring prior to such repeal or modification.
8. Any action required or permitted to be taken by stockholders of the
Corporation must be effected at an annual or special meeting of the stockholders
of the Corporation and may not be effected by any consent in writing by such
stockholders.
9. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called as provided in the By-laws of the Corporation.
5
<PAGE>
10. The provisions set forth in this Article 10, and in Articles 5.2.1,
5.3, 8, and 9 herein may not be repealed or amended in any respect, unless such
action is approved by the affirmative vote of the holders of not less than two-
thirds of the then outstanding shares of capital stock of the Corporation
entitled to vote thereon.
11. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, subject to the provision set forth in Article 10 herein, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
6
<PAGE>
BY-LAWS
OF
AVIATION DISTRIBUTORS INCORPORATED
(THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation
shall be in the State of Delaware.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors or the officers may from time to time determine.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1 PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2.2 ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote members of the Board
of Directors in the class whose term shall expire at such Annual Meeting, and
transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 2.3 SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either the Chairman or the President and
shall be called by either such officer at the request in writing of a majority
of the Board of Directors. Such request shall state the purpose or
<PAGE>
purposes of the proposed meeting. Written notice of a Special Meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
SECTION 2.4 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given not less than ten nor
more than sixty days before the date of the adjourned meeting to each
stockholder entitled to vote at the meeting.
SECTION 2.5 VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in such officer's discretion, may require that any
votes cast at such meeting shall be cast by written ballot.
SECTION 2.6 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
2
<PAGE>
SECTION 2.7 STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2.6 or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders. Any good faith
decision in regard to such matters by the officer of the Corporation who has
charge of the stock ledger of the Corporation, which may be the Secretary, any
Assistant Secretary or any other appropriate officer of the Corporation, shall
be final.
SECTION 2.8 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the Board
of Directors may be made at any Annual Meeting of Stockholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 2.8 and on
the record date for the determination of stockholders entitled to vote at such
Annual Meeting and (ii) who complies with the notice procedures set forth in
Section 2.10.
Notwithstanding compliance with the foregoing provisions, the Board of
Directors shall not be obligated to include information as to any stockholder
nominee for director in any proxy statement or other communication sent to
stockholders.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.8. If the Chairman of the meeting determines that a nomination was not made
in accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
SECTION 2.9 BUSINESS AT ANNUAL MEETINGS. No business may be transacted at
an Annual Meeting of Stockholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the Annual Meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the Annual Meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 2.9 and on the record date for the
determination of stockholders entitled to vote at such Annual Meeting and (ii)
who complies with the notice procedures set forth in Section 2.10.
SECTION 2.10 ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND
DIRECTOR NOMINATIONS. Any stockholder seeking to bring business before or to
nominate a director or directors at any meeting of stockholders, must provide
written notice thereof in accordance with this Section 2.10. The notice must be
delivered to, or mailed and received at, the principal
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executive offices of the Corporation not less than (i) with respect to an annual
meeting of stockholders, 120 calendar days in advance of the date that the
Corporation's proxy statement was released to stockholders in connection with
the previous year's annual meeting, except that if no annual meeting of
stockholders was held in the previous year or if the date of the annual meeting
has been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, such notice must be received by the
Corporation a reasonable time before the Corporation's proxy statement is to be
released, and (ii) with respect to a special meeting of stockholders, a
reasonable time before the Corporation's proxy statement is to be released.
ARTICLE 3
DIRECTORS
SECTION 3.1 ELECTION OF DIRECTORS. Directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders. Any director
may resign at any time upon notice to the Corporation. Directors need not be
stockholders.
SECTION 3.2 DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
SECTION 3.3 MEETINGS. The Board of Directors of the Corporation may hold
meetings both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman or the President or by a majority of the directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than forty-eight hours before the date of
the meeting, by telephone, facsimile or telegram on twenty-four hours' notice,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 3.4 QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
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Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 3.5 ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 3.6 MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.6 shall constitute
presence in person at such meeting.
SECTION 3.7. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. A majority of the members of a committee,
including any alternate members, shall constitute a quorum of such committee.
Any committee, to the extent allowed by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
SECTION 3.8 COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like
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compensation for attending committee meetings. In addition, the Board of
Directors may adopt one or more director compensation plans using securities of
the Corporation.
SECTION 3.9 INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such director's vote
is counted for such purpose if (i) the material facts as to such director's
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
such director's relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE 4
OFFICERS
SECTION 4.1 GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and may include a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation. The officers of the Corporation may sign and execute documents on
behalf of the Corporation, whether requiring a seal or otherwise, when
authorized by these By-Laws, the Board of Directors, the Chairman or President.
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SECTION 4.2 ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors or by a committee thereof.
SECTION 4.3 VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman, President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4.4 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to the Chairman by these By-Laws or by the Board of
Directors. All officers of the Corporation shall be under the supervision of
the Chairman, if there be one, and shall perform all such duties as shall be
assigned by the Chairman.
SECTION 4.5 PRESIDENT. The President, if there shall be one, shall,
subject to the control of the Board of Directors and, if there be one, the
Chairman of the Board of Directors, have general supervision of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence or disability of the Chairman
of the Board of Directors, or if there be none, the President shall preside at
all meetings of the stockholders and the Board of Directors. If there be no
Chairman of the Board
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of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to the President
by these By-Laws, by the Board of Directors or by the Chairman.
SECTION 4.6 VICE PRESIDENTS. At the request of the President or in the
President's absence or in the event of the President's inability or refusal to
act (and if there be no Chairman of the Board of Directors), the Vice President
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have
such other powers as the Board of Directors, Chairman and/or the President from
time to time may prescribe.
SECTION 4.7 SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
requested or appropriate. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, Chairman or President. If the Secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation, if there is one, and the Secretary or
any Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by such officer's signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
SECTION 4.8 TREASURER. The Treasurer shall supervise the maintenance of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors or Chairman. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, Chairman or President
for such disbursements, and shall render to the Chairman, President and the
Board of Directors, at its regular meetings, or when the Board of Directors or
Chairman so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation. The Treasurer shall perform such other
duties
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and have such powers as the Board of Directors, Chairman and/or President from
time to time may prescribe. If required by the Board of Directors or Chairman,
the Treasurer shall give the Corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors or Chairman for
the faithful performance of the duties of such office and for the restoration to
the Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under such officer's control
belonging to the Corporation.
SECTION 4.9 ASSISTANT SECRETARIES. Assistant Secretaries, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman, the President, any
Vice President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of such officer's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 4.10 ASSISTANT TREASURERS. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman, the President, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of such officer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors or Chairman, an Assistant Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors or Chairman for the faithful
performance of the duties of such officer's office and for the restoration to
the Corporation, in case of the Assistant Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in such officer's possession or under such
officer's control belonging to the Corporation.
SECTION 4.11 OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors, Chairman, or
President. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
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ARTICLE 5
STOCK
SECTION 5.1 FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation.
SECTION 5.2 SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other then the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
SECTION 5.3 LOST CERTIFICATES. The Secretary may direct a new certificate
to be issued in place of any certificate theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate, the Secretary
may, in such officer's discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or
such owner's legal representative, to advertise the same in such manner as the
Secretary shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 5.4 TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5.5 RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
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date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 5.6 BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE 6
NOTICES
SECTION 6.1 NOTICES. Whenever written notice is required by law, the
Certificate of incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid or such notice may be given personally, by facsimile, overnight
delivery, telegram, telex, or cable at such address. Such notice shall be
deemed to be given at the earlier of receipt of such notice or at the time when
the same shall be deposited in the United States mail or otherwise transmitted.
SECTION 6.2 WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
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ARTICLE 7
GENERAL PROVISIONS
SECTION 7.1 DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves for any proper purpose, and the Board of Directors may
modify or abolish any such reserve.
SECTION 7.2 DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 7.3 FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 7.4 CORPORATE SEAL. The Corporation may have a corporate seal,
which shall have inscribed thereon the words "Corporate Seal." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. However, nothing in these By-Laws or in the
Certificate of Incorporation of the Corporation shall be construed to require a
corporate seal to be affixed to any document.
ARTICLE 8
AMENDMENTS
SECTION 8.1 These By-Laws may be altered, amended or repealed, in whole or
in part, or new By-Laws may be adopted by the stockholders or by the Board of
Directors; provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. All such amendments
must be approved by either the holders of two-thirds of the outstanding capital
stock entitled to vote thereon or by a majority of the entire Board of Directors
then in office.
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SECTION 8.2 ENTIRE BOARD OF DIRECTORS. As used in this Article and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
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NUMBER [Graphic] SHARES
AVIATION DISTRIBUTORS INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON SHARES PAR VALUE $.01 PER SHARE
THIS CERTIFIES THAT SPECIMEN IS THE
-------------------------------------------------------
(SEE REVERSE SIDE FOR CERTAIN DEFINITIONS)
OWNER OF SHARES OF THE CAPITAL STOCK OF
------------------------------------------
AVIATION DISTRIBUTORS INCORPORATED
FULLY PAID AND NON-ASSESSABLE, TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION
IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO
AFFIXED THIS DAY OF A.D. 19 .
------------------------------ --------- ------------
-------------------------------------- --------------------------------------
SECRETARY/TREASURER PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT___________________Custodian_________________Under
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship Uniform Gifts to Minors Act_______________________
and not as tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------------------
| |
| |
----------------------------------- __________________________________________
________________________________________________________________________________
SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT__________________________________________________________
ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED _____________________ 19 _________
IN PRESENCE OF ______________________________________________________
__________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
1996 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
1996 STOCK OPTION AND INCENTIVE PLAN
SECTION PAGE
------- ----
1. Purpose; Types of Awards; Construction. . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . 8
6. Specific Terms of Awards. . . . . . . . . . . . . . . . . . . . . .10
7. Change in Control Provisions. . . . . . . . . . . . . . . . . . . .16
8. Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . .16
9. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . .16
i
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
1996 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
The purpose of the 1996 Stock Option and Incentive Plan of AVIATION
DISTRIBUTORS INCORPORATED (the "Plan") is to afford an incentive to
non-employee directors, selected employees and independent contractors of
AVIATION DISTRIBUTORS INCORPORATED (the "Company"), or any Subsidiary or
Affiliate which now exists or hereafter is organized or acquired, to acquire
a proprietary interest in the Company, to continue as employees or
independent contractors, as the case may be, to increase their efforts on
behalf of the Company and to promote the success of the Company's business.
Pursuant to Section 6 of the Plan, there may be granted Stock Options
(including "incentive stock options" and "nonqualified stock options"), stock
appreciation rights and limited stock appreciation rights (either in
connection with options granted under the Plan or independently of options),
restricted stock, restricted stock units, dividend equivalents and other
stock- or cash-based awards. The Plan also provides the authority to make
loans to purchase shares in connection with the initial public offering of
common stock of the Company. From and after the consummation of the Initial
Public Offering, as hereunder defined, the Plan is designed to comply with
the requirements of Regulation G (12 C.F.R. Section 207) regarding the
purchase of shares on margin, the requirements for "performance-based
compensation" under Section 162(m) of the Code and the conditions for
exemption from short-swing profit recovery rules under Rule 16b-3 of the
Exchange Act, and shall be interpreted in a manner consistent with the
requirements thereof.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting of
an Award or a Loan, (i) the Company, directly or indirectly, owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity or (ii) such entity, directly or
indirectly, owns
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at least 20% of the combined voting power of all classes of stock of the
Company.
(b) "Award" means any Option, SAR (including a Limited SAR),
Restricted Stock, Restricted Stock Unit, Dividend Equivalent or Other Stock-
Based Award or Other Cash-Based Award granted under the Plan.
(c) "Award Agreement" means any written agreement, contract, or
other instrument or document evidencing an Award.
(d) "Beneficiary means the person, persons, trust or trusts
which have been designated by a Grantee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive such
benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Control" means a change in control of the Company
which will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than (A) the Company, (B) any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (C) any corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of Stock, or (D) any person who,
immediately prior to the Initial Public Offering, owned more than 50%
of the combined voting power of the Company's then outstanding voting
securities), 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;
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(ii) during any period of two consecutive years, not
including any period prior to the Initial Public Offering, 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 (i), (iii), or (iv) of this Section 2(f)) 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;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) 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 (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquired
50% or more of the combined voting power of the Company's then
outstanding securities; or
(iv) 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).
(g) "Change in Control Price" means the higher of (i) the
highest price per share paid in any
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transaction constituting a Change in Control or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding or following a
Change in Control.
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(i) "Committee" means the committee established by the Board to
administer the Plan from and after the consummation of the Initial Public
Offering, the composition of which shall at all times satisfy the provisions of
Rule 16b-3. With respect to the period prior to consummation of the Initial
Public Offering, references to the "Committee" shall be deemed to refer to the
Board.
(j) "Company" means AVIATION DISTRIBUTORS INCORPORATED, a
corporation organized under the laws of the State of California, or any
successor corporation.
(k) "Dividend Equivalent" means a right, granted to a Grantee
under Section 6(g), to receive cash, Stock, or other property equal in value to
dividends paid with respect to a specified number of shares of Stock. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred basis.
(l) "Effective Date" means June 17, 1996, the date that the Plan
was adopted by the shareholders of the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(n) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the
closing sales price per share of Stock on the national securities exchange on
which the Stock is principally
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traded, for the last preceding date on which there was a sale of such Stock
on such exchange, or (ii) if the shares of Stock are then traded in an
over-the-counter market, the average of the closing bid and asked prices for
the shares of Stock in such over-the-counter market for the last preceding
date on which there was a sale of such Stock in such market, or (iii) if the
shares of Stock are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the Committee, in its
sole discretion, shall determine.
(o) "Grantee" means a person who, as an employee or independent
contractor of the Company, a Subsidiary or an Affiliate, has been granted an
Award or Loan under the Plan.
(p) "Initial Public Offering" shall mean the initial public
offering of shares of stock of the Company, as more fully described in the
Preliminary Registration Statement on Form SB-2 (file no. 333-8061) filed
with the Securities and Exchange Commission on July 12, 1996, as such
Registration Statement may be amended from time to time.
(q) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(r) "Limited SAR" means a right granted pursuant to Section 6(c)
which shall, in general, be automatically exercised for cash upon a Change in
Control.
(s) "Loan" means the proceeds from the Company borrowed by a
Plan participant under Section 8 of the Plan.
(t) "NQSO" means any Option that is designated as a nonqualified
stock option.
(u) "Option" means a right, granted to a Grantee under Section
6(b), to purchase shares of Stock. An Option may be either an ISO or an NQSO;
provided that, ISO's may be granted only to employees of the Company or a
Subsidiary.
(v) "Other Cash-Based Award" means cash awarded under Section
6(h), including cash awarded as a
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bonus or upon the attainment of specified performance criteria or otherwise as
permitted under the Plan.
(w) "Other Stock-Based Award" means a right or other interest
granted to a Grantee under Section 6(h) that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, Stock, including, but not limited to (1) unrestricted Stock awarded as a
bonus or upon the attainment of specified performance criteria or otherwise as
permitted under the Plan, and (2) a right granted to a Grantee to acquire Stock
from the Company for cash and/or a promissory note containing terms and
conditions prescribed by the Committee.
(x) "Plan" means this Aviation Distributors Incorporated 1996
Stock Option and Incentive Plan, as amended from time to time.
(y) "Restricted Stock" means an Award of shares of Stock to a
Grantee under Section 6(d) that may be subject to certain restrictions and to a
risk of forfeiture.
(z) "Restricted Stock Unit" means a right granted to a Grantee
under Section 6(e) to receive Stock or cash at the end of a specified deferral
period, which right may be conditioned on the satisfaction of specified
performance or other criteria.
(aa) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(bb) "Stock" means shares of the common stock, par value $.01
per share, of the Company.
(cc) "SAR" or "Stock Appreciation Right" means the right,
granted to a Grantee under Section 6(c), to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock, or
property as specified in the Award or determined by the Committee.
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(dd) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an Award,
each of the corporations (other than the last corporation in the unbroken chain)
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards and make Loans; to determine the
persons to whom and the time or times at which Awards shall be granted and Loans
shall be made; to determine the type and number of Awards to be granted and the
amount of any Loan, the number of shares of Stock to which an Award may relate
and the terms, conditions, restrictions and performance criteria relating to any
Award or Loan; and to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives (if any) included in, Awards and Loans in
recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; to designate Affiliates; to construe and
interpret the Plan and any Award or Loan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the Award Agreements and any promissory note or agreement related to any Loan
(which need not be identical for each Grantee); and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations
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of the Committee shall be made by a majority of its members either present in
person or participating by conference telephone at a meeting or by written
consent. The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan. All decisions, determinations
and interpretations of the Committee shall be final and binding on all persons,
including the Company, and any Subsidiary, Affiliate or Grantee (or any person
claiming any rights under the Plan from or through any Grantee) and any
stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Award
granted or Loan made hereunder.
4. ELIGIBILITY.
Awards and Loans may be granted to non-employee directors, selected
employees and independent contractors of the Company and its present or future
Subsidiaries and Affiliates, in the discretion of the Committee. In determining
the persons to whom Awards and Loans shall be granted and the type of any Award
or the amount of any Loan (including the number of shares to be covered by such
Award), the Committee shall take into account such factors as the Committee
shall deem relevant in connection with accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Stock reserved for the grant of
Awards under the Plan shall be 264,500 shares of Stock, subject to adjustment
as provided herein. No more than 20% of the total shares available for grant
may be granted to a single individual in a single year. Such shares may, in
whole or in part, be authorized but unissued shares or shares that shall have
been or may be reacquired by the Company in the open market, in private
transactions or otherwise. If any shares subject to an Award are forfeited,
cancelled, exchanged or surrendered or if an Award otherwise terminates or
expires without a distribution of shares to the Grantee, the shares of stock
with respect to such Award shall, to the
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extent of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Awards under the Plan; PROVIDED THAT, in the
case of forfeiture, cancellation, exchange or surrender of shares of Restricted
Stock or Restricted Stock Units with respect to which dividends or Dividend
Equivalents have been paid or accrued, the number of shares with respect to such
Awards shall not be available for Awards hereunder unless, in the case of shares
with respect to which dividends or Dividend Equivalents were accrued but unpaid,
such dividends and Dividend Equivalents are also forfeited, cancelled, exchanged
or surrendered. Upon the exercise of any Award granted in tandem with any other
Awards or awards, such related Awards or awards shall be cancelled to the extent
of the number of shares of Stock as to which the Award is exercised and,
notwithstanding the foregoing, such number of shares shall no longer be
available for Awards under the Plan.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; PROVIDED THAT, with respect to
ISOs, such adjustment shall be made in accordance with Section 424(h) of the
Code.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. The term of each Award shall be for such period as
may be determined by the Committee. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such
9
<PAGE>
forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Stock, or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments. In addition to the foregoing, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter, such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine .
(b) OPTIONS. The Committee is authorized to grant Options to
Grantees on the following terms and conditions:
(i) TYPE OF AWARD. The Award Agreement evidencing the
grant of an Option under the Plan shall designate the Option as an ISO
or an NQSO.
(ii) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee;
PROVIDED THAT, in the case of an ISO, such exercise price shall be not
less than the Fair Market Value of a share on the date of grant of
such Option, and in no event shall the exercise price for the purchase
of shares be less than par value. The exercise price for Stock
subject to an Option may be paid in cash or by an exchange of Stock
previously owned by the Grantee, or a combination of both, in an
amount having a combined value equal to such exercise price. A
Grantee may also elect to pay all or a portion of the aggregate
exercise price by having shares of Stock with a Fair Market Value on
the date of exercise equal to the aggregate exercise price withheld by
the Company or sold by a broker-dealer under circumstances meeting the
requirements of 12 C.F.R. Section 220 or any successor thereof.
(iii) TERM AND EXERCISABILITY OF OPTIONS. The date on
which the Committee adopts a resolution expressly granting an Option
shall
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<PAGE>
be considered the day on which such Option is granted; PROVIDED THAT,
Option grants in connection with the Initial Public Offering shall be
deemed to have been granted on the date of consummation of the Initial
Public Offering. Options shall be exercisable over the exercise
period (which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may determine, as
reflected in the Award Agreement; PROVIDED THAT, the Committee shall
have the authority to accelerate the exercisability of any outstanding
Option at such time and under such circumstances as it, in its sole
discretion, deems appropriate. An Option may be exercised to the
extent of any or all full shares of Stock as to which the Option has
become exercisable, by giving written notice of such exercise to the
Committee or its designated agent.
(iv) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Grantee is then in the employ of, or then
maintains an independent contractor relationship with, the Company or
a Subsidiary or an Affiliate (or a company or a parent or subsidiary
company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless
the Grantee has remained continuously so employed, or continuously
maintained such relationship, since the date of grant of the Option;
PROVIDED THAT, the Award Agreement may contain provisions extending
the exercisability of Options, in the event of specified terminations,
to a date not later than the expiration date of such Option.
(v) OTHER PROVISIONS. Options may be subject to such other
conditions including, but not limited to, restrictions on
transferability of the shares acquired upon exercise of such Options,
as the Committee may prescribe in its discretion or as may be required
by applicable law.
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<PAGE>
(c) SARS AND LIMITED SARS. The Committee is authorized to grant
SARs and Limited SARs to Grantees on the following terms and conditions:
(i) IN GENERAL. Unless the Committee determines otherwise,
a SAR or Limited SAR (1) granted in tandem with an NQSO may be granted
at the time of grant of the related NQSO 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 or Limited SAR granted in tandem with
an Option shall be exercisable only to the extent the underlying
Option is exercisable.
(ii) SARS. A SAR shall confer on the Grantee a right to
receive an amount with respect to each share subject thereto, upon
exercise thereof, equal to the excess of (1) the Fair Market Value of
one share of Stock on the date of exercise over (2) the grant price of
the SAR (which in the case of an SAR granted in tandem with an Option
shall be equal to the exercise price of the underlying Option, and
which in the case of any other SAR shall be such price as the
Committee may determine).
(iii) LIMITED SARS. A Limited SAR shall confer on the
Grantee a right to receive with respect to each share subject thereto,
automatically upon the occurrence of a Change in Control, an amount
equal in value to the excess of (1) the Change in Control Price (in
the case of a LSAR granted in tandem with an ISO, the Fair Market
Value), of one share of Stock on the date of such Change in Control
over (2) the grant price of the Limited SAR (which in the case of a
Limited SAR granted in tandem with an Option shall be equal to the
exercise price of the underlying Option, and which in the case of any
other Limited SAR shall be such price as the Committee determines);
PROVIDED THAT, in the case of a Limited SAR granted to a Grantee who
is subject to the reporting requirements of Section 16(a) of the
Exchange Act (a "Section 16 Individual"), such Section 16 Individual
shall only be entitled to receive
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<PAGE>
such amount if such Limited SAR has been outstanding for at least six
(6) months as of the date of the Change in Control.
(d) RESTRICTED STOCK. The Committee is authorized to grant
Restricted Stock to Grantees on the following terms and conditions:
(i) ISSUANCE AND RESTRICTIONS. Restricted Stock shall be
subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date of grant
or thereafter, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Such
restrictions may include factors relating to the increase in the value
of the Stock or to individual or Company performance such as the
attainment of certain specified individual, divisional or Company-wide
performance goals, sales volume increases or earning per share.
Except to the extent restricted under the Award Agreement relating to
the Restricted Stock, a Grantee granted Restricted Stock shall have
all of the rights of a stockholder including, without limitation, the
right to vote Restricted Stock and the right to receive dividends
thereon.
(ii) FORFEITURE. Upon termination of employment with or
service to the Company, or upon termination of the independent
contractor relationship, as the case may be, during the applicable
restriction period, Restricted Stock and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; PROVIDED THAT, the Committee may
provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in
part in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of
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the Grantee, such certificates shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to
such Restricted Stock, and the Company shall retain physical
possession of the certificate.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall
be either paid at the dividend payment date, or deferred for payment
to such date as determined by the Committee, in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends. Stock distributed in connection with a stock split or
stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) RESTRICTED STOCK UNITS. The Committee is authorized to
grant Restricted Stock Units to Grantees, subject to the following terms and
conditions:
(i) AWARD AND RESTRICTIONS. Delivery of Stock or cash, as
determined by the Committee, will occur upon expiration of the
deferral period specified for Restricted Stock Units by the Committee.
In addition, Restricted Stock Units shall be subject to such
restrictions as the Committee may impose, at the date of grant or
thereafter, which restrictions may lapse at the expiration of the
deferral period or at earlier or later specified times, separately or
in combination, in installments or otherwise, as the Committee may
determine. Such restrictions may include factors relating to the
increase in the value of the Stock or to individual or Company
performance such as the attainment of certain specified individual,
divisional or Company-wide performance goals, sales volume increases
or earning per share.
(ii) FORFEITURE. Upon termination of employment or
termination of the independent contractor relationship during the
applicable deferral period or portion thereof to which forfeiture
conditions apply, or upon failure to satisfy any other conditions
precedent to the delivery of Stock or cash to which such Restricted
Stock Units relate, all Restricted Stock Units that are then subject
to deferral or restriction shall be forfeited; PROVIDED
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THAT, the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Stock Units will be
waived in whole or in part in the event of termination resulting from
specified causes, and the Committee may in other cases waive in whole
or in part the forfeiture of Restricted Stock Units.
(f) STOCK AWARDS IN LIEU OF CASH AWARDS. The Committee is
authorized to grant Stock as a bonus, or to grant other Awards, in lieu of
Company commitments to pay cash under other plans or compensatory arrangements.
Stock or Awards granted hereunder shall have such other terms as shall be
determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to Grantees. The Committee may provide, at the date of
grant or thereafter, that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, or other
investment vehicles as the Committee may specify, provided that Dividend
Equivalents (other than freestanding Dividend Equivalents) shall be subject to
all conditions and restrictions of the underlying Awards to which they relate.
(h) OTHER STOCK- OR CASH-BASED AWARDS. The Committee is
authorized to grant to Grantees Other Stock-Based Awards or Other Cash-Based
Awards as an element of or supplement to any other Award under the Plan, as
deemed by the Committee to be consistent with the purposes of the Plan. Such
Awards may be granted with value and payment contingent upon performance of the
Company or any other factors designated by the Committee, or valued by reference
to the performance of specified Subsidiaries or Affiliates. The Committee shall
determine the terms and conditions of such Awards at the date of grant or
thereafter.
7. CHANGE IN CONTROL PROVISIONS. In the event of a Change of
Control:
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(a) any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and vested; and
(b) the restrictions, deferral limitations, payment conditions,
and forfeiture conditions applicable to any other Award granted under the Plan
shall lapse and such Awards shall be deemed fully vested, and any performance
conditions imposed with respect to Awards shall be deemed to be fully achieved.
8. LOAN PROVISIONS. Subject to the provisions of the Plan and all
applicable federal and state laws, rules and regulations (including the
requirements of 12 C.F.R. Section 207), the Committee shall have the authority
to make Loans to Grantees (on such terms and conditions as the Committee shall
determine), to enable such Grantees to purchase shares in connection with the
Initial Public Offering or otherwise in connection with the realization of
Awards under the Plan. Loans shall be evidenced by a promissory note or other
agreement, signed by the borrower, which shall contain provisions for repayment
and such other terms and conditions as the Committee shall determine.
9. GENERAL PROVISIONS.
(a) APPROVAL OF SHAREHOLDERS. The Plan shall take effect upon
its adoption by the Board but the Plan (and any grants of Awards made prior to
the shareholder approval mentioned herein) shall be subject to ratification by
the holder(s) of a majority of the issued and outstanding shares of voting
securities of the Company entitled to vote, which ratification must occur within
twelve (12) months of the date that the Plan is adopted by the Board. In the
event that the shareholders of the Company do not ratify the Plan at a meeting
of the shareholders at which such issue is considered and voted upon, then upon
such event the Plan and all rights hereunder shall immediately terminate and no
Grantee (or any permitted transferee thereof) shall have any remaining rights
under the Plan or any Award Agreement entered into in connection herewith.
(b) NONTRANSFERABILITY. Awards shall not be transferable by a
Grantee except by will or the laws of descent and distribution or, if then
permitted under
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<PAGE>
Rule 16b-3, pursuant to a qualified domestic relations order as defined under
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder, and shall be exercisable during the lifetime
of a Grantee only by such Grantee or his guardian or legal representative.
(c) NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan
or in any Award or Loan granted or any Award Agreement, promissory note or other
agreement entered into pursuant hereto shall confer upon any Grantee the right
to continue in the employ of or to continue as an independent contractor of the
Company, any subsidiary or any Affiliate or to be entitled to any remuneration
or benefits not set forth in the Plan or such Award Agreement, promissory note
or other agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Grantee's
employment or independent contractor relationship.
(d) TAXES. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Stock, or any other payment to
a Grantee, amounts of withholding and other taxes due in connection with any
transaction involving an Award, and to take such other action as the Committee
may deem advisable to enable the Company and Grantees to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of a
Grantee's tax obligations.
(e) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any
time and from time to time alter, amend, suspend, or terminate the Plan in whole
or in part; PROVIDED THAT, no amendment which requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3, shall be effective
unless the same shall be approved by the requisite vote of the stockholders of
the Company entitled to vote thereon. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any Grantee, without such
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Grantee's consent, under any Award or Loan theretofore granted under the Plan.
(f) NO RIGHTS TO AWARDS OR LOANS; NO STOCKHOLDER RIGHTS. No
Grantee shall have any claim to be granted any Award or Loan under the Plan, and
there is no obligation for uniformity of treatment of Grantees. Except as
provided specifically herein, a Grantee or a transferee of an Award shall have
no rights as a stockholder with respect to any shares covered by the Award until
the date of the issuance of a stock certificate to him for such shares.
(g) UNFUNDED STATUS OF AWARDS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Grantee any rights that
are greater than those of a general creditor of the Company.
(h) NO FRACTIONAL SHARES. No fractional shares of Stock shall
be issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(i) REGULATIONS AND OTHER APPROVALS.
(I) The obligation of the Company to sell or deliver Common
Stock with respect to any Award granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(II) Each Award is subject to the requirement that, if at
any time the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Common Stock issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection
18
<PAGE>
with, the grant of an Award or the issuance of Common Stock, no such Award shall
be granted or payment made or Common Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Committee.
(III) In the event that the disposition of Common Stock
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act and is not otherwise exempt from such
registration, such Common Stock shall be restricted against transfer to the
extent required by the Securities Act or regulations thereunder, and the
Committee may require a Grantee receiving Common Stock pursuant to the Plan, as
a condition precedent to receipt of such Common Stock, to represent to the
Company in writing that the Common Stock acquired by such Grantee is acquired
for investment only and not with a view to distribution.
(j) GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall take
effect upon its adoption by the Board (the "Effective Date"), but the Plan (and
any grants of Awards made prior to the stockholder approval mentioned herein),
shall be subject to the approval of the holder(s) of a majority of the issued
and outstanding shares of voting securities of the Company entitled to vote,
which approval must occur within twelve months of the date the Plan is adopted
by the Board. In the absence of such approval, such Awards shall be null and
void. Notwithstanding the foregoing, the effectiveness of the Plan and the
validity of any Award or Loan granted hereunder is conditioned upon the
consummation of the Initial Public Offering, and shall be of no force and effect
if the Initial Public Offering is not consummated.
19
<PAGE>
EXHIBIT 10.3
AIRCRAFT PURCHASE AGREEMENT
This Agreement is made and entered into as of this 8th day of August 1995, by
and between Alia The Royal Jordanian Airlines, as a corporation organized and
existing under the laws of Jordan, with its principal place of business in
Amman, Jordan ( hereinafter referred to as "BUYER") of the one part; and
Aviation Distrubuters, Inc. ("ADI") a corporation organized and existing
under the laws of the United States of America, with registered office at One
Wrigley Drive, Irvine, California, 92718, USA (hereinafter referred to as
"SELLER") of the other part.
RECITALS
WHEREAS, BUYER desires to purchase from SELLER and SELLER desires to sell to
BUYER upon the terms and conditions set forth, two (2) Boeing 707-320C/QN
Aircraft, with each including, inter alia, four (4) Pratt & Whitney JT3D-7
engines installed thereon, and WHEREAS, both parties desire to enter a mortgage
agreement simultaneous with said purchase, whereby BUYER mortgages said Aircraft
together with accompanying engines to SELLER, with SELLER'S rights as mortgagee
determining upon expiry of a letter of credit, opened in conjunction with this
purchase agreement; and
WHEREAS, the aforementioned Aircraft are listed and identified in Article 1
below.
Now THEREFORE, the parties hereby agree as follows;
ARTICLE I
PURCHASE AND SALE OF AIRCRAFT
(a) SELLER shall sell and deliver to BUYER and BUYER shall purchase and accept
delivery from SELLER, free and clear of any and all mortgages, charges,
claims, security, interests, liens, leases and encumbrances, under and
pursuant to the terms and conditions hereinafter set forth, the following
Boeing 707 Aircraft ( hereinafter individually and collectively referred to
as the "AIRCRAFT" ).
<PAGE>
(2)
REGISTRATION CONFIGURATION SERIAL No. MODEL No.
B2414 20720 Cargo B707-320C/QN
B2420 20723 Cargo B707-320C/QN
(b) The Aircraft shall consist of an airframe and shall, upon delivery thereof,
include any and all avionics, appliances, parts, furnishings, instruments,
accessories and other equipment, as being installed in or included with
said Aircraft, and each Aircraft shall also include a total of four (4)
Pratt & Whitney JT3D-7 engines installed thereon. For the avoidance of any
doubt, the term "Aircraft: shall include, inter alia, the engines installed
or to be installed in said Aircraft before delivery of said Aircraft.
Aircraft shall be delivered as per Exhibit A attached.
ARTICLE II
CONDITION OF AIRCRAFT AT DELIVERY
(A) SELLER undertakes and shall be responsible for ensuring that the Aircraft
shall, upon delivery thereof to BUYER, be in the following condition:
(1) Said Aircraft shall be in airworthy condition, in accordance with original
manufacturer maintenance manuals and instructions, as updated to current
requirements (a) for a ferry flight from Beijing, China to Amman, Jordan,
as evidenced by a valid and current special permit for flight issued by the
Civil Aviation Authority of China ( "CAAC") in respect of said Aircraft;
and (b) for normal international commercial cargo transport; and
(2) Said Aircraft shall be in the condition described in Exhibit "A" attached
hereto.
(B) Subject to and without derogating from the requirements of (A) above, the
Aircraft are sold and purchased hereunder after satisfaction of the
condition under Article II (C) and (E) hereof, and shall be delivered at
Capital Airport, Beijing, China in accordance with the provisions of
Article III .
<PAGE>
(3)
(C) Pursuant to the provisions of (A) (1) above, prior to delivery of the
Aircraft to BUYER, SELLER shall, at SELLER's expense, perform all repairs
and restoration work, if any, which may be required to put the Aircraft
into airworthy condition, in accordance with original manufacturer
maintenance manuals and instructions, and in order to comply with any
conditions subject to which the Certificates set out in Article III (B) (5)
are issued or validated for the purpose of enabling BUYER to obtain a
special permit for flight from the CAAC in respect of the Aircraft, and in
order to deliver to the Buyer simultaneously with the Aircraft the said
Certificates set out in Article III (B) (5) in respect of each Aircraft. To
this end, prior delivery of the Aircraft, SELLER shall, at SELLER's risk
and expense perform any test flights of the Aircraft which may be required
by the CAAC as condition for the issue of such a special permit for flights
in respect of said Aircraft. A representative of BUYER shall have the right
( but not the obligation ) to witness and observe any such test flight on
board the Aircraft during said test flights.
(D) In order to verify that the Aircraft conforms to the conditions specified
in (A) above but without derogating or releasing SELLER from SELLER's
obligations under (A) and (C) above, BUYER, or its agents, shall have
access to the Aircraft and all available documentation relating thereto
prior to delivery thereof, which access shall include the right to conduct
reasonable inspections to determine that such Aircraft conform to the
required conditions specified in (A) above. The period allowed for such
inspections shall have such duration as to permit the conduct by BUYER of
the following:
1- Inspection of the Aircraft documents;
2- Inspection of the Aircraft structure and parts;
3- Inspection of the engines;
4- Test flights of the Aircraft if required by BUYER, both loaded and unloaded
and in varying conditions. (SELLER's pilot shall fly Aircraft during such
test flight and BUYER's personnel ( including BUYER's pilot ) shall be
permitted to be on board the Aircraft and participate in and observe all
aspects of the test flights which BUYER deems necessary. Ail costs and
risks of such test flight ( other than costs of, and risks to, BUYER's
personnel ) shall be borne by the SELLER.
<PAGE>
(4)
(E) SELLER shall, at SELLER's expense, perform all repairs and restoration work
which may be required to make each Aircraft conform to the required
condition of such Aircraft in accordance with the provision of Article II
of this agreement. Subject to this overriding requirement, such repairs and
restoration work shall be performed in Beijing, China, at an authorized
repair station and in accordance with original manufacturer maintenance
manuals and instructions, BUYER acknowledging that Ameco Beijing, the
authorized repair station proposed by SELLER for the performance of such
authorized repairs or restoration work is acceptable to BUYER for such
purposes. The procedure, time schedule, and respective rights of the
parties with respect to such repairs and / or restoration work shall be as
set forth in Article VII (B) of this agreement.
ARTICLE III
DELIVERY OF AIRCRAFT
(A) The Aircraft shall be delivered by SELLER to BUYER at the Capital Airport,
Beijing, China ( herein "Delivery") in accordance with the following
Delivery schedule.
Serial No. 20720 Reg. No. B2414 Aircraft 20 Aug 95
Serial No. 20723 Reg. No. B2420 Aircraft 20 Aug 95
Either party may request of the other party that the date for delivery of the
Aircraft be changed to a date which is up to fourteen (14) days before or after
the applicable date set forth above by notifying the other party in writing of
the proposed revised delivery date at least seven (7) days prior to the earlier
of original delivery date of the proposed revised delivery date of such
Aircraft, SELLER and BUYER shall coordinate with each other in the determination
of the actual date for the delivery of each Aircraft within the parameters set
forth above, and shall confirm such actual Delivery date by written notice to
BUYER at least seven (7) days prior to such actual Delivery date, so as to
enable BUYER to send appropriate representatives of BUYER to accept Delivery of
the Aircraft.
(B) Simultaneously with Delivery of the Aircraft, SELLER shall deliver to BUYER
all the following:
(1) The Aircraft documentation listed in Exhibit "C" attached hereto in respect
of said Aircraft.
<PAGE>
(5)
(2) A valid Bill of Sale in the form set forth in Exhibit "D" attached hereto
and otherwise conforming to all applicable requirements and formalities
conveying to BUYER all of the SELLER's right, title and interest in and to
said Aircraft ( including the four (4) engines installed thereon), free and
clear of all mortgages, Liens, charges, claims, security interests, Leases
and encumbrances.
(3) A release of all mortgages, Liens, charges, claims, security interest,
leases and encumbrances against said Aircraft, if any.
(4) A valid and current special permit for flight issued by CAAC, authorizing
the ferry of said Aircraft from Beijing, China to Amman, Jordan.
(5) (a) A current export Certificate of Airworthiness duly issued or rendered
valid under the law of Jordan.
(b) A current Certificate of Maintenance Review certifying that maintenance has
been duly carried out in accordance with an internationally recognized
maintenance schedule.
(c) Noise Certificate
-Any conditions subject to which the above certificates were issued or
validated shall be complied with by SELLER prior to delivery.
(6) A written declaration issued by CAAC certifying de - registration of said
Aircraft from the records of the CAAC.
(7) A written opinion of SELLER's counsel signed and dated by SELLER's counsel
as of the date of Delivery of said Aircraft, and in form and terms
satisfactory to BUYER, certifying that good, unencumbered and marketable
title to the Aircraft is free and clear of any all mortgages, leases,
security interest, liens, claims, charges and encumbrances and that this
agreement has been duly authorized by all necessary corporate action by
SELLER.
(8) An assignment by SELLER to BUYER of any and all assignable warranties from
manufacturers, maintenance, and overhaul agencies for the Aircraft by
Delivery to BUYER of an "Assignment of Warranties" together with said
warranties.
(C) Upon the request of BUYER at any time and from time to time hereafter,
SELLER shall give BUYER such aid and assistance as BUYER may require in
enforcing the rights of BUYER arising under the warranties to BUYER
pursuant to each "Assignment of Warranties " referred to in (B) (8) above,
and shall give notice of the assignment of such warranties to
<PAGE>
(6)
BUYER to any manufacturers and maintenance and overhaul agencies who have
obligations under said Warranties.
(D) Upon delivery of the Aircraft together with all of the documentation listed
in (B) above, a representative designated by BUYER shall execute a
Certificate of Acceptance in the form set forth in "F" attached hereto.
(E) Title and risk of loss / damage to each Aircraft shall pass from SELLER to
BUYER upon the last to occur of the following.
1- BUYER's signature of the Certificate of Acceptance in respect of said
Aircraft as per (D) above and.
2- The date of the letter of credit referred to in Article IV (A).
ARTICLE IV
CONSIDERATION AND TERMS OF PAYMENT
(A) The purchase price for the aforementioned Aircraft and accompanying engines
shall be the sum US$7,980,000, payable by a letter of credit opened by the
Housing Bank of Jordan ( Amman, Jordan ) in favour of STATE STREET BANK
INTERNATIONAL (777 S. Pigueroa Street 2900, Los Angeles, USA 90017 ), in 48
monthly payments of US$ 166,250, a copy of which is attached hereto
(Exhibit "I" )
(B) BUYER hereby charges said Aircraft and engines to SELLER byway of mortgage,
which mortgage shall be redeemed upon payment of the final monthly
installment under said letter of credit. SELLER shall not exercise its
rights, or any of them, as mortgagee, save in the event of default under
said letter of credit.
<PAGE>
(7)
ARTICLE V
OTHER RESPONSIBILITIES/LIABILITIES OF BUYER
(A) The Buyer shall responsible, at BUYER's expense for:
(1) All costs to the flight crew and fuel for the ferry flight of the Aircraft
from Beijing to Amman, Jordan and
(2) Removal of the Aircraft from Beijing ( by means of a ferry flight ) within
reasonable period of time after the Delivery of said Aircraft, such removal
to be effected by a flight crew provided by BUYER; and
(3) Insurance of the Aircraft, with effect from passage of title and risk with
respect thereto, under BUYER's hull and third party liability insurance
policies, and
(4) Insurance of BUYER's personnel participating in any test flight and ferry
flight of the Aircraft.
ARTICLE VI
WARRANTIES AND REPRESENTATIONS
(A) BUYER represents and warrants to SELLER that:
(1) BUYER is a corporation duly organized and existing and with good standing
under the laws of Jordan, and
(2) BUYER has a corporate power to execute this Agreement, and
(3) This Agreement constitutes a valid and binding obligation on the part of
BUYER, enforceable against BUYER in accordance with its terms, and
(4) There is no provision of any contract or agreement to which BUYER is
obligated, nor is there any statute, rule, regulation, judgment, or order
binding on BUYER, which would be contravened by the execution of the
Aircraft.
(B) SELLER represents, warrants and undertakes that at the time of Delivery of
the Aircraft.
(1) SELLER will have good, legal and beneficial title to said Aircraft
(including the four (4) engines installed thereon at the time of Delivery),
free and clear of all mortgages, charges, claims, security interests,
liens, leases and encumbrances, and
(2) SELLER will have full power and lawful authority to transfer such title to
BUYER.
<PAGE>
(8)
(C) SELLER further represents and warrants to BUYER that:
(1) SELLER is a corporation duly organized and validly existing and in good
standing under the laws of the United States of America, and
(2) SELLER has the corporate power to execute this Agreement, and
(3) This Agreement constitutes a valid and binding obligation on the part of
SELLER enforceable against SELLER in accordance with its terms, and
(4) There is no provision of any contract or agreement of which SELLER is
obligated, nor is there any statute, rule, regulations, judgment or order
binding on SELLER, which would be contravened by the execution, Delivery or
performance of the Agreement, and
(5) All information set forth in the documentation to be delivered by SELLER to
BUYER under this Agreement is accurate and complete and up-to-date of
Delivery of the Aircraft to Which said documentation relates,
ARTICLE VII
INDEMNITY IN RESPECT OF PERSONAL INJURY
BUYER hereby undertakes to indemnify SELLER in respect of any and all claims
(including the costs of defending proceedings ) brought against SELLER by any
persons to recover damages or compensation for death or personal injury arising
in connection with the operation of said Aircraft by BUYER, for the duration of
SELLER's rights and interests as mortgagee of said Aircraft.
ARTICLE VIII
AIRCRAFT INSURANCE
BUYER hereby undertakes to insure Aircraft, with effect from passage of title
and risk with respect thereto, under BUYER's hull and third party liability
insurance policies.
<PAGE>
(9)
ARTICLE IX
LICENSES AND PERMIITS
SELLER shall be responsible for obtaining, at SELLER's expense, all licenses,
permits and clearance ( including, but not limited to customs clearances and a
special permit for flight ) required from any authorities in China for the sale
of the Aircraft to BUYER, and for the exportation and ferry flight of the
Aircraft from Beijing, China to Amman, Jordan.
ARTICLE X
DAMAGE OR DESTRUCTION
(A) This Agreement shall be deemed terminated in the event that, prior to
Delivery of the Aircraft together with all of the related documentation
listed in Sub-Article III (B) above, said Aircraft is destroyed or damaged
beyond repair at a " commercially reasonable cost ".
(B) In the event that an Aircraft is damaged prior to Delivery thereof, and may
be repaired at a " commercially reasonable cost ", SELLER shall promptly
notify BUYER in writing and state now long such repair will take.
(C) If any engine is damaged ( whether or not such damage is repairable or
destroyed prior to the time scheduled for Delivery to the BUYER of the
Aircraft of which the said engine is to be installed, SELLER shall provide
and install a similar serviceable JT3D-7 engine as a substitute to said
damage engine. The condition of said substitute shall be at least as good
as was contractually required for the engine which was replaced and all
reference in this Agreement to " engine" shall be deemed to apply to said
similar serviceable substitute.
ARTICLE XI
TAXES
(A) Any taxes, duties and charges of whatever kind (including, but not limited
to, customs duties, customs clearance charges, CAAC charges and the like )
which may be imposed by any Chinese authority in connection with the
transaction contemplated by this Agreement, and / or in connection with
Aircraft and / or engines and / or other deliverable items hereunder, shall
be borne and paid by SELLER.
<PAGE>
(10)
ARTICLE XII
ASSIGNMENT
This Agreement and the rights created hereunder, shall be assignable or
delegable by either party.
ARTICLE XIII
NOTICES AND REQUESTS
All notices and communications authorized hereunder shall, except where
specifically provided otherwise, be given in writing to the person listed below,
either by personal delivery to said person, or by facsimile, and the date upon
which any such notices is so personally delivered ( or if the notice is given by
facsimile transmission, telex, or overnight courier, the date upon which it is
received by the addressee ) shall be deemed to be the date of notice,
irrespective of the date appearing thereon.
The SELLER shall be addressed to the following:
Aviation Distributors, Inc.
Corporate Headquarters
One Wrigley Drive
Irvine, California 92718 USA
ATTN: Osamah Bakhit
PH: 1-714-586-7558
FAX: 1-714-586-1399
SITA: SNAADCR
The BUYER shall be addressed to the following:
Alia The Royal Jordanian Airline
P.O. Box 302
Amman_Jordan
<PAGE>
(11)
BUYER and SELLER may each change, from time to time, their named representative
and representative addresses for purpose of this Article by written notice to
the other party hereto.
ARTICLE XIV
ENGLISH LANGUAGE
All technical discussion among the parties and all documentation required to be
delivered pursuant to this Agreement ( including without limitation, all of the
documents and items to be delivered by SELLER to BUYER pursuant to Sub-Article
III (B)) shall be in the English language.
ARTICLE XV
APPLICABLE LAW AND SETTLEMENT OF DISPUTE
Jordanian law shall be the applicable law of this Agreement; and the courts of
Jordan shall have non-exclusive jurisdiction in respect of any dispute arising
under or in connection with this Agreement.
ARTICLE XVI
ENTIRE AGREEMENT
This Agreement and the Exhibit hereto supersede all previous discussions,
negotiations and communications and constitute the entire Agreement between the
parties hereto with respect to the purchase and sale of the Aircraft herein
above referenced, and shall not in any manner be supplemented, amended or
modified except by written instrument executed on behalf of the parties hereto
by their duly authorized representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives this 8th day of Aug 1995 .
AVIATION DISTRIBUTORS INC ALIA-THE ROYAL JORDANIAN
By: Samir S. Bakhit By: Nader Dahab!
Signature: /s/ Samir S. Bahkit Signature: /s/ N.A.Dahab
Title: V.P. Inl Marketing Title: CEO
<PAGE>
EXHIBIT "A"
REQUIRED CONDITION AND CONFIGURATION OF AIRCRAFT AT TIME
OF DELIVERY
REQUIREMENTS FOR AIRCRAFT B-2124
1- At the time of delivery, the Aircraft will have valid, current,
unconditional certificates as set out in Article III (B) (5). If
conditional, the conditions shall have been complied with by the Seller.
The Aircraft shall be one - third full of fuel.
2- The Aircraft will be clean by normal airlines standards and shall be
installed all equipment, accessories and parts required for commercial
operation, and such equipment, accessories and parts shall function
properly at the time of delivery.
3- The Aircraft shall be delivered with the configuration set out in the
Inventory.
4- Pratt & Whitney Model No JTSD-7 engines shall be installed:
a: Aircraft B-2414: 670860,670822,670855,670790
b: Aircraft B-2420: 670773,670850,670776,670831
5- Technical data and documentation should be delivered as per Exhibit C.
6- If one or more of these requirements cannot be met, the Seller shall for
which notify the Buyer and paragraph (C) of Article II shall apply.
7- Receiving inspection and test flight will be carried out by BUYER and
SELLER shall correct any discrepancies detected.
8- SELLER shall perform "B" check prior to Delivery of Aircraft as per
Maintenance Job Card, and borescope inspection of engines. The BUYER may be
present for the inspection.
9- Fly away kit shall be with the aircraft by the time of Delivery.
10- Deferred maintenance items and new snags arising from the inspection will
be rectified by the Seller.
<PAGE>
EXHIBIT "B"
FLIGHT TEST REQUIREMENTS
A flight test program shall include, without limitation, the following tests:
Engine parameters, Systems functions, and Flight characteristics, If BUYER
requires a test flights, SELLER requests 14 days notice.
<PAGE>
EXHIBIT "C"
AIRCRAFT DOCUMENTATION DELIVERABLE LIST
WITH EACH AIRCRAFT
1- Maintenance and inspection program planning manual includes Work Task
Cards.
2- Original manufacturers delivery document including engines and aircraft
readiness log.
3- Aircraft maintenance and flight logs, including historical logs .
4- Airframe log book.
5- Current list of any deferred maintenance items or open engineering
deviation, if any.
6- Master Equipment List, updated to present configuration.
7- Listings of all modifications and / or alterations .
8- Engines history of owners and operators with maintenance and inspection
program records since new, with dates and hour under each program.
9- Engine log books.
10- List of time control items under maintenance program status.
11- Listing of life limited parts status.
12- Listing of manufacturers Service Bulletins incorporated and method of
incorporation .
13- Summary and control status of A.D's incorporated and method of
incorporation .
14- Required Manuals:-
a- FAA approved flight manual
b- Flight operation manuals
c- Weight and balance manual including last weight report
d- Weight and balance supplement
e- Aircraft maintenance manual
f- Engine maintenance manual
g- Aircraft LP.C.
h- Engine LP.C.
i- Aircraft wiring diagram
j - Operator's MEL
K- Aircraft structural repair manual
<PAGE>
EXHIBIT "E-1"
ASSIGNMEMT OF WARRANTIES
In Consideration of the sale by Aviation Distributors, Inc . (hereinafter
"SELLER") to Alia - The Royal Jordanian Airline ( hereinafter "BUYER"), of one
(1) Boeing B707-320C/QN Aircraft, Manufacturer's Serial Number 20720,
Registration Number B-2414, and four (4) Pratt & Whitney JT3D-7 engines, Serial
Number 670860, 670822, 670855,670790, SELLER does hereby assign, to BUYER, any
and all warranties from manufacturers, maintenance and overhaul agencies
pertaining to said Aircraft and Engines, including, but without prejudice to the
generality of all subsisting warranties.
<PAGE>
EXHIBIT "E-2"
ASSIGNMENT OF WARRANTIES
In Consideration of the sale by Aviation Distributors, Inc . (hereinafter
"SELLER") to Alia - The Royal Jordanian Airline ( hereinafter "BUYER"), of one
(1) Boeing B707-320C/QN Aircraft, Manufacturer's Serial Number 20720,
Registration Number B-2414, and four (4) Pratt & Whitney JT3D-7 engines, Serial
Number 670860, 670822, 670855,670790, SELLER does hereby assign, to BUYER, any
and all warranties from manufacturers, maintenance and overhaul agencies
pertaining to said Aircraft and Engines, including, but without prejudice to the
generality of all subsisting warranties.
<PAGE>
EXHIBIT "G"
BREAKDOWN OF THE TOTAL CONSIDERATION
AND
DELIVERY SCHEDULE
The price of each Aircraft includes the four (4) Engines installed on said
Aircraft at the time of Delivery thereof to the BUYER as well as all
documentation deliverable with said Aircraft pursuant to this Aircraft Purchase
Agreement.
The total consideration shall be attributable to the Aircraft sold hereunder,
according to the following price breakdown:
For Aircraft Serial No . 20720 ( Registration No. B-2414),
US$ 3,990,000.00 TOTAL CONSIDERATION INCLUDING INTEREST
------------
US$ 83,125.00 MONTHLY INSTALLMENTS INCLUDING INTEREST
TERM 48 MONTHS
For Aircraft Serial No .20723 ( Registration No. B-2420),
US$ 3,990,000.00 TOTAL CONSIDERATION INCLUDING INTEREST
------------
US$ 83,125.00 MONTHLY INSTALLMENTS INCLUDING INTEREST
TERM 48 MONTHS
The proposed delivery schedule for the Aircraft is 20th day of August 1995
<PAGE>
EXHIBIT "H-1"
PART 1
DESCRIPTION OF AIRCRAFT
General Specification: 1
1- B707-320/QN, Serial Number 20720 Model Number of Aircraft
2- 9003 Customer's SL No.
3- 12-05-1973 Year of Delivery
4- JT3D-7 Engine Type and Model
PART II
FLY AWAY KIT AND PECULIAR SPARES
A- Basic Boeing Fly Away Kit
B- Peculiar Component List
VENDOR P/N DESCRIPTION ITEM
Bendix 18757-2C Autopilot 1
Amplifier/Computer
Bendix 2067048-2402 Doppler Computer 2
Bendix 2087798-1201 Doppler Tracker 3
Bendix 2067635-0705 Doppler Indicator 4
Bendix 2087772-7304 coupler 5
Bendix 2070410-0103 WXR R/T 6
Bendix 2070411-0106 WXR IND 7
Bendix 2070552-0103 WXR PANEL 8
Bendix 2070409-0101 WXR Antenna 9
Litton 454620-0136 INU (LTN-72R) 10
CDU (INS) 11
MSU (INS) 12
Nommi 30-284 Cabin Smoke Detector 13
Bendix 2067631-0505/5114 Radio Altimeter 14
980-4100 FWUS/FWXS Standard Flight Data Recorder 15
Doppler Nav/Mode 16
Doppler Test/on/off Panel 17
<PAGE>
EXHIBIT "H-1" (con't)
C- Major Avionic Equipment List
QTY VENDOR P/N DESCRIPTION ITEM
2 COLLINS 618M-2D VHF COMM 1
2 COLLINS 618T-2 HF COMM 2
1 MOTOROLA NA134-02 SELCAL 3
1 COLLINS 346D-1 B PA SYS 4
1 COLLINS 642C-1 VOICE REC 5
2 COLLINS 51Y-7 ADF RECEIVER 6
2 COLLINS 621A-6 ATC TRANS 7
2 COLLINS 860E-3 DME 8
1 BENDIX ALA-51A RADIO ALT 9
1 BENDIX RDR-1F WHEATHER RADAR 10
2 COLLINS 51RV-2B VOR 11
1 GABLES G-708-1 INPH 12
1 COLLINS 512-4 MARKER BEACON 13
D- One (1) Engine JT3D-7, Serial No. P670796 with full QEC and hush kit.
<PAGE>
EXHIBIT "H-2"
PART 1
DESCRIPTION OF AIRCRAFT
General Specification: 1
1- B707-320/QN, Serial Number 20723 Model Number of Aircraft
2- 9006 Customer's SL No.
3- 2-21-1974 Year of Delivery
4- JT3D-7 Engine Type and Model
PART II
FLY AWAY KIT AND PECULIAR SPARES
A- Basic Boeing Fly Away Kit
B- Peculiar Component List
VENDOR P/N DESCRIPTION ITEM
Bendix 18757-2C Autopilot 1
Amplifier/Computer
Bendix 2067048-2402 Doppler Computer 2
Bendix 2087798-1201 Doppler Tracker 3
Bendix 2067635-0705 Doppler Indicator 4
Bendix 2087772-7304 coupler 5
Bendix 2070410-0103 WXR R/T 6
Bendix 2070411-0106 WXR IND 7
Bendix 2070552-0103 WXR PANEL 8
Bendix 2070409-0101 WXR Antenna 9
Litton 454620-0136 INU (LTN-72R) 10
CDU (INS) 11
MSU (INS) 12
Nommi 30-284 Cabin Smoke Detector 13
Bendix 2067631-0505/5114 Radio Altimeter 14
980-4100 FWUS/FWXS Standard Flight Data Recorder 15
Doppler Nav/Mode 16
Doppler Test/on/off Panel 17
<PAGE>
EXHIBIT "H-2" (con't)
C- Major Avionic Equipment List
QTY VENDOR P/N DESCRIPTION ITEM
2 COLLINS 6EE-4069-008 VHF COMM 1
2 COLLINS 622-1501-000 HF COMM 2
1 MOTOROLA G-E385 SELCAL 3
1 COLLINS 522-4538-002 PA SYS 4
1 COLLINS 522-4057-002 VOICE REC 5
2 COLLINS 777-14022-002 ADF RECEIVER 6
2 COLLINS 787-6211-003 ATC TRANSPONDER 7
2 COLLINS 522-4809-001 DME 8
1 BENDIX 2067631-0606 RADIO ALT 9
1 BENDIX 2070410-0103 WHEATHER RADAR 10
2 COLLINS 522-4280-001 VOR 11
1 GABLES G-708-1 INPH 12
1 COLLINS 532-8996-011 MARKER BEACON 13
2 BENDIX 2067048-2408 DOPPLER RADAR 14
<PAGE>
EXHIBIT 10.4
AIRCRAFT PURCHASE AGREEMENT
BETWEEN
AIR CHINA GROUP IMPORT & EXPORT TRADING CO.
(AS SELLER)
AND
AVIATION DISTRIBUTORS, INC.
(AS BUYER)
AGREEMENT NO.: 95HJB1000US
<PAGE>
AIRCRAFT PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of this 4th day of January,1995, by
and between Air China Group Import K Export Trading Co. ("AIE")a corporation
organised and existing under the laws of China with its registered office at
Room 531, Jingsin Mansion, A-2 Dongsanhuan Bei Road, Beijing,100027, P.R. China,
and Air China, a corporation organized and existing under the laws of China with
its registered office at Capital Airport, Beijing, China (AIE and Air China
being hereinafter collectively referred to as "SELLER") of one part; and the
Aviation Distributors, Inc., a corporation organised and existing under the laws
of the United States of America, with its principal place of business at 33
Hammond Street Bldg,201, Irvine, California 92718, USA ( hereinafter referred to
as "BUYER") of the other part.
RECITALS
WHEREAS, BUYER desires to purchase from SELLER and SELLER desires to sell to
BUYER, upon the terms and conditions hereinafter set forth, two (2)Boeing
707-320C/QN aircraft, each of which aircraft shall include, inter alia, four (4)
Pratt & Whitney JT3D-7 engines installed therein; and
WHEREAS, the aforementioned aircraft are those aircraft listed and identified in
Article I below.
NOW THEREFORE, the Parties hereby agree, as follows:
ARTICLE I PURCHASE AND SALE OF AIRCRAFT
( A ) SELLER shall sell and deliver to BUYER and BUYER shall purchase and
accept delivery from SELLER, free and clear of any and all mortgages,
charges, claims, security interests, liens, leases and encumbrances,
under and pursuant to the terms and conditions hereinafter set forth,
the following two (2) Boeing 707 aircraft ( hereinafter individually
and collectively referred to as the "Aircraft"):
Model No. Configuration Serial No. Registration No.
B707-320C/QN Cargo 20720 B2414
B707-320C/QN Cargo 20723 B2420
( B ) Each of the Aircraft shall consist of an airframe and shall, upon
delivery thereof, include any and all avionics, appliances, parts,
furnishings, instruments, accessories and other equipment and/or spare
parts listed in Exhibit "A" as being installed in or included with
said Aircraft, and each Aircraft shall also include a total of four
(4) Pratt & Whtney JT3D-7 engines installed thereon. The eight (8)
engines which are sold as part of the two (2) Aircraft ( i.e. four (4)
engines per Aircraft ) are hereinafter referred to as the Engine/s".
For the avoidance of any
<PAGE>
doubt, the term "Aircraft" shall include, inter alia, the Engines
installed or to be installed in said Aircraft at the time of delivery
of said AIRcraft.
Article II CONDITION OF AIRCRAFT AT DELIVERY
(A) SELLER undertakes and shall be responsible for ensuring that each Aircraft
shall, upon delivery thereon to BUYER, be in the following condition:
(1) Said Aircraft shall be in airworthy condition, in accordance with original
manufacturer maintenance manuals and instructions, for flight, as evidenced
by a valid and current special permit for flight issued by the Civil
Aviation Authority of China ("CAAC") in respect of said Aircraft; and
(2) Subject to the requirement in (1) above, said Aircraft shall be in the
condition described in Exhibit " A" attached hereto.
(B) Subject to and without derogating from the requirements of (A) above, the
Aircraft are sold and purchased hereunder in "as is" condition, and shall
be delivered at Capital Airport, Beijing, China in accordance with the
provisions of Article III.
(C) Pursuant to the provisions of (A) (1) above, prior to delivery of each
Aircraft to BUYER, SELLER shall, at SELLER's expense, perform all repairs
and restoration work, if any, which may be required to put each Aircraft
into airworthy condition, in accordance with original manufacturer
maintenance manuals and instructions, in order to enable BUYER to obtain a
special permit for flight from the CAAC in respect of each Aircraft
(authorising the ferry flight of said Aircraft from China following
delivery thereof to California). To this end, prior to delivery of each
Aircraft, SELLER shall, at SELLER's risk and expense, perform any test
flight of each Aircraft which may be required by the CAAC as a condition
for the issue of such a special permit for flight in respect of said
Aircraft . A representative of BUYER shall have the right ( but not the
obligation ) to witness and observe any such test flight on board the
Aircraft during said test flight. SELLER will do everything possible to
assist BUYER in obtaining ferry flight & export permits within China. Any
defects or faults will be corrected by SELLER.
(D) In order to verify that each Aircraft conforms to the condition specified
in (A) above but without derogating or releasing SELLER from SELLER's
obligations under (A) and (C) above, BUYER, or its agents, shall have
access to each Aircraft and all available documentation relating thereto
prior to delivery thereof, which access shall include the right to conduct
reasonable inspections to determine that such Aircraft confirms to the
required condition specified in (A) above. The period allowed for such
inspections shall have such duration as to permit the conduct by BUYER of
the following:
(1) Inspection of the Aircraft documents;
<PAGE>
(2) Inspection of the Aircraft structure and parts;
(3) Inspection of the Engines,
(4) A test flight of each Aircraft if required by the BUYER: SELLER's pilot
shall fly the Aircraft during such test flight and BUYER's personnel
(including BUYER's pilot ) shall be permitted to be on board the Aircraft
and participate in and observe all aspects of the test flight which BUYER
deems necessary. All costs and risks of such test flight ( other than costs
of, and risks to, BUYER's personnel ) shall be borne by the SELLER. And
SELLER shall correct any defects which arises from the Test Flight.
(E) SELLER shall, at SELLER's expense, perform all repairs and restoration work
which may be required to make each Aircraft conform to the required
condition of such Aircraft in accordance with the provisions of Article II
of this Agreement. All such repairs or restoration work shall be performed
at an authorised repair station acceptable to BUYER and in accordance with
original manufacturer maintenance manuals and instructions. BUYER
acknowledges that AMECO BEIJING, the authorized repair station proposed by
SELLER for the performance of such the authorised repairs or restoration
work, is acceptable to BUYER for such purposes. The procedure, time
schedule and respective rights of the Parties with respect to such repairs
and/or restoration work shall be as set forth in Article VIII (B) of this
Agreement.
ARTICLE III DELIVERY OF AIRCRAFT
(A) The Aircraft shall be delivered by SELLER to BUYER at the premises of
SELLER located at Capital Airport. Beijing, China ( herein "Delivery") in
accordance with the following Delivery Schedule:
First Aircraft: Serial No. 20720, Reg. No. B2414 - 5th February, 1995
Second Aircraft: Serial No. 20723. Reg. No. B2420 - 25th March, 1995
Either Party may request of the other Party that the date for delivery of
each Aircraft be changed to a date which is up to fourteen ( 14 ) days
before or after the applicable date set forth above by notifying the other
Party in writing of the proposed revised delivery date at least seven ( 7 )
days prior to the earlier of original delivery date or the proposed revised
delivery date of such Aircraft. SELLER and BUYER shall co-ordinate with
each other in the determination of the actual date for Delivery of each
Aircraft within the parameters set forth above, and shall confirm such
actual Delivery date by written notice to the BUYER at least seven ( 7 )
days prior to such actual Delivery date, so as to enable BUYER to send
appropriate representatives of BUYER to accept Delivery of said Aircraft.
(B) Simultaneously with Delivery of each Aircraft, SELLER shall deliver to
BUYER all of the following:
<PAGE>
(i) the Aircraft documentation listed in Exhibit "C" attached hereto in
respect of said Aircraft;
(2) A valid Bill of Sale which will be issued upon signing of Acceptance
Certificate by BUYER and receipt of funds by SELLER in the form set forth
in Exhibit "D" attached hereto and otherwise conforming to all applicable
requirements and formalities of the laws of China and the regulations of
the CAAC, conveying to BUYER all of the SELLER's right, title and interest
in and to said Aircraft ( including the four (4) Engines installed therein),
free and clear of all mortgages, liens, charges, claims, security
interests, leases and encumbrances;
(3) A release of all mortgages. liens. charges. claims. security interests,
leases and encumbrances against said Aircraft, if any;
(4) A valid and current special permit for flight issued by the CAAC,
authorising the ferry flight of said Aircraft from Beijing, China to
California, USA;
(5) Any export license, customs clearance form, and other permits or licenses
(if any ) required from any authorities in China for the sale of said
Aircraft to BUYER and/or for the exportation of said Aircraft from China to
California, USA
(6) A written declaration issued by the CAAC certifying de-registration of said
Aircraft from the records of the CAAC;
(7) A written opinion of SELLER's counsel, signed and dated by SELLER's counsel
as of the date of the Delivery of said Aircraft, and in form and terms
satisfactory to BUYER, certifying that good, unencumbered and marketable
title to the Aircraft is indefensibly vested in SELLER and further
indicating that SELLER's title to the Aircraft is free and clear of any and
all mortgages, leases, security interests, liens, claims, charges and
encumbrances and that this Agreement has been duly authorised by all
necessary corporate action by SELLER; and
(8) An assignment by SELLER to BUYER of any and all assignable warranties of
manufacturers and maintenance and overhaul agencies of and for the Aircraft
by delivery to BUYER of an " Assignment of Warranties " in the form
attached hereto as Exhibit "E".
(C) Upon the request of BUYER at any time and from time to time hereafter,
SELLER shall give BUYER such aid and assistance as BUYER may require in
enforcing the rights, of BUYER arising under the warranties assigned to
BUYER pursuant to each "Assignment of Warranties" referred to in (B) (8)
above, and shall give notice of the assignment of such warranties to BUYER
to any manufacturers and maintenance and overhaul agencies who have
obligations under said warranties.
<PAGE>
(D) Upon Delivery or each Aircraft together with all of the documentation
listed in (B) above, a representative designated by BUYER shall execute a
Certificate of Acceptance in form set forth in Exhibit "F" attached hereto.
(E) Title and risk of loss/damage to each Aircraft shall pass from SELLER to
BUYER upon the last to occur of the following:
(F) BUYER shall be responsible for Ferry Flight permission outside of China.
(1) BUYER's signature of the Certificate of Acceptance in respect of said
Aircraft as per (D) above; and
(2) BUYER's payment of the full purchase price in respect of said Aircraft as
per Sub-Article IV (B) below.
ARTICLE IV CONSIDERATION AND TERMS OF PAYMENT
(A) Consideration
(1) In consideration of SELLER's fulfillment of all of SELLER's obligations
under this Agreement, BUYER undertakes to pay to SELLER the sum of US
$6,000,000.00 ( Six million United States of America Dollars )
(hereinafter the " Total Consideration ")
(2) A breakdown of the Total Consideration showing which portion of the Total
Consideration is attributable to each Aircraft is set forth in Exhibit "G"
attached hereto. All documentation deliverable with each Aircraft is
included in the Total Consideration.
(B) Terms of Payment
The Total Consideration shall be payable as follows:
(1) That potion of the Total Consideration which is attributable to an Aircraft
as per Exhibit "G" attached hereto shall be paid upon Delivery to the
SELLER of said Aircraft together with all of the documents listed in
Sub-Article III (B) above in respect of said Aircraft.
(2) All payment shall be made in U.S. Dollars, by means of a telegraphic bank
transfer to SELLER's Account No. 40100795 at the Bank of China, Head
Office, Beijing, China.
(C) Bank Guarantee
As a guarantee of BUYER's performance of BUYER's obligations under this
Agreement, BUYER undertakes to Deposit have issued in favour of SELLER,
credited to the purchase price, in the total amount of US$600,000 (being
ten percent ( 10% ) of the Total Consideration ). Upon Delivery of
Aircraft, the total
<PAGE>
This Agreement, and the rights and obligations created hereunder, shall not
be assignable or delegable by either Party without the prior written
consent of the other Party.
ARTICLE XII HEADINGS
The headings used herein are for convenience only and shall not be
considered part of any Article for purposes of construing provisions
hereof.
ARTICLE XIII NOTICES AND REQUESTS
All notices and other communications authorised hereunder shall, except
where specifically provided otherwise, be given in writing to the person
listed below, either by personal delivery to said person, or by facsimile
transmission, or by Sita, or by overnight courier, and the date upon which
any such notice is so personally delivered ( or if the notice is given by
facsimile transmission, telex, or overnight courier, the date upon which it
is received by the addressee ) shall be deemed to be the date of such
notice, irrespective of the date appearing therein.
The SELLER shall be addressed to the following:
Air China Group Import & Export Trading Co.
Room 531, Jingxin Mansion, A-2 Dongsanhuan Bei Road
Beijing, 100027, P.R.China
Attention: Ms. Xu Xiang Hong
Tel: (86-1) 4634679/80/81/82 (4 Lines )
(86-1)4663366-3531
Fax: (86-1) 4663498
Sita: PEKJZCA
The BUYER shall be addressed to the following:
33 Hammond Street Bldg. 201,
Irvine, California 92718,USA
Attention: Mr. Dennis Lewis
President
Fax: 714-586-6246
Tel: 714-586-7558
Sita: SNAADCR
<PAGE>
Buyer and Seller may each change, from time to time, their named
representative and representative addresses for the purpose on this Article
by written notice to the other party hereto.
ARTICLE XIV ENGLISH LANGUAGE
All technical discussions among the Parties and all documentation required
to be delivered pursuant to this Agreement ( including, without limitation,
all of the documents and items to be delivered by SELLER to BUYER pursuant
to SubArticle III ( B )) shall be in the English language.
ARTICLE XV APPLICABLE LAW AND SETTLEMENT OF DISPUTES
(A) This Agreement shall be construed and determined in accordance with the
laws of the Swedish.
(B) Any dispute in connection with this Agreement shall be settled through
friendly negotiation. In case no settlement can be reached, all disputes
shall be submitted for arbitration. Each party shall appoint an arbitrator
within 30 (thirty) days after receipt of notification from the opposite
party and the two arbitrators thus appointed shall jointly nominate third
person of Swedish nationality as umpire to form an Arbitration Committee.
The arbitrators shall be confined persons of Chinese and USA nationality.
The arbitration shall take place in Stockholm, Sweden, in accordance with
the Swedish Arbitration Procedures, and such dispute shall be resolved in
accordance with the terms of this Agreement and with reference to the
Swedish Arbitration Law. The decision of the Arbitration Committee shall be
considered as final and neither party shall appeal such decision to any
court. The arbitration fee shall be borne by the losing party unless
otherwise awarded by arbitration. In the course of arbitration, this
agreement shall be continuously performed by both parties except that part
which is under arbitration.
ARTICLE XVII ENTIRE AGREEMENT
This Agreement and the Exhibits hereto supersede all previous discussions,
negotiations and communications and constitute the entire agreement between
the parties hereto with respect to the purchase and sale of the Aircraft
herein above referenced, and shall not in any manner be supplemented,
amended or modified except by a written instrument executed on behalf of
the parties hereto by their duly authorised representatives and executed of
even date herewith or subsequent thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly-authorised representatives the day and year first above written.
Air China Group Import & Export Trading Co.
<PAGE>
By: /s/ illegible
------------------------
Name: Ge Sheng Hai
------------------------
Title: President
------------------------
Air China
By: Li Xiao Jan 1995.1.6
------------------------
Name: /s/ illegible
------------------------
Title: Director
------------------------
Aviation Distributors, Inc.
By: /s/ D Lewis
------------------------
Name: D. Lewis
------------------------
Title: Preisdent
------------------------
Dated Beijing Jan 6th 95.
<PAGE>
Trading Co.
By: /s/ D Lewis By: /s/ Ge Sheng Hai
------------------------ ------------------------
Typed Name: D Lewis Typed Name: Ge Sheng Hai
------------------
Title: President Title: President
------------------------
Date: March 21, 1995 Date: March 21, 1995
<PAGE>
EXHIBIT 'A'
REQUIRED CONDITION AND CONFIGURATION OF AIRCRAFT AT TIME OF DELIVERY
REQUIREMENT FOR AIRCRAFT B-2414, B-2420
l. At the time of delivery the aircraft will have a Export Certificate of
Airworthiness, and with one-third full of the fuel.
2. The aircraft will be clean by normal airline standards and shall be installed
all equipment, accessories and parts required for commercial operation under the
requirement and regulation of CAAC and such equipment, accessories and parts
shall function properly at the time of delivery.
3. The aircraft shall be in compliance with all Airworthiness Directives (AD)
which are due to be accomplished prior to date of delivery.
4. The aircraft shall be delivered in as it is configuration.
5. The following engines should be installed:
Aircraft B-2414: 670860, 670822, 670855, 670790
Aircraft B-2420: 670773, 670850, 670776, 670831
6. Technical data and documentation should be delivered as per Exhibit C.
7. If one or more of these requirement cannot be met, it should be clearly
stated.
8. Receiving inspection and test flight will be carried out by ADI team and
Seller shall correct any discrepancies detected.
9. The landing gears should be installed:
10. SELLER shall perform B check prior to Deliver of Aircraft as per Maintenance
Job Card, and borescope inspection of engines. The BUYER may be present for the
inspection.
<PAGE>
11. Flight away kit shall be with the aircraft by the time of Delivery.
12. Deferred maintenance items & new snags arising from Inspection will be
rectified
13. The BUYER shall complete EO 707-72-006 SB 5358 to engine 0670831
<PAGE>
EXHIBIT "B"
FLIGHT TEST REQUIREMENTS
The flight test program shall include, without limitation, the following tests:
Engine parameters, Systems functions, and Flight characteristics. If BUYER
requires Test Flight, Air China requests 14 days notice.
EXHIBIT "C"
AIRCRAFT DOCUMENTATION DELIVERABLE LIST WITH EACH AIRCRAFT
1. Maintenance and inspection program planning manual includes Work Task Cards.
2. Original manufacturers delivery document including engines and aircraft
readiness log.
3. Aircraft maintenance and flight logs, including historical logs.
4. Airframe log book.
5. Current list of any deferred maintenance items or open engineering
deviation, if any.
6. Master Equipment List updated to present configuration.
7. Listings of manufacturers Service Bulletins incorporated.
8. Listing of all modifications and/or alterations.
9. Engines history of owners and operators with maintenance and inspection
program record since new, with dates and hour under each program.
10. Engines log books.
11. List of time control items under maintenance program status.
12. Listing of life limited parts status.
13. Listings of manufacturers Service Bulletins incorporated and method of
incorporation
14. Summary and control status of A.D.'s incorporated and method of
incorporation.
15. Required Manuals:
<PAGE>
1. FAA approved flight manual.
2. Flight operation manuals
3. Weight and balance manual including last weight report.
4. Weight and balance supplement.
5. Aircraft maintenance manual.
6. Engine maintenance manual.
7. Aircraft I.P.C.
8. Engine I.P.C.
9. Aircraft Wiring diagram.
10. Operators MEL.
11. Aircraft structural repair manual.
EXHIBIT "E"
ASSIGNMENT OF WARRANTIES
In consideration of the sale by Air China Group Import & Export Trading Co.
(hereinafter" SELLER") to Aviation Distributors Inc. (hereinafter "BUYER"), of
two (2) Boeing B707-320C/QN Aircraft, Manufacturer's Serial Number 20720, and
20723, Registration Number B2414 and B2420, and four (4) Pratt & Whitney JT3D-7
Engines, Serial Number 670860, 670822, 670855, 670790, and 670773, 670850,
670776, 670831. SELLER does hereby assign, to BUYER any and all warranties of
manufacturers and maintenance and overhaul agencies pertaining to said Aircraft
and Engines.
IN WITNESS WHEREOF, this Assignment is hereby executed by AIE and ADI, this 4th
day of January, 1995.
By: /s/illegible 1995-1-6
------------------------
Name: Ge Sheng Hai
------------------------
Title: President
------------------------
<PAGE>
AIRCRAFT BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS THAT:
Air China Group Import & Export Trading Co. and Air China ("SELLER") the
corporation organised and existing under the laws of China, in consideration of
ten (10) United States of America Dollars (US$10) and other good and valuable
consideration, receipt of which is hereby acknowledged, does hereby grant,
convey, sell, and assign to Aviation Distributors, Inc. ("BUYER"), a corporation
organised and existing under the laws of American, all rights, title and
interest in and to the following one (1) Aircraft and the following four (4)
engines, wherever located:
Manufacturer Model of Aircraft manufacturers Serial No. Chinese
Registration No.
Boeing B707-320C/QN 20720 B2414
Engines Model of Engine Engine Manufacturer's Serial No.
Pratt &Whitney JT3D-7 B2414: 670860, 670822, 670855, 670790
together with all equipment, components and accessories installed on said
aircraft and/or said engines and used in connection therewith; all of which
aircraft, engines, equipment, commonest and accessories are hereinafter referred
to as the " Aircraft", to have and to hold said Aircraft, and every part
thereof, to the BUYER, its successors and assigns, for its and their own use
forever.
The SELLER hereby warrants to the BUYER, its successors and assigns, that the
SELLER is the sole owner of the full legal and beneficial title to said Aircraft
and every part thereof; that there is hereby conveyed to the BUYER good and
marketable title to the Aircraft free and clear of all liens, claims, charges,
encumbrances and rights of others whatsoever; and that the SELLER will warrant
and defend such title forever against all claims and demands whatsoever.
IN WITNESS WHEREOF,___________ has caused this instrument to be executed
and its seal affixed hereto for the purpose hereinabove set out, by its duly
authorised officer, on this ____day of, 1995.
<PAGE>
EXHIBIT "F"
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on and as of this _____ day of
_______, 1995 by Aviation Distributors Inc. ("BUYER") to Air China Group Import
& Export Trading Co. and Air China ("SELLER") pursuant to that No. HJB940001US
Aircraft Purchase Agreement dated as of 4th January, 1995 between Seller and
Buyer ("AGREEMENT").
1. Details of Acceptance: Registered Number: B2414
Serial Number: 20720
Buyer hereby confirms to Seller that the Buyer has at ___ o'clock on this ______
day of _____, 1995, at Beijing Capital International Airport Beijing, China,
accepted the following aircraft "AIRCRAFT") as per the provisions of this
Agreement:
Aircraft Model S/N Engine Number S/N
B707-320C/QN 20720 No. 1,2,3,4 670860,670822,
670855,670790
B707-320C/QN 20723 No. 1,2,3,4 670773,670850,
670776,670831
2. Confirmation of Undertakings
The Buyer confirms that at the time given above:
(1) The Aircraft was duly accepted by the Buyer in accordance with and subject
to provisions of the Agreement and the execution and delivery of this
Certificate further confirms the acceptance of the physical condition of the
Aircraft by Buyer; (2) The Buyer's duly appointed and authorised technical
experts have inspected the Aircraft and confirms that the physical condition of
the Aircraft conforms to the Buyer's requirement and the provisions of the
Agreement in all respects;
(3) The Aircraft is fully equipped in accordance with the specification of the
Agreement and the physical condition of the Aircraft is satisfactory in all
respects;
(4) The Buyer has no rights of set-off, deducting, withholding or counterclaim
whatsoever with respect to the physical condition of the Aircraft.
IN WITNESS WHEREOF, the Buyer has caused this Certificate of Acceptance to be
signed by its duly authorised representative on this day first given in this
Certificate.
For Aviation Distributors Inc..
By:
<PAGE>
Name:
Title:
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on and as of this __________ day of
_______ 1995 by Aviation Distributors Inc. ("BUYER") to Air China Group Import &
Export Trading Co. and Air China ("SELLER") pursuant to that No. HJB940001US
Aircraft Purchase Agreement dated as of 4th January, 1995 between Seller and
Buyer ("AGREEMENT").
1. Details of Acceptance: Registered Number: B2414
Serial Number: 20720
Buyer hereby confirms to Seller that the Buyer has at ______ o'clock on this
______ day of _____, 1995, at Beijing Capital International Airport Beijing,
China, accepted the following aircraft "AIRCRAFT") as per the provisions of this
Agreement:
Aircraft Model S/N Engine Number S/N
B707-320C/QN 20720 No. 1,2,3,4 670860,670822,
670855,670790
B707-320C/QN 20723 No. 1,2,3,4 670773,670850,
670776,670831
2. Confirmation of Undertakings
The Buyer confirms that at the time given above:
(1) The Aircraft was duly accepted by the Buyer in accordance with and subject
to provisions of the Agreement and the execution and delivery of this
Certificate further confirms the acceptance of the physical condition of the
Aircraft by Buyer;
(2) The Buyer's duly appointed and authorised technical experts have inspected
the Aircraft and confirms that the physical condition of the Aircraft conforms
to the Buyer's requirement and the provisions of the Agreement in all respects;
(3) The Aircraft is fully equipped in accordance with the specification of the
Agreement and the physical condition of the Aircraft is satisfactory in all
respects;
(4) The Buyer has no rights of set-off, deducting, withholding or counterclaim
whatsoever with respect to the physical condition of the Aircraft.
IN WITNESS WHEREOF, the Buyer has caused this Certificate of Acceptance to be
signed by its duly authorised representative on this day first given in this
Certificate.
For Aviation Distributors Inc..
<PAGE>
EXHIBIT "G"
BREAKDOWN OF THE TOTAL CONSIDERATION
The total consideration of US$_6,000,000.00 shall be attributable to the two (2)
Aircraft sold hereunder, according to the following price breakdown:
(1) For Aircraft Serial No. 20720 (Registration No. B2414), US$3,000,000.00;
(2) For Aircraft Serial No.20723 ( Registration No. B2420), US$3,000,000.00.
The price allocable to each Aircraft includes the four (4) Engines installed on
said Aircraft at the time of Delivery thereof to the Buyer as well as all
documentation deliverable with said Aircraft pursuant to this Aircraft purchase
Agreement.
Payment schedule at time of delivery for:
B2414 5th February, 1995 $2,700,000 USD
B2420 25th March, 1995 $2,700,000 USD
<PAGE>
AIRCRAFT BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS THAT:
Air China Group Import & Export Trading Co. and Air China ("SELLER") the
corporation organised and existing under the laws of China, in consideration of
ten (10) United States of America Dollars (US$10) and other good and valuable
consideration, receipt of which is hereby acknowledged, does hereby grant,
convey, sell, and assign to Aviation Distributors, Inc. ("BUYER"), a corporation
organised and existing under the laws of American, all rights, title and
interest in and to the following one (1) Aircraft and the following four (4)
engines, wherever located:
Manufacturer Model of Aircraft manufacturers Serial No. Chinese
Registration No.
Boeing B707-320C/QN 20720 B2414
Engines Model of Engine Engine Manufacturer's Serial No..
P&W JT3D-7 B2420: 670773,670850, 670776, 670831
together with all equipment, components and accessories installed on said
aircraft and/or said engines and used in connection therewith, all of which
aircraft, engines, equipment, commonest and accessories are hereinafter referred
to as the " Aircraft", to have and to hold said Aircraft, and every part
thereof, to the BUYER, its successors and assigns, for its and their own use
forever.
The SELLER hereby warrants to the BUYER, its successors and assigns, that the
SELLER is the sole owner of the full legal and beneficial title to said Aircraft
and every part thereof; that there is hereby conveyed to the BUYER good and
marketable title to the Aircraft free and clear of all liens, claims, charges,
encumbrances and rights of others whatsoever; and that the SELLER will warrant
and defend such title forever against all claims and demands whatsoever.
IN WITNESS WHEREOF,____________ has caused this instrument to be executed
and its seal affixed hereto for the purpose hereinabove set out, by its duly
authorised officer, on this ____ day of, 1995.
<PAGE>
LETTER AGREEMENT NO 1
TO AIRCRAFT PURCHASE AGREEMENT NO. 95HJB1000US
Air china Group Import & Export Trading Co. (hereinafter referred to as "AIE")
and Aviation Distributors, Inc. (hereinafter referred to as "ADI") have reached
the following supplement terms and conditions to the Aircraft Purchase Agreement
as follows:
l. AIE agrees to sell one serviceable hush kits engine S/N 670796 with QEC as
well as 17 components, the list attached with the Letter Agreement, and the
total price will be US$ 120,000.00 in order to support B2414 aircraft operation.
2. There is no further additional supplement provisions for B2420 aircraft.
3. ADI confirms to request to have flight test taken for both B2414 and B2420
aircraft before each ferry flight.
4. Both B2414 and B2420 aircraft registration numbers will be deregistrated in
Beijing. ADI will provide the new registration numbers for ferry flight in the
earliest possible time to AIE.
5. Both B2414 and B2420 aircraft will be delivered at the date of April 25,
1995.
6. Royal Jordanian will assign the flight crew for B2414 and B2420 ferry
flight from Beijing to Amman, Jordan. ADI will be responsible to arrange the
flight crews to be Beijing for taking the ferry flights.
7. ADI will be responsible for the ferry flight route application. Any charges
happened from flight route application will be on ADI. ADI will be in charge of
the insurance both for ferry flights and the ferry flight crews. AIE will try
its best effort to assist ADI obtain ferry flight route application approval.
8. The Agreement No. 94HJB0001US shall be changed to 95HJB1000US.
The terms and conditions set forth in this Letter Agreement No. 1 are in
addition to the obligations set forth in the Aircraft Purchase Agreement.
This Letter Agreement No. 1 shall become effective from March 22, 1995.
<PAGE>
Aviation Distributors, Inc. Air China Group Import & Export
Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
------------------ ------------------
Typed Name: D Lewis Typed Name: Ge Sheng Hai
-----------
Title: President Title: President
----------------
Date: March 21, 1995 Date: March 21, 1995
<PAGE>
AMENDMENT TO CONTRACT
The parties agree to extend the contract to May 20th to facilitate the delivery
process.
Aviation Distributors Inc. Air China Group Import & Export Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
Typed Name: Dennis Lewis Typed Name: Ge Sheng Hai
Title: President Title: President
Date: May 2, 1995 Date: May 2, 1995
<PAGE>
LETTER OF AGREEMENT NO. 5
TO AIRCRAFT PURCHASE AGREEMENT NO. 95HJB1000US
Air China Group Import and Export Trading CO. (herinafter referred to as "AIE")
and Aviation Distributors Inc. (herinafter referred to as "ADI") have reached
the following supplement terms and conditions to the Aircraft Agreement as
follows:
This letter confirms that AIE agrees with the request to extend the terms and
conditions of the purchase contract until August 21st 1995 to accommodate the
Board meeting of Royal Jordanian Airlines.
This Letter NO. 5 shall become effective on July 31st 1995.
Aviation Distributors Inc. Air China Group Import &Export Trading Co.
By: /s/Osamah Bakhit By:
--------------------- ---------------------
Typed Name: Osamah Bakhit Typed Name: Ge Sheng Hai
Title: CEO Title: President
Dated: July 25, 1995 Dated: July 25, 1995
<PAGE>
LETTER AGREEMENT NO. L
TO AIR CRAFT PURCHASE AGREEMENT NO. 95HJB1000US
Air China Group Import & Export Trading Co. (hereinafter referred to as "AIE")
and Aviation Distributors, Inc. (hereinafter referred to as "ADI" ) have reached
the following supplement terms and conditions to the Aircraft Purchase Agreement
as follows:
1. AIE agrees to include in the purchase agreement dated January 6, 1995 one
serviceable hush kits engine S/N 670796 with QEC as well as 17 components, the
list attached with the Letter Agreement.
2. There is no further additional supplement provisions for B2420 aircraft.
3. ADI confirms to request to have flight test taken for both B2414 and B2420
aircraft before each ferry flight.
4. Both B2414 and B2420 aircraft registration numbers will be deregistrated in
Beijing. ADI will provide the new registration numbers for ferry flight in the
earliest possible time to AIE.
5. Both B2414 and B2420 aircraft will be delivered at the date of April 25,
1995.
6. Royal Jordanian will assign the flight crew for B2414 and B2420 ferry
flight from Beijing to Amman, Jordan. ADI will be responsible to arrange the
flight crews to be Beijing for taking the ferry flights.
7. ADI will be responsible for the ferry flight route application. Any charges
happened from flight route application will be on ADI. ADI will be in charge of
the insurance both for ferry flights and the ferry flight crews. AIE will try
its best effort to assist ADI obtain ferry flight route application approval.
8. The Agreement No. 94HJB0001US shall be changed to 95HJB1000US.
The terms and conditions set forth in this Letter Agreement No. 1 are in
addition to the obligations set forth in the Aircraft Purchase Agreement.
This Letter Agreement No. 1 shall become effective from March 22, 1995.
<PAGE>
AMENDMENT 3A TO CONTRACT
As required by the letter of credit issued by the State Street Bank, Los Angeles
California in the favor of Air China Group Import and Export Trading the closing
and delivery date for the purchase is extended until June 10th. 1995.
Aviation Distributors Inc. Air China Group Import & Export Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
Typed Name: Dennis Lewis Type Name: Ge Sheng Hai
Title: President Title: President
Date: May 2, 1995 Date: May 2, 1995
<PAGE>
Aviation Distributors,Inc. Air China Group Import & Export
Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
Typed Name: D Lewis Typed Name: Ge Sheng Hai
Title: President Title: President
Date: March 21, 1995 Date: March 21, 1995
<PAGE>
The deposit received the purchase of B 707 320C Ser # 2 3 and 20720 is Three
Hundred Thousand USD ($300,000.00USD)
AVIATION DISTRIBUTORS INC.
DATED Feb 22 - 1955
SIGNED /s/D Lewis
AIR CHINA GROUP IMPORT EXPORT TRADING CO.
DATE: Feb 22 - 1955
SIGNED /s/Xu Xiang hong
<PAGE>
LETTER AGREEMENT NO.6
TO
PURCHASE AGREEMENT
N0.95HJBl000US
Air China Group Import & Export Trading Co. (hereafter referred to as AIE) and
Aviation Distributors Inc. (herinafter referred to as "ADI") have agreed to
extend the purchase contract for the two aircraft until Aug 25, 1995.
This amendment will become effective on Aug 21, 1995.
Aviation Distributors Inc. Air China Group Import & Export Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
Dennis Lewis Ge Sheng Hai
President President
<PAGE>
INVOICE
AVIATION DISTRIBUTION INC.
1 WRIGLEY DRIVE,
IRVINE CALIFORNIA
92718
AIR CHINA GROUP IMPORT & EXPORT TRADING CO.
FINANCE AND ACCOUNTING DIVISION
532. JINGXIN MANSION
A - 2 DONGSANHUAN BEI ROAD
BEIJING 100027 P.R. CHINA
TEL: (86 - 1)4634679 - 82
FAX: (86 - 1)4663498
SITA: PEKJZCA
YOUR REFERENCE: RFI:
- --------------------------------------------------------------------------------
ITEM DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------
BOEING 707-320C SN: 20720
BOEING 707-320C SN: 20723
PECULIAR TO TYPE ROTABLES AS PER CONTRACT
P&W 670796 $ 6,000,000.00
FUEL CREDIT AS PER CONTRACT ($ 14,688.00)
FUEL PURCHASE AS PERADI ORDERED $ 16,000.00
TOTAL CONTRACT PAYMENT $ 6,001,312.00
LESS DEPOSIT RECEIVED $ 300,000.00
- --------------------------------------------------------------------------------
BANK ACCOUNTS: TOTAL $ 5,701,312.00
BANK OF CHINA, HEAD OFFICE
410 FU CHENG MEN NEI DA JIE
BEIJING, 100027, P. R. CHINA
ACC. NO. 40100795 ----------------------
- --------------------------------------------------------------------------------
FORM NO. PFD - 9401
<PAGE>
LETTER AGREEMENT NO.7
TO
AIRCRAFT PURCHASE AGREEMENT
NO. 95HJB1000US
Air China Import K Export Trading Co. (hereinafter referred to as "AIE" ) and
Aviation Distributors Inc. (hereinafter referred to as "ADI") have agreed to
extended the purchase contract until Aug 31 1995.
The extension is granted based on the time required to process the Letter of
Credit and transfer funds to the account of AIE.
This amendment becomes effective on Aug 25 1995.
Aviation Distributors Inc. Air China Group Import & Export
Trading Co.
By: /s/ D Lewis By: /s/ Ge Sheng Hai
Mr. Ge Sheng Hai
Date: President
<PAGE>
LETTER AGREEMENT NO.7
TO AIRCRAFT PURCHASE AGREEMENT NO. 95HJB1000US
Air China Group Import & Export Trading Co. (hereinafter referred to as "AIE")
and Aviation Distributors, Inc. (hereinafter referred to as "ADI") have agreed
to amend the agreement as follows. follows:
1. This letter confirms that AIE agrees with the request to extend the terms
and conditions of the purchase contract until Aug 30th 1995.
2. The purchase priceon closing be adjusted forthe purchase of the aircraft to
be Five Million Five Hundred Thousand USD($5,500,000 USD)
3. AIE agrees to sell the following P&W engines:
P670772 P670802 P670817
P670819 P670845 P670794
Price per engine FOB first point of entry San Francisco Eighty Three
Thousand Three Hundred and thirty three USD ($83,330 USD) per engine.
Letter of amendment to the Agreement No.7 shall become effective on Aug 21st
1995.
Aviation Distributors, Inc. Air China Group Import & Export
Trading Co.
By: /s/D Lewis By: /s/ Ge Sheng Hai
----------------------- -------------------
Typed Name: Dennis Lewis Typed Name: Ge Sheng Hai
Title: President Title: President
------------------
Date: Aug 21st. 1995 Date: Aug 21st. 1995
<PAGE>
AIR CHINA GROUP
IMPORT & EXPORT TRADING CORPORATION
BEIJING CAPITAL AIRPORT, P. O. BOX 6909
BEIJING 100621, P. R. CHINA
TEL: (86-10)4567634, 4567635
FAX: (86-10)4567629 DATE: AUG 21 95
SITA:PEKJZCA
INVOICE
INVOICE NO.95HJB-210895US CONTRACT OR INDENT NO.
95HJB1000US
FOR ACCOUNT AND RISK OF MESSRS: -------------------------
AVIATION DISTRIBUTORS INC SHIPPING PER
1 WRIGLEY DRIVE FOB SAN FRANCISCO
IRVINE CALIFORNIA 92718 -------------------------
SAILING ON OR ABOUT
AIR
- --------------------------------------------------------------------------------
FROM XU XIANG HONG TO DENNIS LEWIS
- --------------------------------------------------------------------------------
MARKS & DESCRIPTION OF GOODS QUANTITY UNIT TOTAL
NUMBERS PRICE AMOUNT
- --------------------------------------------------------------------------------
P670772 P&W JT3D-7 TURBINE ENGINE 1 USD 83,333.00
P670819 P&W JT3D-7 TURBINE ENGINE 1 USD 83,333.00
P670802 P&W JT3D-7 TURBINE ENGINE 1 USD 83,333.00
P670845 P&W JT3D-7 TURBINE ENGINE 1 USD 83,333.00
P670817 P&W JT3D-7 TURBINE ENGINE 1 USD 83,333.00
P670794 P&W JT3D -7 TURBINE ENGINE 1 USD 83,333.00
USD $500,000.00
- --------------------------------------------------------------------------------
AIR CHINA GROUP
IMPORT & EXPORT TRADING CO.
<PAGE>
ENGINE PURCHASE CONTRACT
P&W JT3D-7
Aviation Distributors Inc. (ADI) and Air China Group Import & Export Trading Co.
(AIE) have entered into this agreement for ADI to purchase the following engines
owned by Air China. AIE is acting as an exclusive agent for Air China and has
the unconditional authority to commit and sell the engines on behalf of the
owner.
ENGINES SUBJECT TO THIS AGREEMENT:
Unserviceable engines Ser # 760772, 670802, 670817, 670819,670845,670794
Serviceable engines Ser # 670851, 670861, 670791, *** 670796
TERMS AND CONDITION OF PURCHASE ARE AS FOLLOWS:
6 unserviceable engines @ $30,000.00 USD per engine $180,000.00 USD
3 Serviceable engines @ $135,000.00 USD per engine $405,000.00 USD
Total $585,000.00 USD
*** JT3D-7 Engine Serial #670796 is provide at no cost and as compensation to
ADI for negotiated adjustments to the Aircraft Purchase Contract No. 95HJB1000US
as amended. E.O. # 707-72-006, Service Bulletin 5358, Engine Ser # 670831, Aging
aircraft AD, Avionics conversion for three man crew and Bulk head conversion for
C of A for Export. Ser #670796 is not subject to the terms and conditions of
this agreement. Title and Ownership has passed free and clear of any
encumbrances to ADI as provide for in the Aircraft Purchase Contract No.
95HJB1000US
l. Upon signature of this agreement ADI will deposit $100,000.00 USD with AIE.
2. Within Fifteen business days of the date of signature of this agreement ADI
will transfer an additional $50,000.00 USD to the account of AIE.
3. The outstanding balance of $435,000.00 USD is payable in five equal
installments of $87,000.00 USD commencing on the 15th day of each month,
starting Oct 15th 95.
4. AIE will ship one engine for 50% of the interline cargo rate to LHR London
UK. The balance of the engines will be shipping as directed and to the
account of ADI.
5. Delivery schedule: Unserviceable engines to be shipped the first week of
September. Upon receipt of the first $87,000.00 USD AIE will release the
first of the serviceable engines for shipment to ADI as directed.
This agreement is made this 31st. August 1995.
By: /s/D Lewis By: /s/illegible
President
Aviation Distributors Inc. Air China Group Import and Export Trading Co.
<PAGE>
amount of the Deposit shall be reduced by the relevant amount specified in
Exhibit "G", for each Aircraft.
ARTICLE V OTHER RESPONSIBILITIES/LIABILITIES OF BUYER
(A) The BUYER shall be responsible, at BUYER's expense for:
(1) All costs of the flight crew and fuel for the ferry-flight of each Aircraft
from Beijing to California; and
(2) Removal of each Aircraft from SELLER's premises (by means of a ferry-flight
to California) within a reasonable period of time after the Delivery of
said Aircraft, such removal to be effected by a flight crew provided by
BUYER; and
(3) Insurance of each Aircraft, with effect from passage of title and risk with
respect thereto, under BUYER's hull and third party liability insurance
policies; and
(4) Insurance of BUYER's personnel participating in any test flight and
ferry-flight of the Aircraft.
ARTICLE VI WARRANTIES AND REPRESENTATIONS
(A) BUYER represents and warrants to SELLER that:
(1) BUYER is a corporation duly organised and validly existing and in good
standing under the laws of the United States of America; and
(2) BUYER has the corporate power to execute this Agreement; and
(3) This Agreement constitutes a valid and binding obligation on the part of
BUYER, enforceable against BUYER in accordance with its terms; and
(4) There is no provision of any contract or agreement to which BUYER is
obligated, nor is there any statute, rule, regulation, judgement or order
binding on BUYER, which would be contravened by the execution, delivery or
performance of this Agreement.
(B) SELLER represents and warrants to BUYER that, at the time of the execution
of this Agreement, SELLER has good, legal and beneficial title to all of
the Aircraft to be delivered to BUYER.
(C) SELLER represents, warrants and undertakes that at the time of Delivery of
each Aircraft:
(1) SELLER will have good, legal and beneficial title to said Aircraft
(including the four (4) Engines installed thereon at the time of Delivery )
free and clear of all mortgages, charges, claims, security interests,
liens, leases and encumbrances; and
<PAGE>
(2) SELLER will have full power and lawful authority to transfer such title to
BUYER.
(D) SELLER further represents and warrants to BUYER that:
(1) SELLER is a corporation duly organised and validly existing and in good
standing under the laws of China; and
(2) SELLER has the corporate power to execute this Agreement; and
(3) This Agreement constitutes a valid and binding obligation on the part of
SELLER enforceable against SELLER in accordance with its terms; and
(4) There is no provision of any contract or agreement to which SELLER is
obligated, nor is there any statute, rule, regulation, judgement or order
binding on SELLER, which would be contravened by the execution, delivery or
performance of this Agreement; and
(5) All information set forth in the documentation to be delivered by SELLER to
BUYER under this Agreement is accurate and complete and up-to-date to the
date of Delivery of the Aircraft to which said documentation relates.
ARTICLE VII LICENCES AND PERMITS
SELLER shall be responsible for obtaining, at SELLER's expense, all
licences, permits and clearances (including, but not limited to customs
clearances and a special permit for flight) required from any authorities
in China for the sale of the Aircraft to BUYER, and for the exportation and
ferry-flight of the Aircraft from China to California, USA.
ARTICLE VIII DAMAGE OR DESTRUCTION
(A) In the event that, prior to Delivery of an Aircraft together with all of
the related documentation listed in Sub-Article III(B) above, said Aircraft
is destroyed or damaged beyond repair at a "commercially reasonable cost",
50% of the portion of the Total Consideration attributable to such damaged
aircraft, as set forth in Exhibit "G" annexed hereto, then, unless
otherwise agreed in writing signed by both Parties, this Agreement shall be
deemed terminated as to said destroyed or damaged Aircraft and BUYER shall
not be bound by the provisions of this Agreement to purchase said destroyed
or damaged Aircraft,. For the avoidance of any doubt, such a termination
with respect to a destroyed or damaged Aircraft shall not invalidate this
Agreement with respect to any other Aircraft sold by SELLER to BUYER under
this Agreement.
(B) In the event that an Aircraft is damaged prior to Delivery thereof, and may
be repaired at a "commercially reasonable cost", SELLER shall promptly
notify BUYER in writing and state how long such repairs will take.
<PAGE>
(C) If any Engine is damaged (whether or not such damage is repairable) or
destroyed prior to the time scheduled for the Delivery, to the BUYER of the
Aircraft on which said Engine is to be installed, SELLER shall provide a
similar serviceable JT3D-7 engine as a substitute for said damaged Engine.
The condition of said substitute shall be at least as good as was
contractually required for the Engine which was replaced and all references
in this Agreement to "Engine" shall be deemed to apply to said similar
serviceable substitute.
ARTICLE IX EXCUSABLE DELAYS
(A) Subject to and without derogating from Article VIII above, SELLER shall not
be liable for any delay or failure in the performance of this Agreement due
to causes beyond its control and without SELLER's fault or negligence;
provided however that in the event of any delay or failure in performance
due to the foregoing SELLER agrees to use its reasonable best efforts to
remedy such delay or failure, so as to permit it to perform hereunder. A
cause of delay or failure for which SELLER shall not be liable under the
foregoing provisions of this Sub-Article IX (A) shall be referred to as a
"Force Majeure".
(B) Subject to and without derogating from Article VIII above, in the event
that the Delivery of an Aircraft shall be delayed by reason of Force
Majeure beyond thirty (30) days, then BUYER shall have the option to
terminate this Agreement with respect to said Aircraft by giving written
notice to SELLER of such termination at any time after said thirty (30)
days period. Such termination shall not invalidate this Agreement with
respect to any other Aircraft sold by SELLER to BUYER under this Agreement,
and the Deposit will be returned.
ARTICLE X TAXES
(A) Any taxes, duties and charges of whatsoever kind (including, but not
limited to, customs duties, customs clearance charges, CAAC charges and the
like) which may be imposed by any Chinese authority in connection with the
transaction contemplated by this Agreement, and/or in connection with the
Aircraft and/or engines and/or other deliverable items hereunder, shall be
borne and paid by SELLER.
(B) Any taxes, duties, and charges of whatsoever kind ( including, but not
limited to, customs duties, customs clearance charges, United States of
America Civil Aviation Authority charges and the like ) which may be
imposed by any United States of America authority in connection with the
transaction contemplated by this Agreement, and/or in connection with the
Aircraft and/or Engines and/or other deliverable items hereunder, shall be
borne and paid by BUYER.
ARTICLE XI ASSIGNMENT
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
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 INCORPORATED, 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 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 of Directors.
1.2 Executive shall continue to be a member of the Board of
Directors 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.
3. TERMINATION
Executive's employment hereunder may be terminated without breach of
this Agreement only under the following circumstances:
Page 2 of 17
<PAGE>
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.
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
Page 3 of 17
<PAGE>
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
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).
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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), and (iii) if Executive's
employment is terminated pursuant to subsection (3.3) or (3.4) above, the
date specified in the Notice of Termination; 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 3.2 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
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)
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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
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 (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 (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 (3) above,
through the 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.
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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 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
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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 of eight (8) weeks accrual of paid vacation.
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 of Directors, 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 of Directors 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.
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 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.
7.6 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.
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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 CONSULTANCY 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
and 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(3) 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 during any Consultancy Period thereafter, Executive shall not,
except as may be required to perform his duties hereunder or as required by
applicable law, 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 ac-
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knowledges 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 Consultancy 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 any Consultancy
Period 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.
8.6 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 any Consultancy Period
thereafter, he will not, directly or
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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, threatens to commit breach of, any of
the provisions of Section 8 (the "Restrictive Covenants"), the Company and its
subsidiaries shall
8.5.1 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.
8.5.2 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.
8.5.3 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.
8.5.4 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.
8.5.6 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,
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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 53,350 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.
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 and
California Code of Civil Procedure Section 1283.05. 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 she 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.
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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.
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.
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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.
THE COMPANY: EXECUTIVE:
AVIATION DISTRIBUTORS INCORPORATED,
a Delaware Corporation
By: ______________________________ ______________________________
Name: OSAMAH S. BAKHIT
Title:
Page 17 of 17
<PAGE>
COMMERCIAL LEASE
(GENERAL FORM)
1. PARTIES.
This Lease is made and entered into this ELEVENTH of JUNE 1996 by
-------- ---- --
and between FRANCIS DE LEONE (hereinafter referred to as "Landlord") and
----------------
AVIATION DISTRIBUTORS, INC. (hereinafter referred to as "Tenant").
- ---------------------------
2. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
on the terms and conditions hereinafter set forth, that certain real property
and the building and other Improvements located thereon situated in the City
of IRVINE, County of ORANGE, State of CALIFORNIA, commonly known as
------ ------ ----------
4 AUTRY, IRVINE, CALIFORNIA 92718 and described as APPROXIMATELY 4800 SQ FT
- --------------------------------- -------------------------
(here insert address)
PORTION OF A 16,526 SQ FT INDUSTRIAL FACILITY COMMONLY REFERRED TO AS
- ---------------------------------------------------------------------
(here insert legal description)
4 AUTRY, IRVINE, CA. 92718 COUNTY OF ORANGE.
- ---------------------------------------------
(said real property is hereinafter called the "Premises").
3. TERM.
The term of this Lease shall be MONTH TO MONTH, commencing on JUNE 24, 1996
-------------- -------------
(months/years)
and ending on N/A, unless sooner terminated as hereinafter provided.
---
4. RENT.
Tenant shall pay to Landlord as rent for the Premises the following sums
per month, in advance on the first day of each month during the term of this
Lease.
During the month to month term of this Lease, the sum of TWENTY FOUR HUNDRED
-------------- -------------------
(e g 5th)
AND 00/00 DOLLARS ($2400.00) dollars per month.
- ----------------- -------
During the year through the year of the
---------------- -----------------
(e g 6th) (e g 10th)
term of this Lease, the sum of
------------------------------------------------
($ ) dollars per month.
----------------------
During the year through the year of the
---------------- -----------------
(e g 16th) (e g 20th)
term of this Lease, the sum of
------------------------------------------------
($ ) dollars per month.
----------------------
Tenant shall pay to Landlord upon the execution of this Lease the sum of
($560--) dollars as rent for JUNE
- ----------------------------------------- --- ----
Rent for any period during the term of this Lease which is for less than one (1)
month shall be a prorata portion of the monthly installment. Rent shall be
payable without notice or demand and without any deduction, off set, or
abatement in lawful money of the United States to the Landlord at the address
stated herein for notices or to such other persons or such other places as the
Landlord may designate to Tenant in writing.
5. SECURITY DEPOSIT.
Tenant shall deposit with Landlord upon the execution of this Lease the sum
of TWENTY FOUR HUNDRED DOLLARS AND 00/00 ($2400.00) dollars as a security
------------------------------------- -------
deposit for the Tenant's faithful performance of the provisions of this Lease.
If Tenant fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease. Landlord may use the
security deposit, or any portion of it, to cure the default or compensate
Landlord for all damages sustained by Landlord resulting from Tenant's default.
Tenant shall immediately on demand pay to Landlord the sum equal to that portion
of the security deposit expended or applied by Landlord which was provided for
in this paragraph so as to maintain the security deposit in the sum initially
deposited with Landlord. Landlord shall not be required to keep the security
deposit separate from its general account nor shall Landlord be required to pay
Tenant any interest on the security deposit. If Tenant performs all of Tenant's
obligations under this Lease, the security deposit or that portion thereof which
has not previously been applied by the Landlord, shall be returned to Tenant
within fourteen (14) days after the expiration of the term of this Lease, or
after Tenant has vacated the Premises, whichever is later.
6. USE.
Tenant shall use the Premises only for WAREHOUSE STORAGE and for no other
-----------------
purpose without the Landlord's prior written consent.
Tenant shall not do, bring or keep anything in or about the Premises that
will cause a cancellation of any insurance covering the Premises or the building
in which the Premises are located. If the rate of any insurance carried by the
Landlord is increased as a result of Tenant's use, Tenant shall pay to Landlord
within ten (10) days after written demand from Landlord, the amount of any such
increase. Tenant shall comply with all laws concerning the Premises or Tenant's
use of the Premises, including without limitation, the obligation at Tenant's
cost to alter, maintain, or restore the Premises in compliance and conformity
with all laws relating to the condition, use, or occupancy of the Premises by
Tenant during the term of this Lease. Tenant shall not use or permit the use of
the Premises in any manner that will tend to create waste or a nuisance or, if
there shall be more than one tenant of the building containing the Premises,
which shall unreasonably disturb any other tenant.
Tenant hereby accepts the Premises in their condition existing as of the
date that Tenant possesses the Premises, subject to all applicable zoning,
municipal, county and state laws, ordinances, regulations governing or
regulating the use of the Premises and accepts this Lease subject thereto and to
all matters disclosed thereby. Tenant hereby acknowledges that neither the
Landlord nor the Landlord's agent has made any representation or warranty to
Tenant as to the suitability of the Premises for the conduct of Tenant's
business.
7. TAXES.
(a) Real Property Taxes.
LANDLORD shall pay all real property taxes and general assessments levied
--------
and assessed against the Premises during the term of this Lease. If it shall
be Tenant's obligation to pay such real property taxes and assessments
hereunder, Landlord shall use its best efforts to cause the Premises to be
separately assessed from other real property owned by the Landlord. If
Landlord is unable to obtain such a separate assessment, the assessor's
evaluation based on the building and other improvements that are a part of
the Premises shall be used to determine the real property taxes. If this
evaluation is not available, the parties shall equitably allocate the
property taxes between the building and other improvements that are a part of
the Premises and all buildings and other improvements included in the tax
bill. In making the allocation, the parties shall reasonably evaluate the
factors to determine the amount of the real property taxes so that the
allocation of the building and other improvements that are a part of the
Premises will not be less than the ratio of the total number of square feet
of the building and other improvements that are a part of the Premises bear
to the total number of square feet in all buildings and other improvements
included in the tax bill.
Real property taxes attributable to land in the Premises shall be
determined by the ratio that the total number of square feet in the Premises
bears to the total number of square feet of land included in the tax bill.
(b) Personal Property Taxes.
Tenant shall pay prior to the delinquency all taxes assessed against and
levied upon the trade fixtures, furnishings, equipment and other personal
property of Tenant contained in the Premises. Tenant shall endeavor to cause
such trade fixtures, furnishings and equipment and all other personal property
to be assessed and billed separately from the property of the Landlord. If any
of Tenant's said personal property shall be assessed with Landlord's property,
Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10)
days after receipt of a written statement from Landlord setting forth the taxes
applicable to Tenants's property.
8. UTILITIES.
Tenant shall make all arrangements and pay for all water, gas, heat, light,
power, telephone and other utility services supplied to the Premises together
with any taxes thereon and for all connection charges. If any such services are
not separately metered to Tenant, the Tenant shall pay a reasonable proportion,
to be determined by Landlord, of all charges jointly metered with other
premises.
9. MAINTENANCE AND REPAIRS.
(a) Landlord's Obligations.
Except as provided in Article 12, and except for damaged caused by any
negligent or intentional act or omission of Tenant, Tenant's agents,
employees, or invitees, Landlord at its sole cost and expense shall keep in
good condition and repair the foundations, exterior walls, and exterior roof
of the Premises. Landlord shall also maintain the unexposed electrical,
plumbing and sewage systems including, without limitation, those portions of
the systems lying outside the Premises; window frames, gutters and down
spouts on the building, all sidewalks, landscaping and other improvements
that are a part of the Premises or of which the Premises are a part. The
Landlord shall also maintain the heating, ventilating and air conditioning
systems servicing the Premises. Landlord shall resurface and restripe the
parking area on or adjacent to the Premises when necessary. Landlord shall
have thirty (30) days after notice from Tenant to commence to perform its
obligations under this Article 9, except that Landlord shall perform its
obligations immediately if the nature of the problem presents a hazard or
emergency situation. If the Landlord does not perform its obligations within
the time limit set forth in this paragraph, Tenant can perform said
obligations and shall have the right to be reimbursed for the amount that
Tenant actually expends in the performance of Landlord's obligations. If
Landlord does not reimburse Tenant within thirty (30) days after demand from
Tenant, Tenant's sole remedy shall be to institute suit against the Landlord,
and Tenant shall not have the right to withhold from future rent the sums
Tenant has expended.
<PAGE>
(b) Tenant's Obligations.
Subject to the provisions of Sub-paragraph (a) above and Article 12,
Tenant at Tenant's sole cost and expense shall keep in good order, condition
and repair the Premises and every part thereof, including, without
limitation, all Tenant's personal property, fixtures, signs, store fronts,
plate glass, show windows, doors, interior walls, interior ceiling, and
lighting facilities.
If Tenant fails to perform Tenant's obligations as stated herein,
Landlord may at its option (but shall not be required to), enter the
Premises, after ten (10) days prior to written notice to Tenant, put the same
in good order, condition and repair, and the costs thereof together with
interest thereon at the rate of ten (10%) percent per annum shall become due
and payable as additional rental to Landlord together with Tenant's next
rental installment.
10. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without the Landlord's prior written consent, make
any alterations, improvements or additions in or about the Premises except
for nonstructural work which does not exceed $1,000.00 in cost. As a
condition to giving any such consent, the Landlord may require the Tenant to
remove any such alterations, improvements, or additions at the expiration of
the term, and to restore the Premises to their prior condition by giving
Tenant thirty (30) days written notice prior to the expiration of the term
that Landlord requires Tenant to remove any such alterations, improvements or
additions that Tenant has made to the Premises. If Landlord so elects, Tenant
at its sole cost shall restore the Premises to the condition designated by
Landlord in its election before the last day of the term of the Lease.
Before commencing any work relating to the alterations, additions, or
improvements affecting the Premises, Tenant shall notify Landlord in writing
of the expected date of the commencement of such work so that Landlord can
post and record the appropriate notices of non-responsibility to protect
Landlord from any mechanic's liens, materialman liens, or any other liens. In
any event, Tenant shall pay, when due, all claims for labor and materials
furnished to or for Tenant at or for use in the Premises. Tenant shall not
permit any mechanic's liens or materialmen's liens to be levied against the
Premises for any labor or material furnished to Tenant or claimed to have
been furnished to Tenant or Tenant's agents or contractors in connection with
work of any character performed or claimed to have been performed on the
Premises by or at the direction of Tenant. Tenant shall have the right to
assess the validity of any such lien if, immediately on demand by Landlord,
Tenant procures and records a lien release bond meeting the requirements of
California Civil Code Section 3143 and shall provide for the payment of any
sum that the claimant may recover on the claim (together with the costs of
suit, if it is recovered in the action).
Unless the Landlord requires their removal as set forth above, all
alterations, improvements or additions which are made on the Premises by the
Tenant shall become the property of the Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding
the provisions of this paragraph, Tenant's trade fixtures, furniture,
equipment and other machinery, other than that which is affixed to the
Premises so that it cannot be removed without material or structural damage
to the Premises, shall remain the property of the Tenant and removed by
Tenant at the expiration of the term of this Lease.
11. INSURANCE; INDEMNITY.
(a) Fire Insurance.
LANDLORD at its cost shall maintain during the term of this Lease
on the Premises a policy or policies of standard fire and extended coverage
insurance to the extent of at least ninety (90%) percent of full replacement
value thereof. Said insurance policies shall be issued in the names of
Landlord and Tenant, as their interests may appear.
Tenant at its cost shall maintain during the term of this Lease on all
its personal property, Tenant's improvements, and alterations in or about the
Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of their full
replacement value. The proceeds from any such policy shall be used by Tenant
for the replacement of personal property or the restoration of Tenant's
improvements or alterations.
(b) Liability Insurance.
Tenant at its sole cost and expense shall maintain during the term of
this Lease public liability and property damage insurance with a single
combined liability limit of five hundred thousand ($500,000.00) dollars, and
property damage limits of not less than one hundred thousand ($100,000.00)
dollars, insuring against all liability of Tenant and its authorized
representatives arising out of and in connection with Tenant's use or
occupancy of the Premises. Both public liability insurance and property
damage insurance shall insure performance by Tenant of the indemnity
provisions in Sub-paragraph (d) below, but the limits of such insurance shall
not, however, limit the liability of Tenant hereunder. Both Landlord and
Tenant shall be named as additional insureds, and the policies shall contain
cross-liability endorsements. If Tenant shall fail to procure and maintain
such insurance the Landlord may, but shall not be required to, procure and
maintain same at the expense of Tenant and the cost thereof, together with
interest thereon at the rate of ten (10%) percent per annum, shall become due
and payable as additional rental to Landlord together with Tenant's next
rental installment.
(c) Waiver of Subrogation.
Tenant and Landlord each waives any and all rights of recovery against
the other, or against the officers, employees, agents, and representatives of
the other, for loss of or damage to such waiving party or its property or the
property of others under its control, where such loss or damage is insured
against under any insurance policy in force at the time of such loss or
damage. Each party shall cause each insurance policy obtained by it
hereunder to provide that the insurance company waives all right of recovery
by way of subrogation against either party in connection with any damage
covered by any such policy.
(d) Hold Harmless.
Tenant shall indemnify and hold Landlord harmless from and against any
and all claims arising from Tenant's use or occupancy of the Premises or from
the conduct of its business or from any activity, work, or things which may
be permitted or suffered by Tenant in or about the Premises including all
damage, costs, attorney's fees, expenses and liabilities incurred in the
defense of any claim or action or proceeding arising therefrom. Except for
Landlord's willful or grossly negligent conduct, Tenant hereby assumes all
risk of damage to property or injury to person in or about the Premises from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord.
(e) Exemption of Landlord from Liability.
Except for Landlord's willful or grossly negligent conduct, Tenant
hereby agrees that Landlord shall not be liable for any injury to Tenant's
business or loss of income therefrom or for damage to the goods, wares,
merchandise, or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Premises; nor shall Landlord be
liable for injury to the person of Tenant, Tenant's employees, agents,
contractors, or invitees, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning, or lighting fixtures, or from any
other cause, whether such damage results from conditions arising upon the
Premises or upon other portions of the building in which the Premises are a
part, or from any other sources or places. Landlord shall not be liable to
Tenant for any damages arising from any act or neglect of any other tenant,
if any, of the building in which the Premises are located.
12. DAMAGE OR DESTRUCTION.
(a) Damage - Insured.
If, during the term of this Lease, the Premises and/or the building
and other improvements in which the Premises are located are totally or
partially destroyed rendering the Premises totally or partially inaccessible
or unusable, and such damage or destruction was caused by a casualty covered
under an insurance policy required to be maintained hereunder, Landlord shall
restore the Premises and/or the building and other improvements in which the
Premises are located into substantially the same condition as they were in
immediately before such damage or destruction, provided that the restoration
can be made under the existing laws and can be completed within one hundred
twenty (120) working days after the date of such destruction or damage. Such
destruction or damage shall not terminate this Lease.
If the restoration cannot be made in said 120 day period, then within
fifteen (15) days after the parties hereto determine that the restoration
cannot be made in the time stated in this paragraph, Tenant may terminate
this Lease immediately by giving notice to Landlord and the Lease will be
deemed cancelled as of the date of such damage or destruction. If Tenant
fails to terminate this Lease and the restoration is permitted under the
existing laws, Landlord, at its option, may terminate this Lease or restore
the Premises and/or any other improvements in which the Premises are located
within a reasonable time and this Lease shall continue in full force and
effect. If the existing laws do not permit the restoration, either party can
terminate this Lease immediately by giving notice to the other party.
Notwithstanding the above, if the Tenant is the insuring party and if
the insurance proceeds received by Landlord are not sufficient to effect such
repair, Landlord shall give notice to Tenant of the amount required in
addition to the insurance proceeds to effect such repair. Tenant may, at
Tenant's option, contribute the required amount, but upon failure to do so
within thirty (30) days following such notice, Landlord's sole remedy shall
be, at Landlord's option and with no liability to Tenant, to cancel and
terminate this Lease. If Tenant shall contribute such amount to Landlord
within said thirty (30) day period, Landlord shall make such repairs as soon
as reasonably possible and this Lease shall continue in full force and
effect. Tenant shall in no event have any right to reimbursement for any
amount so contributed.
(b) Damage - Uninsured.
In the event that the Premises are damaged or destroyed by a casualty
which is not covered by the fire and extended coverage insurance which is
required to be carried by the party designated in Article 11(a) above, then
Landlord shall restore the same; provided that if the damage or destruction
is to an extent greater than ten (10%) percent of the then replacement cost
of the improvements on the Premises (exclusive of Tenant's trade fixtures and
equipment and exclusive of foundations and footings), then Landlord may elect
not to restore and to terminate this Lease. Landlord must give to Tenant
written notice of its intention not to restore within thirty (30) days from
the date of such damage or destruction and, if not given, Landlord shall be
deemed to have elected to restore and in such event shall repair any damage
as soon as reasonably possible. In the event that Landlord elects to give
such notice of Landlord's intention to cancel and terminate this Lease,
Tenant shall have the right, within ten (10) days after receipt of such
notice, to give written notice to Landlord of Tenant's intention to repair
such damage at Tenant's expense, without reimbursement from Landlord, in
which event the Lease shall continue in full force and effect and Tenant
shall proceed to make such repairs as soon as reasonably possible. If the
Tenant does not give such notice within such 10 day period, this Lease shall
be cancelled and be deemed terminated as of the date of the occurrence of
such damage or destruction.
(c) Damage Near the End of the Term.
If the Premises are totally or partially destroyed or damaged during the
last twelve (12) months of the term of this Lease, Landlord may, at
Landlord's option, cancel and terminate this Lease as of the date of the
cause of such damage by given written notice to Tenant of Landlord's election
to do so within 30 days after the date of the occurrence of such damage;
provided, however, that, if the damage or destruction occurs within the last
12 months of the term and if within fifteen (15) days after the date of such
damage or destruction Tenant exercises any option to extend the term provided
herein, Landlord shall restore the Premises if obligated to do so as provided
in subparagraph (a) or (b) above.
(d) Abatement of Rent.
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repairs or restores them pursuant to the provisions of
this Article 12, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Tenant's reasonable use of the Premises is impaired. Except
for the abatement of rent, if any, Tenant shall have no claim against
Landlord for any damages suffered by reason of any such damage, destruction,
repair or restoration.
(e) Trade Fixtures and Equipment.
If Landlord is required or elects to restore the Premises as provided in
this Article, Landlord shall not be required to restore Tenant's
improvements, trade fixtures, equipment or alterations made by Tenant, such
excluded items being the sole responsibility of Tenant to restore hereunder.
(f) Total Destruction - Multitenant Building.
If the Premises are a part of a multitenant building and there is
destruction to the Premises and/or the building of which the Premises are a
part that exceeds fifty (50%) percent of the then replacement value of the
Premises and/or the building in which the Premises are a part from any cause
whether or not covered by the insurance described in Article II above,
Landlord may, at its option, elect to terminate this Lease (whether or not
the Premises are destroyed) so long as Landlord terminates the leases of all
other tenants in the building of which the Premises are a part, effective as
of the date of such damage or destruction.
<PAGE>
13. CONDEMNATION.
If the Premises or any portion thereof are taken by the power of eminent
domain, or sold by Landlord under the threat of exercise of said power (all of
which is herein referred to as "condemnation"), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever occurs first. If more than twenty (20%) percent of the
floor area of any buildings on the Premises, or more than twenty (20%) percent
of the land area of the Premises not covered with buildings, is taken by
condemnation, either Landlord or Tenant may terminate this Lease as of the date
the condemning authority takes possession by notice in writing of such election
within twenty (20) days after Landlord shall have notified Tenant of such taking
or, in the absence of such notice, then within twenty (20) days after the
condemning authority shall have taken possession.
If this Lease is not terminated by either Landlord or Tenant as provided
hereinabove, then it shall remain in full force and effect as to the portion
of the Premises remaining, provided that the rental shall be reduced in
proportion to the floor area of the buildings taken within the Premises as
bears to the total floor area of all buildings located on the Premises. In
the event this Lease is not so terminated, then Landlord agrees at Landlord's
sole cost and expense, to as soon as reasonably possible restore the Premises
to a complete unit of like quality and character as existed prior to the
condemnation.
All awards for the taking of any part of the Premises or any payment made
under the threat of the exercise of the power of eminent domain shall be the
property of the Landlord, whether made as compensation for the diminution of the
value of the leasehold or for the taking of the fee or as severance damages;
provided, however, that Tenant shall be entitled to any award for loss of or
damage to Tenant's trade fixtures and removable personal property.
Each party hereby waives the provisions of Code of Civil Procedure
1265.130 allowing either party to petition the Superior Court to terminate
this Lease in the event of a partial taking of the Premises.
Rent shall be abated or reduced during the period from the date of taking
until the completion of restoration by Landlord, but all other obligations of
Tenant under this Lease shall remain in full force and effect. The abatement or
reduction of the rent shall be based on the extent to which the restoration
interferes with Tenant's use of the Premises.
14. ASSIGNMENT AND SUBLETTING.
Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage, or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises without Landlord's prior written
consent which consent shall not be unreasonably withheld. Any attempted
assignment, transfer, mortgage, encumbrance, or subletting without such consent
shall be void and shall constitute a breach of this Lease. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization of
Tenant, or the sale or other transfer of a controlling percentage of the capital
stock of Tenant, or the sale of at least fifty-one (51%) percent of the value of
the assets of Tenant, shall be deemed a voluntary assignment. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one (51%) percent of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding, and entitled to
vote for the election of directors. This paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
Regardless of Landlord's consent, no subletting or assignment shall release
Tenant of Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder for the term of this Lease. The
acceptance of rent by Landlord from any other person shall not be deemed a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting.
15. DEFAULT
(a) Events of Default.
The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
(1) Failure to pay rent when due, if the failure continues for five
(5) days after written notice has been given to Tenant.
(2) Abandonment and vacation of the Premises (failure to occupy the
Premises for fourteen (14) consecutive days shall be deemed an abandonment and
vacation).
(3) Failure to perform any other provision of this Lease if the
failure to perform is not cured within thirty (30) days after written notice
thereof has been given to Tenant by Landlord. If the default cannot reasonably
be cured within said thirty (30) day period, Tenant shall not be in default
under this Lease if Tenant commences to cure the default within the thirty (30)
day period and diligently prosecutes the same to completion.
(4) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless the same is dismissed
within sixty (60) days; the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in the Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where such seizure is not discharged within thirty (30)
days.
Notices given under this paragraph shall specify the alleged default and
the applicable lease provisions, and shall demand that Tenant perform the
provisions of this Lease of pay the rent that is in arrears as the case may be,
within the applicable period of time. No such notice shall be deemed a
forfeiture or a termination of this Lease unless Landlord so elects in the
notice.
(b) Landlord's Remedies.
The Landlord shall have the following remedies if Tenant commits a default
under this Lease. These remedies are not exclusive but are cumulative and in
addition to any remedies now or hereafter allowed by law.
Landlord can continue this Lease in full force and effect, and the Lease
will continue in effect so long as Landlord does not terminate Tenant's right to
possession, and the Landlord shall have the right to collect rent when due.
During the period that Tenant is in default, Landlord can enter the Premises and
relet them, or any part of them, to third parties for Tenant's account. Tenant
shall be liable immediately to the Landlord for all costs the Landlord incurs in
reletting the Premises, including, without limitation, brokers' commissions,
expenses of remodeling the Premises required by the reletting, and like costs.
Reletting can be for a period shorter or longer than the remaining term of this
Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates
the rent is due, less the rent Landlord receives from any reletting. No act by
Landlord allowed by this paragraph shall terminate this Lease unless Landlord
notifies Tenant that Landlord elects to terminate this Lease. After Tenant's
default and for so long as Landlord has not terminated Tenant's right to
possession of the Premises, if Tenant obtains Landlord's consent, Tenant shall
have the right to assume or sublet its interest in the Lease, but Tenant shall
not be released from liability. Landlord's consent to the proposed assignment
or subletting shall not be unreasonably withheld.
If Landlord elects to relet the Premises as provided in this paragraph,
any rent that Landlord receives from such reletting shall apply first to the
payment of any indebtedness from Tenant to Landlord other than the rent due
from Tenant to Landlord; secondly, to all costs, including maintenance,
incurred by Landlord in such reletting; and third, to any rent due and unpaid
under this Lease. After deducting the payments referred to in this paragraph,
any sum remaining from the rent Landlord receives from such reletting shall
be held by Landlord and applied in payment of future rent as rent becomes due
under this Lease. In no event shall tenant be entitled to any excess rent
received by Landlord. If, on the date rent is due under this Lease, the rent
received from the reletting is less than the rent due on that date, Tenant
shall pay to Landlord, in addition to the remaining rent due, all costs,
including maintenance, that Landlord shall have incurred in reletting that
remain after applying the rent received from the reletting as provided in
this paragraph.
Landlord can, at its option, terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving written notice to
Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest in this Lease shall not constitute a termination of Tenant's
right to possession. In the event of such termination, Landlord has the right
to recover from Tenant:
(1) The worth, at the time of the award, of the unpaid rent that had been
earned at the time of the termination of this Lease;
(2) The worth, at the time of the award, of the amount by which the unpaid
rent that would have been earned after the date of the termination of this Lease
until the time of the award exceeds the amount of the loss of rent that Tenant
proves could have been reasonably avoided;
(3) The worth, at the time of the award, of the amount by which the unpaid
rent for the balance of the term after the time of the award exceeds the amount
of the loss of rent that Tenant proves could have been reasonably avoided; and
(4) Any other amount, including court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth at the time of the award," as used in (1) and (2) of this
paragraph is to be computed by allowing interest at the maximum rate an
individual is permitted by law to charge. "The worth at the time of the award"
as referred to in (3) of this paragraph is to be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one (1%) percent.
If Tenant is in default under the terms of this Lease, Landlord shall have
the additional right to have a receiver appointed to collect rent and conduct
Tenant's business. Neither the filing of a petition for the appointment of a
receiver nor the appointment itself shall constitute an election by Landlord to
terminate this Lease.
Landlord at any time after Tenant commits a default, can cure the default
at Tenant's cost and expense. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord at the
time the sum is paid, and if paid at a later date shall bear interest at the
maximum rate an individual is permitted by law to charge from the date the sum
is paid by Landlord until Landlord is reimbursed by Tenant. The sum, together
with interest thereon, shall be considered additional rent.
16. SIGNS.
Tenant shall not have the right to place, construct or maintain any sign,
advertisement, awning, banner, or other exterior decorations on the building or
other improvements that are a part of the Premises without Landlord's prior,
written consent, which consent shall not be unreasonably withheld.
17. EARLY POSSESSION.
In the event that the Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term of this Lease, such occupancy shall
be subject to all the provisions of this Lease. Said early possession shall not
advance the termination date of this Lease.
18. SUBORDINATION.
This Lease, at Landlord's option, shall be subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewal,
modifications, and extensions thereof. Notwithstanding any such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all the other provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee, or
ground lessor shall elect to have this Lease prior to the lien of its mortgage
or deed of trust or ground lease, and shall give written notice thereof to
Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease is dated prior to or subsequent to the date
of such mortgage, deed of trust or ground lease, or the date of recording
thereof. Tenant agrees to execute any documents required to effect such
subordination or to make this Lease prior to the lien of any mortgage, deed
of trust, or ground lease, as the case may be, and failing to do so within
ten (10) days after written demand from Landlord does hereby make, constitute
and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's
name, place and stead to do so.
19. SURRENDER.
On the last day of the term hereof, or on any sooner termination, Tenant
shall surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear accepted. Tenant shall repair any damage to the Premises
occasioned by its use thereof, or by the removal of Tenant's trade fixtures,
furnishings and equipment which repair shall include the patching and filling of
holes and repair of structural damage. Tenant shall remove all of its personal
property and fixtures on the Premises prior to the expiration of the term of
this Lease and if required by Landlord pursuant to Article 10(a) above, any
alterations, improvements or additions made by Tenant to the Premises. If
Tenant fails to surrender the Premises to Landlord on the expiration of the
Lease as required by this paragraph, Tenant shall hold Landlord harmless from
all damages resulting from Tenant's failure to vacate the Premises, including,
without limitation, claims made by any succeeding tenant resulting from Tenant's
failure to surrender the Premises.
<PAGE>
20. HOLDING OVER.
If the Tenant, with the Landlord's consent, remains in possession of the
Premises after the expiration or termination of the term of this Lease, such
possession by Tenant shall be deemed to be a tenancy from month-to-month at a
rental in the amount of the last monthly rental plus all other charges payable
hereunder, upon all the provisions of this Lease applicable to month-to-month
tenancy.
21. BINDING ON SUCCESSORS AND ASSIGNS.
The terms, conditions and covenants of this Lease shall be binding upon and
shall inure to the benefit of each of the parties hereto, their heirs, personal
representatives, successors and assigns.
22. NOTICES.
Whenever under this Lease a provision is made for any demand, notice or
declaration of any kind, it shall be in writing and served either personally or
sent by registered or certified United States mail, postage prepaid, addressed
at the addresses as set forth below:
TO LANDLORD AT: 4 AUTRY
--------------------------------
IRVINE, CA 92718
--------------------------------
TO TENANT AT: AVIATION DISTRIBUTORS, INC.
--------------------------------
1 WRIGLEY
--------------------------------
IRVINE, CA 92718
--------------------------------
Such notice shall be deemed to be received within forty-eight (48) hours
from the time of mailing, if mailed as provided for in this paragraph.
23. LANDLORD'S RIGHT TO INSPECTIONS.
Landlord and Landlord's agent shall have the right to enter the Premises at
reasonable times for the purpose of inspecting same, showing the same to
prospective purchasers or lenders, and making such alterations, repairs,
improvements or additions to the Premises or to the building of which the
Premises are a part as Landlord may deem necessary or desirable. Landlord may
at any time place on or about the Premises any ordinary "For Sale" signs and
Landlord may at any time during the last one hundred twenty (120) days of the
term of this Lease place on or about the Premises any ordinary "For Sale or
Lease" signs, all without rebate of rent or liability to Tenant.
24. CHOICE OF LAW.
This Lease shall be governed by the laws of the state where the Premises
are located.
25. ATTORNEY'S FEES.
If either Landlord or Tenant becomes a party to any litigation or
arbitration concerning this Lease, the Premises, or the building or other
improvements in which the Premises are located, by reason of any act or omission
of the other party or its authorized representatives, and not by reason of any
act or omission of the party that becomes a party to that litigation or any act
or omission of its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to that party for
reasonable attorney's fees and court costs incurred by it in the litigation.
If either party commences an action against the other party arising out
of or in connection with this Lease, the prevailing party shall be entitled
to have and recover from the losing party reasonable attorney's fees and
costs of suit.
26. LANDLORD'S LIABILITY.
The term "Landlord" as used in this Lease shall mean only the owner or
owners at the time in question of the fee title or a Lessee's interest in a
ground lease of the Premises, and in the event of any transfer of such title
or interest, Landlord herein named (and in case of any subsequent transfers to
the then successor) shall be relieved from and after the date of such transfer
of all liability in respect to Landlord's obligations thereafter to be
performed. The obligations contained in this Lease to be performed by Landlord
shall be binding upon the Landlord's successors and assigns, only during their
respective periods of ownership.
27. WAIVERS.
No waiver by Landlord of any provision hereof shall be deemed a waiver of
any other provision hereof or of any subsequent breach by Tenant of the same or
any other provision. Landlord's consent to or approval of any act shall not be
deemed to render unnecessary the obtaining of Landlord's consent to or approval
of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord
shall not be a waiver of any preceding breach by Tenant of any provision hereof,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of its
acceptance of such rent.
28. INCORPORATION OF PRIOR AGREEMENTS.
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified only in writing, and
signed by the parties in interest at the time of such modification.
29. TIME.
Time is of the essence of this Lease.
30. SEVERABILITY.
The unenforceability, invalidity, or illegality of any provision of this
Lease shall not render the other provisions hereof unenforceable, invalid or
illegal.
31. ESTOPPEL CERTIFICATES.
Each party, within ten (10) days after notice from the other party, shall
execute and deliver to the other party a certificate stating that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. The certificate shall also state the
amount of minimum monthly rent, the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid rent, if any, as
well as acknowledging that there are not, to that party's knowledge, any uncured
defaults on the part of the other party, or specifying such defaults, if any,
which are claimed. Failure to deliver such a certificate within the ten (10)
day period shall be conclusive upon the party failing to deliver the certificate
to the benefit of the party requesting the certificate that this Lease is in
full force and effect, that there are no uncured defaults hereunder, and has not
been modified except as may be represented by the party requesting the
certificate.
32. COVENANTS AND CONDITIONS.
Each provision of this Lease performable by Tenant shall be deemed both a
covenant and a condition.
33. SINGULAR AND PLURAL.
When required by the context of this Lease, the singular shall include the
plural.
34. JOINT AND SEVERAL OBLIGATIONS.
"Party" shall mean Landlord and Tenant; and if more than one person or
entity is the Landlord or Tenant, the obligations imposed on that party
shall be joint and several.
35. OPTION TO EXTEND.
Provided that Tenant shall not then be in default hereunder, Tenant
shall have the option to extend the term of this Lease for _________________
additional ________ year periods upon the same terms and conditions herein
contained, except for fixed minimum monthly rentals, upon delivery by Tenant
to Landlord of written notice of its election to exercise such option(s) at
least ninety (90) days prior to the expiration of the original (or extended)
term hereof. The parties hereto shall have thirty (30) days after the
Landlord receives the option notice in which to agree on the minimum monthly
rental during the extended term(s). If the parties agree on the minimum
monthly rent for the extended term(s) during the period, they shall
immediately execute an amendment to this Lease stating the minimum monthly
rent. In the event that there is more than one option to extend the term of
this Lease, the parties hereto shall negotiate the minimum monthly rent as
set forth herein for each extended term of this Lease. If the parties hereto
are unable to agree on the minimum monthly rent for the extended term(s)
within said thirty (30) day period, the option notice shall be of no effect
and this Lease shall expire at the end of the term. Neither party to this
Lease shall have the right to have a court or other third party set the
minimum monthly rent.
36. ADDENDUM.
Any addendum attached hereto and either signed or initialled by the parties
shall be deemed a part hereof and shall supersede any conflicting terms or
provisions contained in this Lease.
EXHIBIT A TO BECOME A PART OF THIS LEASE. AVIATION DISTRIBUTION TO HAVE
USE OF 4 PARKING SPACES AS MARKED.
EXHIBIT B TO BECOME A PART OF THIS LEASE. DRAWING SHOWING SQUARE FOOTAGE.
The parties hereto have executed this Lease on the date first above
written.
LANDLORD: TENANT:
By: /s/ Francis De Leone Owner By: /s/ CEO
---------------------------------- -----------------------------------
By: By:
---------------------------------- -----------------------------------
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
[FLOORPLAN]
<PAGE>
DATED 1995
--------------------------------------------
IAN AND ROBERT BURTON LIMITED
-to-
AVIATION DISTRIBUTORS (EUROPE) LIMITED
COUNTERPART/
LEASE
-of-
Top Floor Premises
6 Market Street
Sleaford
Lincolnshire
Term Commences 1996
For Years 1
Term Ends 1997
Initial Rent L6000.00 pa
Andrew & Co
Lincoln
CMAW
<PAGE>
T H I S L E A S E is made 1995
B E T W E E N IAN and ROBERT BURTON LIMITED having its registered office at
Burton Lodge 140 Westcliffe Road Ruskington Sleaford Lincolnshire NG3 9AZ
(hereinafter called "the Landlord") of the one part and AVIATION DISTRIBUTORS
(EUROPE) LIMITED of 6 Market Street Sleaford Lincolnshire (hereinafter called
"the Tenant") of the other part
W H E R E A S :
(1) The Landlord is the owner of the freehold property known as 6 Market
Street Sleaford Lincolnshire (hereinafter called "the Property") which
said Property is intended to be or has been divided into several units
(2) It is intended that the costs of maintaining certain common parts of
the Property and of insuring the Building and of reimbursing the same
to the Landlord by way of service charge shall be shared by the
tenants of the Building in the proportions hereinafter provided
(hereinafter called "the appropriate proportion")
W I T N E S S E T H as follows:-
1. DEFINITIONS
In this Lease where the context so admits the following expressions shall have
the meanings hereinafter mentioned (that is to say):
(a) "the Landlord" shall include the person for the time being entitled to
the reversion immediately expectant on the determination of the term
hereby granted
(b) "the Tenant" shall include its successors in title and in the case of
an individual shall include his personal
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representatives
(c) "the Term" means the term of years hereby granted together with any
continuation thereof (whether under an Act of Parliament or by the
Tenant holding over or for any other reason) but for the avoidance of
doubt for the purposes of Section 25 of the landlord and Tenant Act
1954 it is hereby specifically agreed that the term of years hereby
granted shall determine on 1997
(d) "these presents" means this Lease and any document which is
supplemental hereto or which is expressed to be collateral herewith or
which is entered into pursuant to or in accordance with the terms
hereof
(e) "the Conduits" shall mean all ducts gutters flues tanks radiators
water gas electricity and telephone supply pipes wires and cables
optic fibres sewers culverts channels and drains water meters and any
other pipes wires cables and other mediums for the passage or
transmission of water soil gas air smoke electricity light
information or other matter and all ancillary equipment serving the
Building other than those belonging to the relevant supply authorities
(f) "the Property" shall mean all that piece or parcel of land together
with the buildings erected thereon and known as 6 Market Street
Sleaford Lincolnshire shown edged in blue on the plan annexed hereto
("the Plan")
(g) "the Building" shall mean the building shown edged red on the Plan
2
<PAGE>
[MAP]
<PAGE>
(h) "the demised premises" shall mean all that part of the Building
situated on the Top Floor and shall include where the context so
admits for the purposes of obligation as well as grant
(i) the inner surface of and the decorative finishes applied to
the interior surface of external walls and any internal
load-bearing walls of the Building but not any other part of
such walls
(ii) the finishes applied to the floors including chipboard
decking floor boarding and timber battens and other
materials which are not of a structural nature but in any
event so that the lower limit of the demised premises
includes such finishes but shall not extend below them and
shall not include the structural parts or load bearing
members of the floor
(iii) the suspended ceilings (if any) and the paint or other
decorative finishes applied to the underside of the ceilings
including the void between the suspended ceilings (if any)
and the underside of the floor above so that the upper limit
of the demised premises shall include the suspended ceilings
and the void above but shall not extend above them and shall
not include any part of the roof of the Building or the
structural supports of the roof and no air space above the
Building
3
<PAGE>
(iv) the inner half severed medially of the internal non-load
bearing walls dividing the demised premises from the
adjoining premises
(v) all Conduits wholly in or on the demised premises
exclusively serving the same up to the point of connection
with the common or public system
(vi) all heating ventilating and air conditioning installations
therein
(vii) all sprinkler systems and all fire fighting equipment and
hoses therein
(viii) all sanitary and water apparatus and equipment therein
(ix) all floor covering provided at the expense of
the Landlord
(x) all locks fastenings and other additions thereto and
fixtures and fittings therein which are the Landlord's
fixtures and fittings
(xi) the windows and window frames and doors and door frames
(xii) all additions alterations and improvements to the demised
premises made at any time
(i) "the insured risks" means such of the following risks as may from time
to time be included in the policy of insurance effected under the
terms of these presents namely risks in respect of loss or damage by
fire explosion aircraft (other than hostile aircraft) and other aerial
devices or articles dropped therefrom
4
<PAGE>
earthquake riot and civil commotion and malicious damage storm or
tempest bursting or overflowing of water tanks apparatus or pipes
flood impact by road vehicles Architects' Surveyor's and other
professional fees and property owner's liability and such other risks
or insurance as may from time to time be deemed appropriate by the
Landlord
(j) "full cost of reinstatement" means the costs which would be likely to
be incurred (including fees) in reinstating the demised premises at
the time when such reinstatement is likely to take place having
regard to any expected increases in building costs during any
period of insurance and pending and during the period of
reinstatement and also a suitable provision for inflation cover and
the cost of site clearance with Architects' Surveyor's and other
professional fees and incidental expenses with Value Added Tax
thereon in each case including fees payable in respect of any
necessary planning permission or building regulation consent
consequent upon rebuilding or reinstatement of the demised premises
and one years loss of rent in respect of the demised premises (or
such longer period as the Landlord may reasonably require having
regard to the longest likely period required for reinstatement)
(k) "the Services" shall mean the services set out in the First Schedule
hereto
(l) "the Service Charge" shall mean such percentage of the total expenses
and outgoings incurred by the
5
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Landlord in
(a) providing the Services and
(b) making such provision (if any) for anticipated expenditure in
respect of the future provision of the Services as the
Landlord shall in its absolute discretion consider appropriate
as shall be reasonably determined by the Landlord from time
to time as being a fair and equitable contribution by the
Tenant
(m) "the Common Parts" shall mean all the entrance halls doors
passages conduits and windows in the Building but excluding any of
the Building demised to a Tenant
(n) "the Retained Parts" shall mean the Property together with the
Building other than the demised premises including (but without
prejudice to the generality of the foregoing):
(a) the Common Parts
(b) the Yard and Parking Area shown hatched yellow on the Plan
No. 1
(c) all Conduits on or serving the Property
(d) all parts of the Building including (again without prejudice
to the generality of the foregoing) the walls floors
foundations and roofs
(e) the entirety of all load bearing walls pillars columns and
structures of the Building (but excluding the paint paper and
other decorative finishes applied to the faces of the same)
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<PAGE>
(f) the boundary walls and fences of the Property
BUT EXCLUDING
(g) all Conduits and parts of the Building included within the
demised premises
(h) all Conduits and parts of the Building that would be included
in the premises demised by the leases of all other parts of
the Building if let upon the same terms as this Lease
(o) "Landlord's Surveyor" shall mean any person or firm appointed by
the Landlord (including an employee of the Landlord and including
also the person or firm appointed by the Landlord to collect the
rents) to perform any of the functions of the Landlord's Surveyor
under this Lease
(p) "the Planning Acts" means the Town and Country Planning Acts
1971 to 1990 and the Public Health Acts 1875 to 1969 and any future
legislation of a similar nature
2. INTERPRETATION
(a) Any reference to an Act of Parliament (including the Planning Acts)
shall include reference to any modification extension or
re-enactment thereof for the time being in force replacing or
supplementing such statute and shall also include all instruments
permissions plans regulations agreements directions orders or
consents made issued or given thereunder or deriving validity
therefrom
(b) All rights of entry exerciseable by the Landlord shall extend to
include all persons authorised by the Landlord
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<PAGE>
with or without workmen plant and materials
(c) Any covenant by the Tenant not to do or omit any act or thing shall
be deemed to extend to an obligation not to permit cause
or suffer any third party to do or omit the same and any positive
covenant shall be deemed to include a covenant to procure that the
same is performed
(d) Any indemnity in favour of the Landlord shall be deemed to be an
obligation to indemnify and keep indemnified the Landlord and any
Mortgagee from and against liability in respect of all actions
proceedings damages penalties costs expenses claims and demands of
whatsoever nature and in respect of any injury to or the death of
any person or damage to any property movable or immovable or in
respect of the infringement disturbance or destruction of any
right easement or privilege or otherwise
(e) Words importing the singular number shall be deemed to
include the plural number and vice versa and reference to the
"demised premises" shall include each and every part thereof
(f) Words importing the masculine gender shall be deemed to
include the feminine gender and vice versa
(g) Where there are two or more persons included in the
expression "the Tenant covenants contained in these presents which
are expressed to be made by the Tenant respectively shall be
deemed to be made by such persons jointly and severally
8
<PAGE>
3. (1) IN consideration of the rent and the Tenant's covenants hereinafter
reserved and contained the Landlord hereby demises unto the Tenant ALL THAT the
demised premises TOGETHER WITH the Landlord's fixtures and fittings therein AND
TOGETHER WITH (in common with the Landlord and all others having the like
right):
(i) (a) the right to pass and repass with vehicles over the Yard and Parking
Area hatched yellow on Plan No 1 attached for the purpose of loading and
unloading only
(b) the right to pass and repass on foot only over the said Yard and Parking
Area as a means of fire escape only from the demised premises
(c) the right to park one motor vehicle in the said Yard and Parking Area in
such position as shall be agreed upon by the parties hereto from time to time
(ii) the right of ingress to and egress from the demised premises (without
causing any obstruction hereto) in over and along the Common Parts where
applicable
(iii) such rights easements privileges of or in the nature of support and
protection from the elements for the demised premises or any part thereof as are
now enjoyed by the same or as are necessary to ensure for the Tenant the right
to enjoy such facilities and benefits of or in the nature of support and
protection from the elements for the demised premises or any part hereof as have
hitherto been enjoyed or capable of being enjoyed over or in respect of any
other part of the Building forming part of the Building by reason of the said
Building having been held under a common title
9
<PAGE>
(iv) the right of free and uninterrupted passage and running of gas and
electricity water soil and fumes to and from the demised premises or any part
thereof through or from all pipes tanks wires drains conduits gulleys flues and
chimneys which are now or may at any time hereafter be under or passing through
any part of the Building or the Landlord's other adjoining premises EXCEPTING
AND RESERVING unto the Landlord its tenants and licensees and all other persons
for the time being entitled thereto
(i) such rights easements and privileges of or in the nature of support
and protection from the elements for all parts of the Building as are now
enjoyed by the same or as are necessary to ensure for the tenants of the
remainder of the Building the right to enjoy such facilities and benefits of or
in the nature of support and protection from the elements for their property or
any part or parts thereof as have hitherto been enjoyed or are capable of being
enjoyed over or in respect of the demised premises by reason of the Building
having been held under a common title
(ii) the right of free and uninterrupted passage and running of gas
electricity soil and fumes to and from other parts of the Building and/or the
Property or any parts thereof through or from pipes tanks wires drains conduits
gulleys flues and chimneys which are now or may at any time hereafter be in
under or passing through any part of the demised premises
(iii) full right and liberty at all times hereafter and from time to time to
execute works and erections upon or to alter or rebuild any part of the Building
or the Landlord's other
10
<PAGE>
adjoining premises and to use the same and the buildings now or hereafter
erected thereon in such manner as the Landlord shall think fit notwithstanding
that the access of light and air to the demised premises may thereby be
interfered with
(iv) all rights of light and air now enjoyed by the remainder of the
Building and the Landlord's adjoining premises or any part thereof over the
demised premises or any part thereof
(v) the right to construct and to maintain in on through under or over the
demised premises at any time during the term any conduits for the provision of
services or supplies to other parts of the Building and or the Property provided
always that the Landlord shall cause as little inconvenience as possible and
make good all damage thereby caused
(vi) the right to erect scaffolding for the purposes of inspecting
repairing and cleaning the Building notwithstanding such scaffolding may
temporarily restrict the access to or use and enjoyment of the demised
premises
TO HOLD unto the Tenant subject to the provisions of the documents particulars
whereof appear in the Second Schedule hereto from 1996 for the term of
one year YIELDING AND PAYING:
(a) during the said term the clear yearly rent of six thousand pounds
(L6,000.00) per annum by equal quarterly payments in advance on 25 March
24 June 29 September and 25 December in every year without deduction and
(b) by way of additional rent on the quarterly rent day next ensuing after
the expenditure thereof the appropriate
11
<PAGE>
proportion of the cost incurred by the Landlord in insuring the Building and the
Landlords fixtures and fittings together with the whole of the premiums payable
by the Landlord in respect of the loss of rent insurance relating to the demised
premises in accordance with the provisions of this Lease (the amount of such
proportion to be determined by the Landlord and its decision to be final)
(c) by way of further rent 10% of the Service Charge payable and
calculated in accordance with the First Schedule hereto
(d) by way of further rent two thirds of such sum as the Landlord may be
invoiced in respect of electricity supply to the first and second floors of the
building
(e) by way of further rent 10% of such sum as the Landlord may be invoiced
in respect of the water and sewage charges in respect of the building
4. THE TENANT HEREBY COVENANTS with the Landlord in manner following that
is to say:
(1) (a) to pay the rent additional rent and Service Charge and other
payments hereby reserved at the times and in manner aforesaid without any
deduction whatsoever
(b) if the Tenant shall fail to pay any such rent due punctually
on the rent days hereinbefore specified or within 14 days thereafter then the
Tenant shall pay to the Landlord interest thereon at the rate of four per centum
per annum above National Westminster Bank Plc base rate in force at the relevant
rent day from the relevant rent day until the date of actual payment
(2) (i) (a) to put and keep and maintain the
12
<PAGE>
interior of the demised premises and the appurtenances thereof including the
doors windows and other glass fixtures fittings fastenings wires waste water
drains and other pipes and sanitary and water apparatus therein in good and
tenantable repair decoration and condition throughout the Term
(b) to put keep and maintain the plaster and finishes
applied to the exterior of the structure enclosing the demised premises in good
and substantial repair decoration and condition throughout the Term
(ii) to permit the Landlord and the other tenants of the Building
or any of them and their respective agents or surveyors with or without workmen
and others at all reasonable times on prior appointment with the Tenant to enter
into and upon the demised premises or any part thereof for the purpose of:-
(a) viewing and examining the state and condition thereof for
the purposes of the covenants and provisions herein contained OR
(b) repairing any other part of the Building or the Landlord's
other adjoining premises and for the purpose of making repairing inspecting
cleansing renewing and testing all pipes drains wires conduits and flues serving
any such other part or parts and for similar purposes so however that the works
repairs inspections and cleansing shall be carried out with all despatch causing
as little disturbance as possible to the demised premises and the business of
the tenant and that the person or persons exercising the rights hereby conferred
shall forthwith make good all damage done to the demised premises in carrying
out the same and to all decorations fixtures and
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moveable chattels therein
(iii) not to suffer or permit anything upon the demised premises
which would or might lessen the support or protection from the elements thereby
given to other parts of the Building or the Landlord's other adjoining premises
(iv) not to do or permit to be done any act or thing which may
render void or voidable any policy of insurance on the Building and/or the
Landlord's other adjoining premises or any part thereof or cause any increased
premium to be payable in respect thereof
(3) In a proper and workmanlike manner and to the reasonable satisfaction
in all respects of the Landlord to decorate or paint the wood metal and other
parts of the demised premises (including the window frames) heretofore or
usually so decorated or painted with appropriate materials of good quality as to
the interior in the last six months of the Term (however the Lease may be
determined) PROVIDED ALWAYS that any painting or decorating to be carried out
shall be carried out in colours tints and patterns first approved in writing by
the Landlord
(4) To pay or indemnify the Landlord against all rates taxes charges
assessments impositions and outgoings whatsoever now or hereafter to be taxed
charged or assessed upon the demised premises or upon the owner or occupier in
respect thereof (Income Tax in respect of rent excepted)
(5) To pay to the suppliers thereof all charges for gas and telephone
consumed in the demised premises during the
(6) To replace such of the Landlord's fixtures and fittings (if any) as
may become worn out lost or unfit for use by
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substituting others of a like nature and equal value as at the commencement of
the tenancy
(7) To pay to the Landlord on demand all reasonable and proper costs
charges and expenses (including Solicitors' Surveyors' and other professional
fees) incurred by the Landlord for the purpose of or incidental to:
(a) the preparation and service of any notice under Sections 146
and 147 of the Law of Property Act 1925 notwithstanding that forfeiture may be
avoided otherwise than by relief granted by the Court
(b) any licence consent or approval applied for by the Tenant in
connection with the demised property or the provisions of this Lease whether or
not the same shall be granted or proceeded with
(c) the preparation and service at any time during or after the
termination of the term hereby granted of a Schedule of Dilapidations
(d) the recovery or attempted recovery of arrears of rent or
other sums due from the Tenant
(8) To permit the Landlord or its duly authorised agent with or without
workmen and others at all reasonable times upon at least 24 hours prior written
appointment except in cases of emergency with the Tenant to enter upon the
demised premises to view the condition thereof and of the fixtures and fittings
(if any) therein and to take inventories of such fixtures and fittings and to
execute repairs on any part of the Building of which they form part the Landlord
in the last mentioned case causing as little damage and inconvenience as
possible and making
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good forthwith any damage thereby caused to the demised premises and to execute
any of the rights granted to the Landlord elsewhere in this Lease
(9) If the Landlord shall serve upon the Tenant notice in writing
specifying any repairs necessary to be done and requiring the Tenant to execute
the same and if the Tenant shall not within 1 month after the service of such
notice (or immediately in cases of emergency) proceed diligently with the
execution of such repairs then to permit the Landlord to enter upon the demised
premises and execute such repairs and the cost thereof shall be a debt due from
the Tenant to the Landlord and shall be forthwith recoverable by action by way
of additional rent
(10) To clear and make good every stoppage of and all damage to the drains
caused by the negligence of the Tenant its servants customers and others and to
repay to the Landlord on demand all reasonable and proper costs incurred by the
Landlord in cleaning and making good any such stoppage or damage
(11) Not to use or permit the demised premises to be used for any purpose
other than offices or for such other use as the Landlord shall consent to in
writing
(12) Not without the previous consent in writing of the Landlord (which
shall not be unreasonably withheld) to affix or exhibit or to suffer or permit
to be affixed or exhibited to or upon any part of the demised premises or any
part of the Building (including the windows thereof) any placard poster signpost
illuminated sign or other advertisement
(13) Not to permit any sale by auction or public exhibition or public show
or political meetings to take place on the demised
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premises and not to suffer or knowingly permit the acquisition of any public or
private right or easement over the demised premises or any part of the Property
(14) (a) not to assign underlet agree to underlet share or part with
the possession of the demised premises or any part thereof Provided
Always that if the Tenant shall at any time during the term desire to
assign the demised premises as a whole and shall procure:
(i) that any intended assignee shall covenant direct
with the Landlord that during the residue of the term then subsisting
the said assignee will pay the rent reserved by and will observe and
perform the covenants and conditions contained in these presents and
if the intended assignee shall be a limited liability company then the
directors of the same shall if the Landlord so requires act as
guarantors for such company and shall (inter alia) jointly and
severally covenant with the Landlord that the said company will during
the residue of the term then subsisting pay the rent for the time
being hereinbefore reserved and perform and observe the covenants on
the part of the Tenant contained in these presents and will indemnify
and keep the Landlord indemnified from and against all actions
proceedings costs claims and demands arising by reason of any default
of the said company and such covenant shall also provide that any
neglect or forbearance of the Landlord shall not release or exonerate
the guarantors and shall further
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provide that should the said company go into liquidation and the
liquidator disclaim these presents or if the said company should
be wound up or cease to exist then the guarantors will should the
Landlord so require accept a new lease of the demised premises
such new lease to commence as from the date of such disclaimer
and to be for the residue then unexpired of the term and to be at
the rent then payable (such rent to commence as from the date of
such disclaimer and such Lease to be subject to the same tenant's
covenants and to the said provisos and conditions as those in
force immediately before such disclaimer) and to be granted at
the cost in all respects of the guarantors in exchange for a
Counterpart duly executed by the guarantors and
(ii) that any intended assignee shall covenant with the
Landlord in the same terms as are contained in this clause 4(13)
and to pay all reasonable Solicitors' and Surveyors' fees and
other costs incurred by the Landlord in connection with such
consent and
(iii) that in any such assignment the assignee shall
covenant to produce for registration at the office of the
Landlord or as the Landlord may from time to time direct a
certified copy of every assignment as hereinafter mentioned and
to pay the registration fees in respect thereof as hereinafter
provided THEN (but in such case only) the Tenant shall
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subject to the prior written consent of the Landlord which shall
not be unreasonably withheld or delayed be permitted to assign
the demised premises as a whole
(b) Within 21 days after the date of any assignment of these presents
or of the execution of any mortgage or charge affecting these presents or
of the execution of any mortgage or charge affecting these presents as
aforesaid or any transfer of any such mortgage or charge or any devolution
of the term granted by these presents as aforesaid by will intestacy assent
or operation of law to give written note to the Landlord's Solicitors (or as
the Landlord may from time to time direct) of such assignment mortgage
charge transfer of mortgage or charge or devolution as aforesaid and to pay
or cause to be paid to the Landlord's Solicitors or as the Landlord may from
time to time direct a fee of Twenty Five pounds (L25) (or such increased
fee as such Solicitors shall then consider reasonable having regard to the
fall in monetary values since the date of these presents) for the
registration thereof
(15) Not to give any debenture bill of sale or preferential security over
or affecting any of the Tenant's goods or effects on the demised premises to
any person or persons without the previous written consent of the Landlord
(16) Upon the receipt of any notice order direction or other thing from any
competent authority affecting or likely to affect the demised premises
whether the same shall be served directly on the Tenant or the original or
a copy thereof be received from any underlessee or other person whatsoever
the Tenant will so far as such notice order direction or other thing or the
Act regulations
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or other instrument under or by virtue of which it is issued or the
provision hereof require it so to do comply therewith at its own expense
and will forthwith deliver to the Landlord a copy of such notice order
direction or other thing
(17) in relation to the Planning Acts
(A) at all times during the term to comply where appropriate and
subject as hereinafter mentioned but otherwise in all respects with
the provisions and requirements of the Planning Acts and all licences
consents permissions and conditions (if any) granted or imposed
thereunder (whether granted before or after the date hereof or under
any enactments repealed thereby so far as the same respectively relate
to or affect the demised premises or any part thereof or any
operations works acts or things already or hereafter to be carried out
executed done or omitted thereon or the use thereof for any purpose)
(B) not without the previous consent in writing of the Landlord
(which shall not be unreasonably withheld or delayed) to apply for or
permit or suffer or request any person or persons or corporate body to
apply for any Planning Permission relating to the demised premises or
to any part thereof or to the use thereof or of any part thereof and
in the event of the Landlord attaching any reasonable and proper
conditions to such consent as aforesaid shall not apply for nor permit
or suffer or request any person or persons or corporate body to apply
for any Planning Permission save in accordance with
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the said conditions.
(C) subject to the last preceding sub-clause during the said term so
often as occasion shall require at the expense in all respects of the
Tenant to obtain from (as the case may be) the local Planning
Authority or the Department of the Environment or other the proper
authority for the time being all such licenses consents and
permissions (if any) as may be required for the carrying out by the
Tenant of any operations on the demised premises or the institution or
continuance by the Tenant thereon of any use thereof which may
constitute development within the meaning of the Planning Acts (but
without prejudice to any provisions herein contained requiring the
consent of the Landlord in respect of the same).
(D) if and when called upon to do so to produce to the Landlord or
its Surveyor all plans documents and other evidence as the Landlord
may reasonably require in order to satisfy itself that the provisions
of this covenant have been complied with in all respects.
(E) (i) to deliver to the Landlord within 14 days of the receipt
thereof by the Tenant a copy of every notice order or proposal
affecting or likely to affect the demised premises from any
authority or person whomsoever
(ii) at the request of the Landlord to make or join with the
landlord at the
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Landlord's cost in making such objections or representations
against or in respect of any such notice order or proposal as the
Landlord shall reasonably deem expedient
(iii) in the event of no such objections or representations
being made or in the event of such objection or representation
not being successful to take all reasonable or necessary steps
without delay to comply with any such notice or order
(F) at all times hereafter to indemnify and keep indemnified the
Landlord against all actions proceedings costs expenses claims and
demands in respect of any matter or thing contravening any of the said
provisions and requirements of the Planning Acts in so far as the same
apply to the demised premises
(18) Not to commit or permit waste and not to cut remove divide alter maim
or injure the demised premises or any part thereof or any of the ceilings walls
or floors thereof not the pipes in or under or serving the demised premises AND
not to:
(a) build erect construct or place any new or additional building
erections or work on the demised premises or any part thereof
(b) make any structural alterations or structural addition or
improvement to the demised premises or any part thereof
(c) make without the consent in writing of the Landlord (such consent
not to be reasonably withheld
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or delayed) any non-structural internal alterations or additions to
the demised premises nor to affix any machinery thereto and in the
event that any such internal alterations or additions would not add to
the letting value of the demised premises then to remove the same and
make good all damage to the demised premises at the expiration or
sooner determination of the term if reasonably so required by the
Landlord
(19) In the event of the building and/or the Landlord's other adjoining
premises being damaged or destroyed by any of the insured risks at anytime
during the term hereby granted and the insurance money under any policy of
insurance effected thereon by the Landlord shall be rendered wholly or partially
irrecoverable by reason solely or in part of any act or default of the Tenant
then the Tenant will forthwith (in addition to the said rents) pay to the
Landlord the whole or ( as the case may be) a fair proportion of the cost of
rebuilding and reinstating the same (any dispute as to the proportion to be so
contributed by the Tenant to be referred to arbitration as hereinafter provided)
and the Tenant shall pay to the Landlord (if demanded by the Landlord) interest
at the rate of L4 per centum per annum above the base rate for lending of
National Westminster Bank Plc and from time to time in force and compounded on
the usual quarter days on the proportion of the costs determined between the
parties or by way of arbitration as hereinbefore provided and payable by the
Tenant calculated form the date of expenditure of the same by the Landlord until
the date of payment by the Tenant PROVIDED ALWAYS that if for any reason the
proportion of the
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costs shall not be determined then this provision for the payment of interest
shall be deferred until such time as the proportion of the costs is determined
by the parties hereto or by way of arbitration as aforesaid with interest
nevertheless being calculated as payable from the date of expenditure of the
same by the Landlord where this occurs prior to the date of actual determination
as hereinbefore referred to with the Landlord giving due credit to the Tenant
for any sums paid by the Tenant to the Landlord on account of the determination
of the proportion of the costs so payable
(20) To comply at all times during the said term subject as hereinafter
mentioned with (a) all statutory and other requirements for ensuring the
health safety and welfare of the persons using or being employed in or about the
demised premises or any part thereof (b) in particular all provisions of the
Factory Acts and the Offices Shops and Railway Premises Act 1963 and the Public
Health Acts and the Health and Safety at Work etc Act 1974 and all obligations
in regard to the demised premises and the carrying on of the trade or business
thereat whether imposed on the owner or occupier thereof
(21) Not to use or permit or suffer to be used the demised premises or any
part thereof for any illegal or immoral purpose and not to do or cause or permit
or suffer to be done on nor to carry on any noisy noxious or offensive trade
upon the demised premises or any part thereof anything which may be or become a
nuisance or annoyance or which may cause damage or inconvenience to the Landlord
or to the occupiers for the time being of any adjoining premises
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(22) During the last six months of the said term to permit the Landlord to
affix in a conspicuous position to any part of the demised premises but not so
as to obstruct any doors or windows or to interfere with the Tenant's use and
occupation thereof and there to retain without interference a notice that the
same are to let and to permit all persons bearing written authority from the
Landlord to enter upon the demised premises to inspect the same at all
reasonable times of the day and by prior appointment with the Tenant
(23) To make adequate arrangements for the removal from the demised
premises of all trade refuse rubbish scraps used tin cans boxes and other
containers which may have accumulated thereon
(24) To pay to the Landlord all reasonable and proper charges costs and
expenses incurred by the Landlord at any time during the continuance of the term
in abating a nuisance pursuant to an order by the Local Authority
(25) Not to store or bring upon the demised premises any articles of a
specially combustible inflammable or dangerous nature and to comply with all
requirements of the insurers as to fire precautions relating to the demised
premises
(26) Not at any time to load or permit or suffer to be loaded any part of
the floor of the demised premises to a weight greater than shall be determined
by the Landlord and notified to the Tenant
(27) Insofar as it falls within the obligations of the Tenant under the
provisions of this Lease to indemnify the Landlord against any claims
proceedings or demands and the costs and expenses incurred thereby which may be
brought against the
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Landlord by any servants workpeople agents or visitors of the Tenant in respect
of any accident loss or damage whatsoever to person or premises howsoever caused
or occurring in or upon the demised premises or the Building
(28) To observe and conform to all reasonable regulations and restrictions
made by the Landlord for the proper management of the Building and or the
Property and notified in writing by the Landlord to the Tenant from time to time
(29) On the termination of the tenancy to yield up the demised premises and
all additions thereto (if any) in good and tenantable repair and condition in
accordance with the Tenant's obligations hereinbefore contained
(30) to keep all windows to the demised premises properly cleaned at all
times Provided that in the event of the Landlord carrying out or employing
persons to carry out such window-cleaning the Tenant will within 7 days of
demand repay to the Landlord the cost to the Landlord of such works
(31) All sums payable under or in connection with this Lease in respect of
rent payable or taxable supplies received by the Tenant shall be deemed to be
exclusive of Value Added Tax (or any similar tax which shall replace Value Added
Tax) and upon the production by the Landlord to the Tenant of an invoice
appropriate to that tax the Tenant shall pay such tax in addition to those sums
and the Landlord shall have the same remedies for non-payment of the tax as if
the tax were part of the rent or the supply
(32) Not to employ any cleaning contractors or other trades persons to
carry out any work or other duties on the demised
26
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premises without the prior written approval of the Landlord PROVIDED that
the Tenant shall be at liberty to use the services of any janitor or
similar person from time to time employed by the Landlord the Tenant being
responsible for payment of such janitor or other person's charges for
carrying out such work or other duties
(33) Not to obstruct or cause or permit to be obstructed that area of the
Property hatched yellow on the Plan No 1
(34) To pay one half of the Landlord's reasonable and proper legal costs of
the preparation and completion of this Lease and the Counterpart thereof of
and any stamp duty thereon
5. THE LANDLORD HEREBY COVENANTS with the Tenant in manner following
(1) At all times during the said term (unless by the Landlord shall have
become void or voidable or the policy moneys made irrecoverable wholly or
in part by reason in any such case of any act neglect or default of the
Tenant or the other tenants of the Building or by their servants agents
licensees or visitors) to keep the Building and the Landlord's fixtures
therein insured in some insurance office or offices of repute or at Lloyds
in the full reinstatement value thereof against loss or damage by fire and
such other risks as the Landlord may reasonably require including without
prejudice to the generality of the foregoing three years' loss of rent and
for Architects' and Surveyors' fees in connection with rebuilding and
reinstating the Building (hereinafter called "the insured risks") and will
use its best endeavours to cause the Tenant's interest to be noted on the
policy or policies and at the written
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request and cost of the Tenant once during each year of the said term to
provide to the Tenant a statement setting out the names of the insurers the
relevant policy numbers the sums for which the demised premises are insured
the risks insured the amount of loss of rent cover the amount of the
current insurance premium and to what the date the premium has been paid
PROVIDED ALWAYS that if the demised premises or any part thereof shall be
destroyed or damaged so as to be unfit for use uninhabitable or
inaccessible by reason of any of the insured risks then and so often as the
same shall happen (unless the insurance by the Landlord shall have become
void or voidable or the policy moneys made irrecoverable wholly or in part
by reason in any such case of any act neglect or default of the Tenant its
servants agents licensees or visitors) a just proportion of the rent and
additional rent and further additional rent hereby reserved according to
the nature and extent of the injury sustained shall cease and be suspended
during such time as the demised premises or any part thereof shall remain
inaccessible uninhabitable or unfit for use and if any dispute shall arise
as to the amount of the abatement to be made or the period of such
abatement the same shall be referred to arbitration under the Arbitration
Acts 1950 and 1979 or any statutory modification or re-enactment thereof
from time to time in force.
(2) That the Tenant paying the rent (including the said additional rent
and increased additional rents and other payments) hereby reserved and
observing and performing the several covenants and stipulations herein on
its part contained shall peaceably hold and enjoy the demised premises
during the
28
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said term without any interruption by the Landlord or any person rightfully
claiming through under or in trust for it or by title paramount
(3) To carry out or procure the following works and services (but
excepting where the Tenant is responsible hereunder (subject to the payment
by the Tenant of the rents herein referred to))
(A) To maintain repair renew rebuild keep-up and amend (as
appropriate) and otherwise keep in good and reasonable repair and
condition
(a) the Retained Parts including the structure of the Building
and in particular the roofs foundations exterior and walls
thereof and entrance way PROVIDED that the Landlord shall not be
under any obligation (although it may in its absolute discretion
choose so to do) to carry out or procure the carrying out of any
repair decoration maintenance renewal or upkeep of any part of
the demised premises or of the Building which is the
responsibility of the Tenant under this Lease or any other Tenant
in pursuance of the demise to it of any other part of the
Building
(b) the boundary walls and fences of and in the curtilage of the
Building and the garden adjoining
(B) (i) to maintain repair amend renew cleanse repaint and redecorate
and otherwise keep in good and reasonable condition
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any Common Parts including without prejudice to the
generality of the foregoing the doors windows and all
other glass in the said Common Parts including the
cleaning (both inside and out) of the windows in the
Common Parts
(ii) to pay and discharge all general rates water
rates and all existing and future rates taxes charges
assessments impositions and outgoings of an annual or
regularly recurring nature whatsoever which are now or
may at any time be payable in respect of the said
Common Parts or any other part of the Building not
exclusively or ordinarily occupied by a Tenant
PROVIDED that the Landlord shall not be liable to the
Tenant for any defect or want of repair hereinbefore
mentioned unless the Landlord has had notice thereof
nor in respect of any obligation hereunder that is to
be construed as falling within the ambit of any of the
Tenant's covenants hereinbefore contained
(4) Not to enforce any covenant to indemnify the Landlord given by
the Tenant herein without first notifying the Tenant of any suit action
claim or demand brought or made against the Landlord and not to compound
settle or admit the same without the consent of the Tenant who may at its
own expense defend dispute or settle the same in the name and on behalf of
the Landlord who shall give (but at the expense of the Tenant) all
reasonable
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assistance that the Tenant may require for such purpose AND provided that
nothing herein contained shall be deemed to restrict or interfere with any
right of the Tenant against the Landlord or any other person in respect of
contributory negligence
6. IT IS HEREBY EXPRESSLY AGREED as follows:
(1) If the rents including the said additional rent and further
additional rent reserved by this lease or any part thereof shall be in
arrear for the space of 21 days next after any of the days whereon the
same ought to be paid as aforesaid (whether the same shall have been
formally demanded or not) or if there shall be any breach non-performance
or non-observance of any of the Tenant's covenants or conditions contained
herein or if the Tenant shall be wound up compulsorily or voluntarily
(except when the Tenant is solvent for the purpose of reconstruction or
amalgamation) or if any tenant of the demised premises shall become
bankrupt insolvent or make any arrangements with his or its creditors for
liquidation of debts by composition or otherwise then it shall be lawful
for the Landlord by its duly authorised agent at any time thereafter into
and upon the demised premises or any part thereof in the name of the whole
to re-enter and the same to have again reposses and enjoy as in the
Landlord's first or former estate without prejudice to any right of action
or remedy of either party in respect of any antecedent breach of any of the
covenants herein contained and thereupon the rent or the proportion thereof
up to the date of re-entry shall immediately become payable
(2) Without prejudice to the operation of sections 78 and 79
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of the Law of Property Act 1925 the expressions "Landlord" and "Tenant"
shall where the context so admits include their respective successors in
title and the persons claiming through or under them
(3) Where covenants are herein entered into by or with two or more
persons they shall be deemed to be entered into by or with such persons
jointly and severally
(4) That the Landlord shall not be liable under the provisions of
this Lease if unable to perform its obligations to the Tenant due to
mechanical or other defect or breakdown or other cause reasonably beyond
the Landlord's control or due to damage arising from an insured risk or due
to inclement weather or shortage of fuel materials or labour PROVIDED THAT
the Landlord uses its best endeavours to rectify such defect or breakdown
as soon as reasonably possible
(5) If and whenever during the said term:-
(a) the demised premises are damaged or destroyed by any of
the insured risks and
(b) the payment of the insurance monies is not refused in
whole or in part by reason of any act or default of the Tenant
the Landlord will with all convenient speed take such steps as may be
requisite and proper to obtain planning permissions or other permits and
consents that may be required under the Planning Acts or other statutes for
the time being in force to enable the Landlord to rebuild and reinstate the
demised premises and will as soon as these have been obtained spend and lay
out all monies received in respect of such insurance (except sums in
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respect of loss of rent) in rebuilding or reinstating the demised premises so
destroyed or damaged making up any difference between the cost of rebuilding and
reinstating and the monies received out of the Landlord's own money provided
that the Landlord shall not be liable to rebuild or reinstate the demised
premises if the Landlord is unable (having used all its best endeavors) to
obtain all planning permissions permits and consents necessary to execute such
rebuilding and reinstating or if this Lease shall be frustrated in which
event the Landlord shall be entitled to retain all insurance monies received by
the Landlord
(6) If any dispute arises between the Tenant and the lessees tenants or
occupiers of adjoining or neighbouring property belonging to the Landlord as to
any easement right or privilege in connection with the use of the demised
premises and adjoining or neighbouring property or as to the party or other
walls separating the demised premises form the adjoining property or as to the
amount of any contribution towards the expenses or services used in common with
any other property it shall (except where the means of resolving such dispute is
expressly referred to in the Lease) be settled or determined by a single
independent surveyor to be appointed by the parties jointly or (in the event of
the parties failing to concur in making such appointment) to be appointed by the
President for the time being of the Royal Institution of Chartered Surveyors or
the deputy of the President or his nominee on the application of either party
The Surveyor so appointed shall determine such dispute or difference as
aforesaid as arbitrator pursuant to the Arbitration Acts 1950 and 1979 or any
statutory modification or re-enactment
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thereof from time to time in force and his word shall be final and binding upon
the parties hereto
(7) Any notice required to be given or served by law or under these
presents and not herein otherwise provided for shall be served on the Tenant by
being forwarded by registered or recorded delivery post to him at his registered
office or such other address as the Tenant may notify in writing to the Landlord
or the last known place of abode or business in England or Wales of any Assignee
in whom for the time being the said term shall be vested and shall be
sufficiently served on the Landlord if addressed to the Landlord and left at or
sent by registered or recorded delivery post to the registered office of the
Landlord in England or Wales and a notice so sent by post shall be deemed to be
given at the time when it ought in due course of post to be delivered at the
address to which it is sent
7. It is certified that there is no Agreement for Lease (or Tack) to
which this Lease (or Tack) gives effect
IN WITNESS whereof the parties hereto have executed this Lease as a Deed the
day and year first before written
THE FIRST SCHEDULE
1. In this Schedule the following expressions shall have the following
meanings:
(a) "Financial Year" means a period of twelve months ending on 24 March in
each year
(b) "The appropriate proportion" shall mean the area of the demised
premises expressed in square feet divided into the area of the Building
excluding the Common Parts expressed in square feet
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Authority
(c) the reasonable and proper cost of periodical inspection repair and
maintenance of those parts of the Building for which the Landlord is responsible
hereunder
(d) the reasonable and proper cost of preparing accounts and certificates
relating to the calculation of the service costs or the service charge
(e) the reasonable and proper cost of employing managing agents in respect
of the Building or if the Landlord does not employ managing agents then a fee
shall be payable to the Landlord in respect of its management of the Building
calculated at the rate of no more than 8% per annum of the rent payable under
this Lease (as reviewed)
(f) the supply and maintenance of fire fighting equipment in the Common
Parts
(g) the expenses incurred in redecorating the exterior of the Building and
the Common Parts
6. As soon as practicable after the end of each financial year the Expert
shall determine and certify the amount by which the estimate referred to in
Clause 4 of this Schedule exceeds or falls short of the actual expenditure
incurred by the Landlord in respect of the items specified in clause 5 of the
financial year in question (giving credit for any amount applied for from the
reserve in payment of items of expenditure incurred during that year) and shall
supply the Tenant with a copy of the certificate including a detailed statement
of account in respect of all expenditure incurred by the Landlord during the
financial year to which the Certificate relates and where
36
<PAGE>
requested by the Tenant the Landlord shall produce to the Tenant copies of any
relevant vouchers or invoices for inspection.
7. Within 21 days of the receipt by the Tenant of the said certificate
the Tenant shall pay to the Landlord the specified percentage of the deficiency
or as the case may be the Landlord shall repay to the Tenant the specified
percentage of the excess such repayment to be made by way of allowance or
deduction from the next service charge payment
THE SECOND SCHEDULE
The covenants and conditions contained mentioned or referred to in the Property
and Charges Registers of Title No. LL93634 (including inter alia) that the
Tenant its successors and assigns will not permit any noisy or offensive games
amusements or employment which would interfere with the quiet occupation and
enjoyment of the adjoining property as Solicitors' Offices and further that the
Tenant its successors and assigns will in no way obstruct or diminish the rights
of light now enjoyed by the adjoining property
EXECUTED as a Deed )
AVIATION DISTRIBUTORS )
(EUROPE) LIMITED acting ) [ILLEGIBLE SIGNATURES]
by Director )
and Director )
W Name: Barb Jespersen
I Address: 13 Pinewood
T Irvine, CA 92714
N Occupation: Administrator
E
S
S
37
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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
August 28, 1996
<PAGE>
AVIATION DISTRIBUTORS INCORPORATED
LOCKUP AGREEMENT
August 16, 1996
CRUTTENDEN ROTH INCORPORATED
18301 Von Karman, Suite 100
Irvine, California 92715
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, $.01 par value (the "Common Stock"), of Aviation
Distributors Incorporated, a Delaware corporation (the "Company") and that the
Underwriters propose to reoffer the Shares to the public (the "Public
Offering").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Cruttenden
Roth Incorporated (which consent may be withheld in its sole discretion), the
undersigned will not sell, offer to sell, solicit an offer to buy, contract to
sell, loan, pledge, grant any option to purchase, or otherwise transfer or
dispose of (collectively, a "Disposition"), any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock
(collectively, "Securities"), now owned or hereafter acquired by the undersigned
or with respect to which the undersigned has or hereafter acquires the power of
disposition, for a period of 180 days after the date of the final Prospectus
relating to the offering of the Shares to the public by the Underwriters (the
"Lockup Period"). The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging, pledge or other
transaction which is designed to, or which may reasonably be expected to lead to
or result in a Disposition of Securities during the Lockup Period even if such
Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging, pledge or other transactions would include, without
limitation, any short sale (whether or not against the box), any pledge of
shares covering an obligation that matures, or could reasonably mature during
the Lockup Period, or any purchase, sale or grant of any right (including
without limitation any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities.
Notwithstanding the foregoing, the undersigned may (i) exercise (on a cash
or cashless basis, whether in a traditional cashless exercise or in a "brokers"
cashless exercise), Common
<PAGE>
Stock options or warrants outstanding on the date hereof, it being understood,
however, that the shares of Common Stock received (net of shares sold by or on
behalf of the undersigned in a "brokers" cashless exercise or shares delivered
to the Company in a traditional cashless exercise thereof) by the undersigned
upon exercise thereof shall be subject to the terms of this agreement, (ii)
transfer shares of Common Stock or Securities during the undersigned's lifetime
by BONA FIDE gift, upon death by will or intestacy or as intra-family transfers
or transfers to trusts for estate planning purposes, provided that any
transferee agrees to be bound by the terms of this agreement, and (iii) transfer
or otherwise dispose of shares of Common Stock or Securities as a distribution
to limited partners or shareholders of the undersigned, provided that the
distributees thereof agree to be bound by the terms of this agreement.
The undersigned understands that the Underwriters will rely upon the
representations set forth in this Lockup Agreement in proceeding with the Public
Offering. The undersigned agrees that the provisions of this agreement shall be
binding upon the successors, assigns, heirs, personal and legal representatives
of the undersigned. Furthermore, the undersigned hereby agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by the undersigned except in
compliance with this Lockup Agreement.
It is understood that, if the Underwriting Agreement does not become
effective prior to October 31, 1996, or if the Underwriting Agreement (other
than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Shares, the obligations
under this letter agreement shall automatically terminate and be of no further
force and effect.
[Remainder of page intentionally left blank]
<PAGE>
Very truly yours,
-----------------------------------
Signature
-----------------------------------
Printed name of person/entity
-----------------------------------
Title if applicable
-----------------------------------
Additional signature(s), if stock
jointly held
<PAGE>
EXHIBIT 99.2
CONSENT OF DANIEL C. LEWIS
As a proposed director of Aviation Distributors Incorporated, I hereby
consent to the use of my name in this registration statement.
DANIEL C. LEWIS
San Francisco, California
August 22, 1996
