<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998.
REGISTRATION NO. 333-48497.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5088 52-2081515
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
KARL F. BROWN
3516 CENTRE CIRCLE DRIVE 3516 CENTRE CIRCLE DRIVE
FORT MILL, SOUTH CAROLINA 29715 FORT MILL, SOUTH CAROLINA 29715
TELEPHONE: (803) 548-2160 TELEPHONE: (803) 548-2160
(Address and telephone number of principal (Name, address and telephone number of agent
executive for service)
offices and principal place of business)
</TABLE>
Copies to:
<TABLE>
<S> <C>
ROBERT W. WALTER, ESQ. NOLAN S. TAYLOR, ESQ.
BERLINER ZISSER WALTER & GALLEGOS, P.C. THOMAS R. TAYLOR, ESQ.
SUITE 4700 LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
1700 LINCOLN STREET 136 SOUTH MAIN STREET, SUITE 1000
DENVER, COLORADO 80203 SALT LAKE CITY, UTAH 84101
TELEPHONE: (303) 830-1700 TELEPHONE: (801) 320-6700
</TABLE>
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)................... 2,300,000 $8.50 $19,550,000 $5,767.25
- ------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants for
Common Stock.................... 200,000 -- $100 $.03
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Representative's Warrants(3).... 200,000 $10.20 $2,040,000 $601.80
- ------------------------------------------------------------------------------------------------------------------------------
Total........................... $21,590,100 $6,369.08
==============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Includes 300,000 shares of Common Stock contained in the over-allotment
option.
(3) Pursuant to Rule 416, includes such indeterminate number of additional
shares of Common Stock as may be required for issuance upon exercise of the
Representative's Warrants as a result of any adjustment in the number of
shares of Common Stock issuable upon such exercise by reason of the
anti-dilution provisions of the Representative's Warrants.
---------------------
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> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 1, 1998
PROSPECTUS
2,000,000 SHARES
[AMERICAN AIRCARRIERS LOGO]
COMMON STOCK
---------------------
All of the shares of Common Stock offered hereby are being sold by American
Aircarriers Support, Incorporated (the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price will be between $7.50 and
$8.50 per share. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. Application has been made to
have the Common Stock approved for quotation on the Nasdaq National Market under
the symbol "AIRS."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION
PROSPECTIVE INVESTORS SHOULD CONSIDER.
---------------------
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>
<CAPTION>
=============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. The Company has also agreed to sell to the Representative of the
Underwriters warrants to purchase 200,000 shares of Common Stock
exercisable at $ per share (the "Representative's Warrants"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $980,000,
including the Representative's nonaccountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase an
aggregate of up to 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, and Proceeds
to Company will be $ , $ and $ , respectively.
See "Underwriting."
---------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as and if delivered to and accepted by them, and subject to the right
of the Underwriters to withdraw, cancel or modify such offer without notice and
reject orders in whole or in part. It is expected that delivery of the
certificates for the Common Stock will be made at the offices of Cruttenden Roth
Incorporated, Irvine, California or in book entry form through the book entry
facilities of The Depository Trust Company on or about , 1998.
---------------------
CRUTTENDEN ROTH
INCORPORATED
LAIDLAW GLOBAL SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
[FOUR COLOR PICTURES TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING BIDS AND PURCHASES, THE
IMPOSITION OF PENALTY BIDS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT
POSITIONS AND OVER-ALLOTMENTS IN CONNECTION WITH THE OFFERING. FOR A DISCUSSION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
On the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will become a "reporting company" under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company
intends to register the Common Stock under the 1934 Act as of the effective date
of the Registration Statement. The Company is a "small business issuer" as
defined under Regulation S-B adopted under the Securities Act of 1933, as
amended, and will file reports with the Securities and Exchange Commission (the
"Commission") pursuant to the 1934 Act on forms applicable to small business
issuers.
The Company intends to furnish annual reports to stockholders containing
audited financial statements, quarterly reports and such other periodic reports
as it may determine to be appropriate or as may be required by law.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information contained in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option or
options granted or reserved under the Company's stock option plan, and (ii)
gives effect to a recapitalization in connection with the Company's
reincorporation in Delaware. Industry data used in this Prospectus was obtained
from industry publications that the Company believes to be reliable, but has not
independently verified. Unless otherwise stated in this Prospectus, references
to the "Company" shall mean American Aircarriers Support, Incorporated and its
predecessor.
THE COMPANY
The Company is a leading international supplier of primarily high-margin
aircraft components and spare parts to major commercial passenger and cargo
airlines, maintenance and repair facilities and other redistributors located
throughout the world. The Company's net sales are principally derived from the
redistribution of complete engines and engine components and spare parts for the
Pratt & Whitney JT8 series and, to a lesser extent, the General Electric CFM56,
as well as rotable, repairable and expendable airframe components and spare
parts for Boeing, McDonnell-Douglas and Airbus aircraft. The Company acquires
engine and airframe components and spare parts for redistribution through
purchases of surplus aircraft for disassembly, bulk purchases of components and
spare parts from aircraft operators, purchases of individual components and
spare parts from other redistributors, consignments from aircraft operators and
others, and exchanges of inventoried aircraft components and spare parts for
components and spare parts that require service or overhaul.
The Company's net sales increased 58.6% to over $13 million in 1997 and pro
forma net income increased approximately 110% to over $2.4 million in 1997. At
December 31, 1997, the Company's total assets exceeded $9.0 million and
stockholders' equity was $4.9 million. For the first three months of 1998, net
sales increased 57.4% to $3.7 million from $2.3 million for the comparable
period in 1997, while pro forma net income increased 64.2% to $669,000 from
$407,000 for the comparable period in 1997. The growth in net sales and net
income reflects (i) increases in sales of complete engines and engine components
and spare parts, which generally carry higher margins than airframe components
and spare parts, (ii) an increase in the average unit price per sale due to
changes in the Company's product mix to encompass higher priced engine and
airframe components and spare parts sales, (iii) diversification of the
Company's engine sales into new engine types such as the CFM56, and (iv)
increasing sales of complete engines and engine and airframe components and
spare parts to both domestic and international customers. The Company believes
it is one of the few aircraft component and spare part redistributors of its
size engaged in the sale of both engine and airframe components and spare parts
to a broad spectrum of domestic and international customers.
The Company believes that the annual worldwide market for aircraft
components and spare parts is approximately $10 billion, of which approximately
$1.3 billion reflects sales of aircraft components and spare parts in the
redistribution market. Since 1993, the airline industry has experienced rapid
growth in business and leisure air travel. The high demand for airline capacity
has increased utilization of aircraft, contributing to demand for aircraft
components and spare parts as aircraft operators must service or replace
aircraft components and spare parts at scheduled intervals. The world fleet of
aircraft is projected to increase from 11,500 aircraft in 1996 to 23,000
aircraft in 2016, according to Boeing's 1997 Current Market Outlook (the "Boeing
Report"). In addition, the average age of the world fleet of aircraft is
expected to increase in the near future, which may increase demand for
aftermarket aircraft components and spare parts. As airlines continue
outsourcing inventory management functions, leasing engines and aircraft
components and spare parts to reduce capital requirements, and limiting
components and spare parts purchases to a smaller number of approved suppliers
capable of providing improved documentation and traceability, larger inventories
and higher standards of quality control, the Company anticipates that a greater
percentage of sales in the aircraft components and spare parts redistribution
industry will become concentrated among a smaller number of larger,
strategically positioned participants.
3
<PAGE> 5
The Company attributes its success in the aircraft components and spare
parts redistribution industry and its significant opportunities for growth to
several competitive strengths, including the following:
- Experienced and Committed Management Team. The Company's management has
almost 100 years' combined experience in the aircraft components and
spare parts redistribution industry. In addition, the Chief Executive
Officer and each of the key employees has been employed by the Company
since its inception. The Company has experienced almost no employee
turnover since inception and seeks to provide an entrepreneurial culture
for its highly experienced, "hands-on" management team.
- Exploit Key Niches. Through the industry knowledge developed by its
management team, the Company has been successful in identifying areas of
demand for certain aircraft components and spare parts and has
aggressively acquired inventory of certain key aircraft components and
spare parts through purchase, disassembly of aircraft, and consignment
and exchange transactions. The Company's ability to responsively fill
customer requirements has been a cornerstone of the Company's strategy
since its inception, and has allowed the Company to differentiate itself
from certain of its competitors.
- Focus on Sales of High-Margin Components and Spare Parts. The Company has
increasingly focused on sales of high-margin engines and engine spare
parts in order to increase its net sales. Engine sales have enabled the
Company to realize higher margins, increase total sales, and develop
customer relationships with a wide variety of domestic and international
customers. Approximately 80% of the Company's net sales are derived from
sales of rotables, which tend to be higher-margin, higher demand spare
parts than repairables or expendables. As the Company continues its
efforts to increase sales of higher-margin engine and engine components
and rotable spare parts, the Company will strive to realize high margins
and increase stockholder value.
- Effectively Capitalize on Bulk Purchase Opportunities. The Company has
been successful in identifying and completing bulk purchases of aircraft
components and spare parts. Bulk inventory purchases allow the Company to
obtain large inventories of aircraft components and spare parts at a
lower cost than can ordinarily be obtained by purchasing aircraft
components and spare parts on an individual basis, resulting generally in
higher gross margins on sales of such spare parts. The Company believes
that, through management's extensive contacts with both passenger and
cargo carriers, the Company has access to bulk inventory purchase
opportunities that are not generally available to many aircraft
components and spare parts redistributors.
- Strong Commitment to Growth. The Company has developed a number of growth
strategies that are designed to broaden the Company's domestic and
international customer base, enhance the Company's margins, provide
improved customer service, and facilitate entry into new market niches as
the Company seeks to grow its business. The Company has formulated its
growth strategies to maintain a high-margin product mix to be offered to
a diverse base of domestic and international customers, thereby avoiding
reliance on a single product line, a single customer or a group of
customers in a particular geographic area.
- Aggressively Control Overhead. The Company is committed to aggressively
controlling overhead in order to maximize operating margins. With only 14
full-time employees in 1997, the Company achieved 1997 gross profit per
employee and pro forma net income per employee of approximately $379,000
and $175,000, respectively. Measured by these standards and sales per
employee, the Company believes it maintains a significantly lower
overhead structure, and achieves higher sales and margins, than many of
its competitors.
The Company's strategy is to enhance its position as a leading aircraft
components and spare parts redistributor in order to capitalize on the continued
expansion of the aircraft components and spare parts aftermarket and the
Company's growing customer base. The principal components of the Company's
strategy are to (i) expand the Company's existing business through entry into
the wide-body aircraft market for complete aircraft and engines to be
disassembled, obtaining additional sales agents in select international markets
and hiring additional management personnel experienced in sales of aircraft
components and spare
4
<PAGE> 6
parts, (ii) enhance the Company's relationship with key customers through
providing aircraft components and spare parts leasing and inventory management
services and through the purchase and lease of complete aircraft to third
parties, which aircraft will be disassembled for their components and spare
parts upon expiration of the lease term, (iii) undertake strategic acquisitions
in order to accelerate growth, leverage operating efficiencies and capitalize on
opportunities to vertically integrate aircraft components and spare parts
redistribution, repair and manufacturing activities, (iv) increase inventories
of aircraft components and spare parts, enhance management information systems
and continue the Company's commitment to customer service to even further
strengthen customer relationships, and (v) maintain a diversified domestic and
international customer base with continued emphasis on targeting sales
opportunities in both engine and airframe spare parts.
The Company was incorporated in the State of South Carolina under the name
Aviation Alloys, Inc. in June 1985 and commenced active operations under the
name American Aircarriers Support, Inc. in 1990. The Company was reincorporated
in the State of Delaware immediately prior to the date of this Prospectus. The
Company's principal executive offices are located at 3516 Centre Circle Drive,
Fort Mill, South Carolina 29715, and its telephone number is (803) 548-2160.
THE OFFERING
Common Stock offered................ 2,000,000 shares
Common Stock to be outstanding after
this offering....................... 6,100,000 shares(1)
Use of proceeds..................... To increase inventory of aircraft
components and spare parts, including
complete engines for disassembly;
reduce bank indebtedness; extinguish
related party indebtedness and fund S
Corporation distributions; to acquire
complementary businesses in the
aircraft components and spare parts
industry; and for general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol....... AIRS
- ---------------
(1) Excludes 263,600 shares of Common Stock issuable upon the exercise of
currently outstanding options (of which no options are currently
exercisable) with a weighted average exercise price of $6.14, and 200,000
shares of Common Stock issuable on full exercise of the Representative's
Warrants. See "Management -- Stock Option Plan" and "Underwriting."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- ------------------
1996 1997 1997 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $8,352 $13,250 $2,337 $3,677
Gross profit......................................... 2,873 5,304 935 1,567
Income from operations............................... 1,945 4,037 676 1,174
Net income(1)........................................ 1,943 4,073 679 1,115
Pro forma net income(1).............................. 1,166 2,444 407 669
Pro forma basic earnings per share(2)(3)............. $ .28 $ .60 $ .10 $ .16
Pro forma diluted earnings per share(2)(3)........... $ .28 $ .59 $ .10 $ .16
Weighted average number of diluted shares(3)......... 4,161 4,161 4,161 4,161
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, ------------------------
1997 ACTUAL AS ADJUSTED(4)
------------ ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $4,198 $4,864 $16,064
Inventory............................................. 5,625 9,205 9,205
Accounts receivable................................... 1,959 1,294 1,294
Total assets.......................................... 9,049 12,704 18,949
Total liabilities..................................... 4,180 6,720 1,720
Stockholders' equity.................................. 4,869 5,984 17,229
</TABLE>
- ---------------
(1) Until immediately prior to the date of this offering, the Company was an S
Corporation and not subject to federal or state corporate income taxes. In
connection with its reincorporation in the State of Delaware, the Company
terminated its S Corporation election and changed its tax status from an S
Corporation to a C Corporation and began providing for federal and state
corporate income taxes from and after that date. The statement of operations
data reflects a pro forma provision for income taxes as if the Company were
subject to federal and state corporate income taxes for all periods
presented. This pro forma provision for income taxes is computed using a
combined federal and state tax rate of 40%. See Note 13 to Financial
Statements.
(2) Supplemental pro forma basic earnings per share would have been $0.20,
$0.41, $0.07 and $0.12 for the years ended December 31, 1996 and 1997, and
the three months ended March 31, 1997 and 1998, respectively, and pro forma
diluted earnings per share would have been $0.20, $0.40, $0.07 and $0.12 for
the years ended December 31, 1996 and 1997, and the three months ended March
31, 1997 and 1998, respectively, after giving effect to the use of a portion
of the net proceeds of this offering to repay indebtedness outstanding at
January 1, 1996, and assuming a 2,000,000 share increase in the weighted
average number of shares outstanding.
(3) The weighted average number of shares outstanding gives retroactive effect
to the shares issued immediately prior to the effective date of this
offering in connection with the reincorporation and the dilutive effect of
options granted prior to the effective date of this offering. See Notes 12
and 13 to Financial Statements.
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company at an assumed offering price of $8.00 per share, and the application
of the estimated net proceeds therefrom to reduce indebtedness and make S
Corporation distributions. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of Common Stock offered hereby. This
Prospectus contains certain forward-looking statements that involve substantial
risks and uncertainties. When used in this Prospectus, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend," "believe"
and similar expressions are intended to identify forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 (the "1933 Act")
and Section 21E of the Securities Exchange Act of 1934 (the "1934 Act")
regarding events, conditions and financial trends that may affect the Company's
future plan of operations, business strategy, operating results and financial
position. The safe harbor for forward-looking statements provided by Section 27A
of the 1933 Act and Section 21E of the 1934 Act is not applicable to limit the
Company's liability for sales made in this offering. Prospective investors are
cautioned that any forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that actual results
could differ materially from the results expressed in or implied by these
forward-looking statements as a result of various factors, many of which are
beyond the Company's control. These factors are described under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and in the risk factors set forth below.
CONCENTRATION ON BOEING 737 AIRCRAFT AND JT8 ENGINES
The Company's results of operations to date have depended substantially
upon aftermarket sales of airframe components and spare parts for Boeing 737
aircraft and engine components and spare parts for the Pratt & Whitney JT8
engine series. While the 737 has been in production since the early 1960s and
the JT8 series of engines is the most widely used engine in commercial aviation,
737s utilizing older engines are generally more expensive to maintain and
operate, due primarily to higher fuel usage. Noise and other regulations adopted
in the United States and the European Union will require most JT8 series engines
to be hush-kitted, relocated to other countries or removed from service by 2000
and 2002, respectively. A decline in the use of 737 aircraft or JT8 engines by
aircraft operators, a decrease in passenger confidence in older aircraft or the
grounding of 737 aircraft or the retirement of aircraft utilizing JT8 series
engines for any reason could have a material adverse effect on the Company's
results of operations. Although the Company believes that some 737-200 aircraft
have already been hush-kitted, disassembly of a significant number of such
aircraft could increase the availability of certain 737 components and spare
parts, some of which are interchangeable with 737-300, -400 and -500 model
aircraft. A significant increase in aircraft or engine components and spare
parts availability could reduce prices of aircraft components and spare parts
inventoried by the Company, with a corresponding material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
MANAGEMENT OF INVENTORY
Because the Company does not manufacture aircraft components and spare
parts and is dependent upon purchases from third parties to obtain components
and spare parts inventories, the Company's results of operations are
substantially dependent on its purchasing activities. Because the Company's
sales of aircraft components and spare parts are significantly influenced by the
nature and extent of its available inventory, the success of the Company depends
upon management identifying potential sources of inventory and effecting timely
purchases at acceptable terms and prices. There can be no assurance that
inventory will be available on acceptable terms and prices or at the times
required by the Company. Furthermore, there can be no assurance the Company will
accurately anticipate customer demand for certain types of engines, engine
components or aircraft components and spare parts or that the Company's results
of operations will not be adversely affected by writedowns associated with
excess inventory. See "Business."
EXPANSION OF AIRCRAFT COMPONENTS AND SPARE PARTS INVENTORY
The Company has in the past purchased and sold Airbus A300 aircraft
components and spare parts and has established a strategy for growth through
entry into the wide-body aircraft market, including the purchase and sale of
aircraft components and spare parts for the Boeing 767, the McDonnell-Douglas
DC-10 and the
7
<PAGE> 9
Airbus A300. The Company anticipates that, following the conclusion of this
offering, it will also enter the market for engines used to power wide-body
aircraft, including the General Electric CF6, the Pratt & Whitney JT9 and PW4000
engine series. The Company expanded its product line in 1995 to include the
CFM56 series of engines, which powers Boeing 737 aircraft as well as certain
Airbus aircraft. Although management believes its experience in managing
existing engine and aircraft components and spare parts inventories will enable
it to effectively manage such inventories for additional aircraft and engine
types, there can be no assurance the Company will be successful in managing
components and spare parts inventories for additional aircraft and engine types.
In particular, the Company's lack of prior experience in the market for
wide-body aircraft and engine components and spare parts may cause the Company
to misjudge market prices or demand for airframe or engine components and spare
parts. In such event, the Company could be forced to liquidate excess
inventories at prices that would have a material adverse effect on the Company's
financial condition and results of operations. See "Business."
REGULATION OF, AND DEPENDENCE ON, THIRD-PARTY REPAIR FACILITIES
The Company's inventory consists principally of engines and overhauled,
serviceable and repairable aircraft components and spare parts that have been
purchased from a variety of sources. Before components and spare parts may be
installed in an aircraft, they must meet certain standards of condition
established by the Federal Aviation Administration ("FAA") or equivalent
regulatory agencies in other countries. Specific regulations vary from country
to country, although regulatory requirements in certain other countries
generally coincide with FAA requirements. While the Company is not subject to
direct regulation by the FAA or comparable international agencies, aircraft
operators utilizing the Company's components and spare parts and independent
facilities that repair and overhaul such components and spare parts are subject
to extensive regulation. Aircraft and engine components and spare parts must
also be traceable to sources deemed acceptable by the FAA and comparable
international agencies.
The Company performs no repair or overhaul services itself, but rather
depends entirely on third-party licensed repair facilities to perform necessary
repair and overhaul services. The Company has no direct control over the quality
of repair performed by third-party repair facilities or the accuracy of
airworthiness conditions designated by such facilities. The limited number of
licensed repair facilities has on occasion resulted in long turnaround times for
the repair and overhaul of engines and aircraft components and spare parts. The
FAA has recently increased its scrutiny of third-party repair facilities, which
may result in fewer FAA-licensed repair facilities and longer turnaround times
in the future. It is possible that airframe or engine components and spare parts
could be designated as airworthy by a repair facility, be sold by the Company
and placed on an aircraft, and subsequently be determined to be unsafe or in
need of further repair. In such event, the FAA has the authority to take actions
which may include the grounding of the aircraft. In addition, a customer that
purchased defective airframe or engine components or spare parts from the
Company could demand a replacement component or spare part. Although the Company
has insurance coverage for product liability losses, the adverse effect on
customer relations and the Company's reputation from a parts-related incident
could materially adversely impact the Company's results of operations. See
"Business."
DEPENDENCE ON KEY EMPLOYEES
The continued success of the Company is dependent to a significant degree
upon the services of Karl F. Brown, Chairman of the Board, Chief Executive
Officer and President. The ability of the Company to operate successfully could
be jeopardized if Mr. Brown were unavailable to the Company for any reason and a
capable successor was not identified and hired. The Company maintains key-man
life insurance on the life of Mr. Brown in the amount of $1,000,000 as to which
the Company is the beneficiary and has a three-year employment agreement with
Mr. Brown. Mr. Brown receives benefits under his employment agreement including
an annual salary of $200,000, a discretionary bonus, use of a Company
automobile, participation in a split-dollar life insurance plan and change of
control compensation. The employment agreement is terminable by Mr. Brown upon a
change of control of the Company. The Company has also entered into a one-year
employment agreement with Elaine T. Rudisill, the Chief Financial Officer of the
Company, under which Ms. Rudisill will receive an annual salary of $65,000 and a
discretionary bonus. See "Management."
8
<PAGE> 10
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are affected by many factors, including the
timing of orders from customers, the timing of engine purchases or sales, the
timing of expenditures to purchase inventory in anticipation of future sales,
the timing and availability of bulk inventory purchases, the mix of available
aircraft components and spare parts contained at any time in the Company's
inventory, and many other factors largely outside the Company's control. A
significant portion of the Company's operating expenses are relatively fixed.
Because the Company does not obtain long-term purchase orders or commitments
from its customers, it must anticipate future volume of orders based upon the
historic purchasing patterns of its customers and upon discussions with its
customers as to their future components and spare parts requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's financial
condition and results of operations. In addition, due to the value of a single
engine sale relative to the value of components and spare parts typically sold
by the Company, the concentration of engine sales in a particular quarter may
obscure existing or developing trends in the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
ACQUISITION STRATEGY
One of the Company's strategies for growth is to pursue acquisitions of
FAA-licensed repair facilities, aircraft components and spare parts
redistributors and small manufacturers of aviation products. Currently, the
Company has no acquisition agreements, understandings or commitments for any
acquisitions. There can be no assurance that any such acquisitions will be
completed on reasonable terms, if at all. Certain of the Company's competitors
may also seek to acquire the same companies that the Company seeks to acquire.
This may increase the price and related costs at which the Company could
otherwise have acquired such companies, perhaps materially. The Company's
inability to complete acquisitions on reasonable terms could limit the Company's
ability to grow its business.
The Company may expend significant funds to pursue and consummate
acquisitions. Such use of funds would reduce the Company's working capital. In
addition, the Company may fund acquisitions in whole or in part by issuing
equity securities, and any such issuances, individually or in the aggregate, may
be dilutive to holders of the Common Stock. Acquisitions also may result in the
Company incurring additional debt and amortizing costs related to goodwill and
other intangible assets, either of which could have a material adverse effect on
the Company's financial condition and results of operations.
The Company may experience difficulties in assimilating the operations,
services and personnel of acquired companies and may be unable to sustain or
improve the historical revenue and earnings levels of acquired companies, any of
which may materially adversely affect the Company's results of operations. In
addition, to the extent it becomes necessary for the Company to fund the working
capital requirements of acquired companies, the Company's working capital
available for its currently existing operations would decrease. Acquisitions
involve a number of risks, including the diversion of management's attention
from ongoing business operations and the potential loss of key employees of
acquired companies. Acquisitions of FAA-licensed repair facilities may pose
additional risks including, among others, the need to maintain FAA licensing to
conduct operations, liability associated with incorrect or inadequate repairs,
and required compliance with extensive FAA and other regulations. There can be
no assurance that the Company can successfully implement its acquisition
strategy. The failure to consummate acquisitions on reasonable terms or the
inability to successfully integrate and manage acquired operations and
assimilate personnel could have a material adverse impact on the Company's
business, financial condition and results of operations. See
"Business -- Business Strategy."
PROPOSED LEASING ACTIVITIES
One of the Company's strategies for growth is to increase market share
through engaging in aircraft components and spare parts leasing and through the
purchase of complete aircraft and engines that can be leased to third parties
and disassembled for components and spare parts or sold at the conclusion of the
lease
9
<PAGE> 11
term. Aircraft components and spare parts leases are typically used by smaller
passenger or cargo carriers to reduce capital expenditures, with the result that
the Company may be subject to an increased risk of financial default by the
lessee. The success of an operating lease depends in part upon having the
components and spare parts, aircraft or engines returned to the Company in
marketable condition as required by the lease. The financial return to the
Company from leased components and spare parts, aircraft or engines depends in
part on the re-lease of such components and spare parts, aircraft and engines on
favorable terms on a timely basis, the ability to sell the components and spare
parts, aircraft or engines at favorable prices, or the realization of sufficient
value from the disassembly for components and spare parts of aircraft or engines
at the end of the lease term. Numerous factors, many of which are beyond the
Company's control, may have an impact on the Company's ability to re-lease, sell
or disassemble aircraft or engines. These factors include general market
conditions, regulatory changes (particularly those imposing environmental,
maintenance and other requirements on the operation of aircraft and engines),
changes in the supply and cost of aircraft or engines and technological
developments. Consequently, there can be no assurance the Company's estimated
residual value for aircraft components and spare parts, complete aircraft or
engines will be realized. The inability to re-lease, sell components and spare
parts, aircraft or engines on favorable terms or to realize sufficient value
from the disassembly for components and spare parts of aircraft or engines on
expiration of a lease may have a material adverse effect on the Company's
financial condition and results of operations. Should the Company be unable to
collect lease payments when due or be required to repossess components and spare
parts, aircraft or engines in the event of a default by a lessee, the Company's
results of operations could also be adversely affected. See "Business."
DEPENDENCE ON INTERNATIONAL CUSTOMERS
The Company estimates that sales to international customers accounted for
approximately 30% and 13% of net sales in the fiscal year ended December 31,
1997 and the three months ended March 31, 1998, respectively. The Company
anticipates that international sales will continue to represent a material
portion of the Company's net sales in future periods. International sales are
subject to inherent risks, including variations in local economies, fluctuating
exchange rates, greater difficulty in accounts receivable collection, changes in
tariffs and other trade barriers, adverse foreign tax consequences, and burdens
of complying with a variety of foreign laws. There can be no assurance that
these factors will not have a material adverse impact on the Company's ability
to increase its international sales. Although the Company's international sales
are denominated in U.S. dollars, the Company may encounter exchange rate risk in
the event international sales are denominated in a currency other than U.S.
dollars in future periods. The Company does not presently hedge against adverse
foreign currency fluctuations and does not currently anticipate entering into
hedging transactions in the future. See "Business."
CUSTOMER CONCENTRATION
Although none of the Company's existing customers accounted for 10% or more
of the Company's net sales in 1997, three customers each accounted for between
5% and 10% of 1997 net sales. Sales to each of these three customers exceeded 5%
of 1997 net sales as a result of the customers each purchasing an engine from
the Company. In the three months ended March 31, 1998, one customer that
purchased an engine accounted for approximately 22% of net sales and sales to
two customers each accounted for between 5% and 10% of net sales. In a given
period, a substantial portion of the Company's net sales may be attributable to
engine sales. The sale of engines or aircraft components and spare parts during
a given period may result in a customer being considered a significant customer
of the Company for that period. While the Company believes it currently has no
customer the loss of which would have a material adverse effect on the Company's
results of operations, the loss of significant customers in future periods, or
an increased dependence on significant customers due to engine sales or other
transactions, may result in a material adverse effect on the Company's results
of operations. See "Business."
PRODUCT LIABILITY
The commercial aviation industry periodically experiences catastrophic
losses. As a redistributor, the Company may be named as a defendant in a lawsuit
as a result of a catastrophic loss if a component or spare
10
<PAGE> 12
part sold or leased by the Company were installed in an incident-related
aircraft. The Company currently has in force product liability insurance with
coverage limits for each occurrence that it believes to be in a sufficient
amount and on terms that are generally consistent with industry practice. To
date, the Company has not experienced any aviation related claims, and has not
experienced any product liability claims related to its products. The risk of
such claims may increase in the event the Company acquires an FAA-licensed
repair facility. An uninsured or partially insured claim, or a claim for which
third-party indemnification is not available, could have a material adverse
effect on the Company's financial condition and results of operations and may
adversely affect the Company's reputation in the aircraft components and spare
parts industry. See "Business -- Product Liability."
COMPETITION
The international aircraft components and spare parts redistribution market
is highly competitive. The market consists of a limited number of
well-capitalized companies selling a broad range of products and numerous small
competitors serving distinct market niches. Certain of these competitors have
substantially greater financial, marketing and other resources than does the
Company. The Company believes that current industry trends will benefit larger,
well-capitalized companies. The Company believes that range and depth of
inventories, quality and traceability of products, service and price are the key
competitive factors in the industry. The principal companies with which the
Company competes are AAR Corp., The AGES Group, Aviation Sales Company, AVTEAM,
Inc., Banner Aerospace and The Memphis Group, all of which are significantly
larger than the Company. Customers in need of aircraft components and spare
parts have access, through computer-generated inventory catalogues, to a broad
array of suppliers, including aircraft manufacturers, airlines and aircraft
services companies, which may have the effect of increasing competition for, and
lowering prices on, aircraft components and spare parts. See
"Business -- Competition."
EFFECT OF GENERAL ECONOMIC CONDITIONS
The Company's business is directly related to economic factors that affect
the airline industry, including the price of aviation fuel, demand for air
travel, availability of new aircraft and general economic conditions. When these
factors adversely affect the airline industry, such factors tend to exert
downward pressure on prices for aircraft components and spare parts. In
addition, days in receivables and difficulties in collecting accounts receivable
could be expected to increase in an adverse economic environment. As the price
of aviation fuel increases, older aircraft become less competitive when compared
with newer, more fuel efficient aircraft, with the result that demand for older
aircraft, and their associated components and spare parts, may decrease.
Although the Company believes that current economic conditions favor continued
growth in the markets it serves, a future economic slowdown or recession could
adversely affect the Company's ability to maintain profitability. See
"Business."
OFFERING PRICE DETERMINATION; ABSENCE OF PUBLIC MARKET; PRICE FLUCTUATIONS
The public offering price of the Common Stock has been determined by the
Company and Cruttenden Roth Incorporated, the Representative of the Underwriters
(the "Representative") and does not necessarily bear any relationship to the
assets, book value, or earnings history of the Company or any other investment
criteria. Prior to this offering, there has been no public market for the
Company's Common Stock. Although the Common Stock is expected to be approved for
quotation on the Nasdaq National Market upon notice of issuance, there can be no
assurance that an active trading market will develop. Factors such as quarterly
fluctuations in results of operations, the Company's ability to meet analysts'
expectations, changes in financial estimates by securities analysts or market
conditions in general may cause the market price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
has experienced significant price and volume fluctuations. These fluctuations,
which are often unrelated to the operating performance of specific companies,
have had a substantial effect on the market price of the stock of many small
capitalization companies such as the Company. Factors such as those cited above,
as well as other factors that may be unrelated to the operating performance of
the Company and may be beyond its control, could adversely affect the price of
the Company's Common Stock. See "Underwriting."
11
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE; RIGHTS TO ACQUIRE SHARES
Following this offering, 4,100,000 of the Company's outstanding shares of
Common Stock held by Messrs. Karl F. Brown and Herman O. Brown, Jr. (the
"Existing Common Stockholders") will be "restricted securities" and may in the
future be sold upon registration or in compliance with an exemption from
registration such as the exemption provided by Rule 144 adopted under the 1933
Act. Rule 144 as currently in effect generally provides that beneficial owners
of shares who have held such shares for one year may sell within a three-month
period a number of shares not exceeding the greater of 1% of the total
outstanding shares or the average trading volume of the shares during the four
calendar weeks preceding such sale. The outstanding restricted shares of Common
Stock are eligible to be sold in accordance with Rule 144 commencing 90 days
following the date of this Prospectus. Pursuant to the terms of the Underwriting
Agreement, the Representative has required that sales of the outstanding
restricted shares of Common Stock may not commence until 12 months following the
date of this Prospectus without the prior written consent of the Representative.
Future sales of restricted shares of Common Stock under Rule 144 or otherwise
could negatively impact the market price of the Common Stock. See "Shares
Eligible For Future Sale."
At the date of this Prospectus, the Company has reserved 350,000 shares of
Common Stock for issuance upon exercise of options granted under its 1998
Omnibus Stock Option Plan (the "Option Plan"), of which options to purchase
263,600 shares were outstanding as of April 30, 1998. The exercise prices of the
options outstanding are between $6.00 and $6.60 per share. At the completion of
this offering, the Representative will receive warrants (the "Representative's
Warrants") to purchase up to 200,000 shares of Common Stock at an exercise price
of $ (120% of the offering price of the Common Stock) during a period
of four years commencing one year following the date of this Prospectus. During
the terms of the outstanding options and the Representative's Warrants, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Common Stock, and the exercise thereof may dilute the ownership
interests of existing stockholders, including investors in this offering. The
existence of options and the Representative's Warrants may adversely affect the
terms on which the Company may obtain additional equity financing in the future.
Moreover, the holders are likely to exercise their rights to acquire Common
Stock at a time when the Company would otherwise be able to obtain capital on
terms more favorable than through the exercise of such options and warrants. See
"Management -- Stock Option Plan" and "Underwriting."
CONTROL BY PRINCIPAL STOCKHOLDERS; BENEFITS TO RELATED PARTIES
Upon consummation of this offering, the Existing Common Stockholders will
own 67.2% of the Company's outstanding Common Stock (64.1% if the over-allotment
option is fully exercised). Of such outstanding Common Stock, 1,025,000 shares
are the subject of a voting trust under which David M. Furr, a director of the
Company, has been vested with all voting rights relating to such Common Stock.
As a result, Messrs. Karl F. Brown and David M. Furr will, as a practical
matter, exercise control over the activities of the Company, including the
election of directors and other matters submitted to the stockholders for
approval such as acquisitions, mergers or changes in the capitalization of the
Company. The Existing Common Stockholders will receive S Corporation
distributions and will be repaid indebtedness owed by the Company to such
persons from a portion of the proceeds of this offering. The Company will also
reduce the outstanding balance of its bank credit facility using a portion of
the proceeds of this offering, as to which Karl F. Brown has provided a personal
guarantee. Such guarantee will be released upon completion of this offering. See
"S Corporation Distributions," "Management" and "Principal Stockholders."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND STATUTORY PROVISIONS
The Company's Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of Preferred Stock. The Preferred Stock may be issued in series
with the material terms of any series determined solely by the Board of
Directors. Such terms would likely include dividend rights, conversion features,
voting rights, redemption rights and liquidation preferences. The Company does
not currently anticipate that it will issue any Preferred Stock. However, if the
Company does issue any series of Preferred Stock in the future, it is likely
that such shares will have dividend privileges and liquidation preferences
superior to those of the Common Stock. Further, the Preferred Stock may be
issued with voting, conversion or other terms
12
<PAGE> 14
determined by the Board of Directors including, among others, dividend payment
requirements, redemption provisions, preferences as to dividends and
distributions, and preferential voting rights.
The Company's Certificate of Incorporation contains certain other
provisions that could have the effect of making it more difficult for a third
party to acquire, or discourage a third party from attempting to acquire,
control of the Company. Such provisions include a limitation on the ability of
stockholders to change the number of directors constituting the complete Board
of Directors without the affirmative vote of at least 66 2/3% of the outstanding
Common Stock and a limitation on the ability to amend either the Certificate of
Incorporation or By-Laws of the Company without the affirmative approval of
stockholders holding at least 75% of the outstanding shares of Common Stock. In
addition, in the event of certain change of control transactions, the vesting of
options and the expiration of any restriction periods on stock awards under the
Option Plan may be accelerated. These provisions could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company is also subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware ("Section 203") regulating corporate
takeovers. Section 203 prevents certain Delaware corporations from engaging,
under certain circumstances, in a "business combination" with an "interested
stockholder" (as defined) for three years following the date that such
stockholder became an "interested stockholder," unless the business combination
or interested stockholder is approved in a prescribed manner. Section 203 could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. See "Description of Securities."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company intends to retain profits, if any,
to fund growth and expansion. In connection with the Company's termination of
its S Corporation status, the Company agreed to distribute a total of
approximately $2.4 million, representing approximately 50% of the undistributed
accumulated taxable income and an amount equal to the estimated 1998 tax
liability of the Existing Common Stockholders through the date of termination of
the S Corporation election. See "Use of Proceeds," "S Corporation Distributions"
and "Dividend Policy."
DILUTION
This offering will result in immediate substantial dilution of $5.18
(64.8%) per share, which amount represents the difference between the pro forma
net tangible book value per share after the offering and an assumed public
offering price of $8.00 per share. See "Dilution."
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty in their capacities as
directors, subject to limited exceptions. Although such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission, the presence of these provisions in the Certificate of
Incorporation could prevent the recovery of monetary damages against directors
of the Company. See "Management -- Limitation of Liability and Indemnification."
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act. Such
forward-looking statements include, but are not limited to, statements regarding
the Company's marketing plans, expectations concerning growth in the market, and
the planned use of proceeds. Actual results could differ from those projected in
any forward-looking statement. The forward-looking statements are made as of the
date of this Prospectus and the Company assumes no obligation to update such
forward-looking statements, or to update the reasons why actual results may
differ from those projected in the forward-looking statements. Numerous factors,
including without limitation those factors mentioned in this Risk Factors
section, could cause future results to differ substantially from those
contemplated in such forward-looking statements. A number of the factors that
may influence future results of operations are outside the Company's control.
The safe harbor for forward-looking statements provided by Section 27A of the
1933 Act and Section 21E of the 1934 Act is not applicable to limit the
Company's liability for sales made in this offering.
13
<PAGE> 15
USE OF PROCEEDS
Based on an assumed offering price of $8.00 per share, the net proceeds
from the sale of the 2,000,000 shares of Common Stock offered hereby are
estimated to be approximately $13.9 million ($16.1 million if the Underwriters'
over-allotment option is fully exercised).
The primary purpose of this offering is to provide additional capital
required to support the Company's continued growth and expansion. The Company
intends to use approximately $4.5 million to purchase additional inventory of
aircraft components and spare parts, including JT9 or CF6 engines in connection
with the Company's entry into the wide-body aircraft market. An additional $3.1
million will be used to repay indebtedness owed, and S Corporation distributions
payable, to the Existing Common Stockholders. Advances from the Existing Common
Stockholders, which totalled approximately $650,000 at April 30, 1998, bear
interest at rates between 6% and 8% per annum, are unsecured and mature on or
prior to June 30, 1998. See "S Corporation Distributions" for further
information concerning amounts to be distributed to the Existing Common
Stockholders in connection with the termination of the Company's S Corporation
status. An additional $5.0 million will be used to repay indebtedness expected
to be outstanding under a $10.0 million credit facility maturing in September
1998 (the "Credit Facility") with NationsBank, N.A. ("NationsBank"), which
currently bears interest at the London Interbank Offered Rate ("LIBOR") plus an
amount between 1.75% to 2.25%.
The balance of the net proceeds of this offering, or $1.3 million, together
with available borrowings under the Credit Facility, will be used to purchase
aircraft and engines for disassembly, sale or lease, to increase the Company's
inventory of aircraft components and spare parts, to fund strategic acquisitions
and for other working capital needs. The Company intends to use an undetermined
portion of the net proceeds of this offering and available borrowings to pursue
strategic acquisitions of FAA-licensed repair facilities, aircraft component and
spare part redistributors, and small manufacturers of aviation products.
Although the Company has identified a number of companies engaged in these
activities, the Company has no agreements, understandings or commitments with
respect to any acquisitions and there can be no assurance that any acquisitions
will be completed. Amounts allocated to working capital will also be used to
fund additional marketing activities, for the hiring of additional customer
support personnel and to hire additional personnel experienced in avionics and
instrumentation as the Company executes its strategy of expanding in this market
segment. See "Business -- Business Strategy."
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering, based on current planning and business
conditions. However, the Company reserves the right to change such uses when and
if market conditions or unexpected changes in operating conditions or results of
operations occur. The amounts actually expended for each use may vary
significantly depending upon a number of factors including, but not limited to,
future growth and the amount of cash generated by the Company's operations. The
Company believes that its existing capital resources and the net proceeds of
this offering will be sufficient to maintain its current and planned operations
for a period of at least 18 months from the date of this Prospectus. Net
proceeds not immediately required for the purposes described above will be
invested principally in U.S. government securities, short-term certificates of
deposit, money market funds or other short-term, interest-bearing securities.
14
<PAGE> 16
S CORPORATION DISTRIBUTIONS
At all times immediately prior to this offering, the Company was treated
for federal and state income tax purposes as an S Corporation under the Internal
Revenue Code of 1986, as amended (the "Code"), and comparable state tax laws. As
a result, earnings of the Company were taxed for federal and state income tax
purposes directly to the Existing Common Stockholders, rather than to the
Company. In connection with its reincorporation in the State of Delaware, the
Company terminated its S Corporation election. In connection with the
termination of its S Corporation status, the Company will distribute
approximately $2.4 million to the Existing Common Stockholders. Had the Company
terminated its S Corporation status as of March 31, 1998, the Company estimates
the distribution would have totaled $2.7 million. The distribution is intended
to provide the Existing Common Stockholders with funds sufficient to pay
personal tax liabilities related to 1998 taxable income expected to be earned
prior to the date of the termination of the Company's S Corporation election,
together with an amount equal to approximately 50% of the previously
undistributed accumulated taxable income. A portion of the net proceeds to be
received by the Company from this offering will be used to pay such
distribution. See "Use of Proceeds." After the distribution, all remaining
undistributed accumulated taxable income will be reclassified to additional
paid-in capital.
The Company and the Existing Common Stockholders are parties to an S
Corporation Tax Allocation and Indemnification Agreement (the "Tax Agreement")
relating to their respective income tax liabilities. The Tax Agreement provides
for the indemnification by the Company of the Existing Common Stockholders for
any adjustments causing an increase in the Existing Common Stockholders' federal
and state income tax liability (including interest and penalties) related to the
Company's tax years prior to the termination of the S Corporation election,
unless such adjustments result in or are related to a corresponding decrease in
the Existing Common Stockholders' federal and state income tax liability with
respect to another S Corporation taxable year. Subject to certain limitations,
the Tax Agreement also provides that the Company will be indemnified by the
Existing Common Stockholders with respect to federal and state income taxes
(plus interest and penalties) shifted from an S Corporation taxable year to a
Company taxable year subsequent to the consummation of this offering. The
Existing Common Stockholders have given no security for their indemnification
obligation and, therefore, the Company's ability to collect such payments is
dependent upon the financial condition of the Existing Common Stockholders at
the time any such indemnification obligation arises, if ever. The Company is not
aware of any tax adjustments that may arise under the Tax Agreement. Any payment
made by the Company to the Existing Common Stockholders pursuant to the Tax
Agreement may be considered by the Internal Revenue Service or state tax
authorities to be non-deductible by the Company for income tax purposes. See
Note 13 to Financial Statements.
DIVIDEND POLICY
Except as described under "S Corporation Distributions," the Company has
never declared or paid any cash dividends or distributions on its capital stock.
The Company anticipates that for the foreseeable future all earnings will be
retained for use in the Company's business and no cash dividends will be paid to
stockholders. Any payment of cash dividends in the future on the Common Stock
will be dependent upon the Company's financial condition, results of operations,
current and anticipated cash requirements, plans for expansion, restrictions, if
any, under debt obligations, as well as other factors that the Board of
Directors deems relevant. The Company's current Credit Facility does not
prohibit or restrict the payment of cash dividends.
15
<PAGE> 17
DILUTION
As of March 31, 1998, the Company had a net tangible book value of $5.80
million or $1.41 per share based on 4,100,000 pro forma shares of Common Stock
outstanding. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered hereby at an assumed offering price of $8.00 per share and the S
Corporation distributions, the pro forma net tangible book value of the Company
as of March 31, 1998 would have been $17.23 million, or $2.82 per share. This
amount represents an immediate increase in pro forma net tangible book value of
$1.41 per share to the existing holders of Common Stock and an immediate
dilution of $5.18 per share to new investors. "Dilution" is determined by
subtracting pro forma net tangible book value per share after the offering from
the assumed offering price per share of Common Stock, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $8.00
Pro forma net tangible book value per share as of March
31, 1998............................................... $1.41
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.41
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.82
-----
Dilution per share to new investors......................... $5.18
=====
</TABLE>
The following table sets forth as of March 31, 1998, the number of shares
of Common Stock purchased for cash, the total consideration paid and the average
cash price per share paid by the Existing Common Stockholders and by new
investors (assuming the sale of 2,000,000 shares of Common Stock at the assumed
offering price of $8.00 per share, before deduction of underwriting discounts
and commissions and other estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 4,100,000 67.2% $ 3,329,000(1) 17.2% $0.81
New investors............... 2,000,000 32.8 16,000,000 82.8 $8.00
--------- ----- ----------- -----
Total.................. 6,100,000 100.0% $19,329,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Includes Common Stock of $4,100, estimated undistributed accumulated taxable
income of $3,279,900 that will be reclassified to additional paid-in capital
upon termination of the Company's S Corporation status and a one-time
benefit for net deferred income tax assets of approximately $45,000.
The foregoing information assumes no exercise of the over-allotment option,
no exercise of outstanding options to purchase an aggregate of 263,600 shares of
Common Stock, and no exercise of the Representative's Warrants. See
"Management -- Stock Option Plan," "Description of Securities" and
"Underwriting." To the extent that currently outstanding options or warrants are
exercised, there will be further dilution to new investors.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of March 31, 1998, and as adjusted to give effect to the reincorporation of
the Company in the State of Delaware and the sale of the 2,000,000 shares of
Common Stock offered at an assumed offering price of $8.00 per share (and after
deducting underwriting discounts and commissions and estimated offering
expenses).
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
PRO FORMA(1) AS ADJUSTED(2)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, par value $.01 per share; 2,000,000
shares authorized; no shares issued or outstanding,
as adjusted.......................................... $ -- $ --
Common Stock, par value $.001 per share; 20,000,000
shares authorized; 4,100,000 shares issued and
outstanding, 6,100,000 shares issued and outstanding,
as adjusted(2)....................................... 4 6
Additional paid-in capital(1)........................... 3,325 17,223
------ -------
Total stockholders' equity...................... $3,329 $17,229
====== =======
</TABLE>
- ---------------
(1) Pro forma information at March 31, 1998 has been presented as if the
reincorporation was completed on March 31, 1998 and gives effect to (i) a
one-time benefit for net deferred income tax assets of approximately
$45,000, (ii) the S Corporation distributions to the Existing Common
Stockholders, and (iii) the reclassification of $3,279,900 of undistributed
accumulated taxable income to additional paid-in capital upon termination of
the S Corporation election. See "S Corporation Distributions" and Note 13 to
Financial Statements.
(2) Gives effect to the reincorporation in the State of Delaware and excludes
(i) 300,000 shares of Common Stock issuable upon exercise of the
over-allotment option, (ii) 263,600 shares of Common Stock issuable upon
exercise of outstanding options at April 30, 1998, and (iii) 200,000 shares
of Common Stock issuable upon exercise of the Representative's Warrants.
17
<PAGE> 19
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and for
the years ended December 31, 1996 and 1997 have been derived from the financial
statements of the Company included elsewhere herein, which have been audited by
Cherry, Bekaert & Holland, L.L.P., and should be read in conjunction with those
financial statements (including the Notes thereto) and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" also
included elsewhere herein. The selected financial data as of March 31, 1998 and
for the three months ended March 31, 1997 and 1998 have been derived from the
unaudited financial statements of the Company for such periods and include, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of the financial conditions and
results of operations at and for such periods. The results of operations for the
three months ended March 31, 1998 are not necessarily indicative of results to
be expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------ -----------------
1996 1997 1997 1998
------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $8,352 $13,250 $2,337 $3,677
Cost of sales............................................. 5,479 7,946 1,402 2,110
------ ------- ------ ------
Gross profit.............................................. 2,873 5,304 935 1,567
Selling and marketing..................................... 551 703 125 231
General and administrative................................ 377 564 134 162
------ ------- ------ ------
Total expenses............................................ 928 1,267 259 393
------ ------- ------ ------
Operating income.......................................... 1,945 4,037 676 1,174
Interest and other, net................................... (2) 36 3 (59)
------ ------- ------ ------
Net income(1)............................................. $1,943 $ 4,073 $ 679 $1,115
====== ======= ====== ======
PRO FORMA DATA (UNAUDITED):
Historical net income..................................... $1,943 $ 4,073 $ 679 $1,115
Income taxes.............................................. 777 1,629 272 446
------ ------- ------ ------
Net income(1)............................................. $1,166 $ 2,444 $ 407 $ 669
====== ======= ====== ======
Basic earnings per share(2)(3)............................ $ .28 $ .60 $ .10 $ .16
Diluted earnings per share(2)(3).......................... $ .28 $ .59 $ .10 $ .16
Weighted average number of diluted shares(3).............. 4,161 4,161 4,161 4,161
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, -----------------------
1997 ACTUAL AS ADJUSTED(4)
------------ ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $4,198 $4,864 $16,064
Inventory................................................. 5,625 9,205 9,205
Accounts receivable....................................... 1,959 1,294 1,294
Total assets.............................................. 9,049 12,704 18,949
Total liabilities......................................... 4,180 6,720 1,720
Stockholders' equity...................................... 4,869 5,984 17,229
</TABLE>
- ---------------
(1) Until immediately prior to the date of this offering, the Company was an S
Corporation and not subject to federal or state corporate income taxes. In
connection with its reincorporation in the State of Delaware, the Company
terminated its S Corporation election and changed its tax status from an S
Corporation to a C Corporation and began providing for federal and state
corporate income taxes from and after that date. The statement of operations
data reflects a pro forma provision for income taxes as if the Company were
subject to federal and state corporate income taxes for all periods
presented. This pro forma provision for income taxes is computed using a
combined federal and state tax rate of 40%. See Note 13 to Financial
Statements.
(2) Supplemental pro forma basic earnings per share would have been $0.20,
$0.41, $0.07 and $0.12 for the years ended December 31, 1996 and 1997, and
the three months ended March 31, 1997 and 1998, respectively, and pro forma
diluted earnings per share would have been $0.20, $0.40, $0.07 and $0.12 for
the years ended December 31, 1996 and 1997, and the three months ended March
31, 1997 and 1998, respectively, after giving effect to the use of a portion
of the net proceeds of this offering to repay indebtedness outstanding at
January 1, 1996, and assuming a 2,000,000 share increase in the weighted
average number of shares outstanding.
(3) The weighted average number of shares outstanding gives retroactive effect
to the shares issued immediately prior to the effective date of this
offering in connection with the reincorporation and the dilutive effect of
options granted prior to the effective date of this offering. See Notes 12
and 13 to Financial Statements.
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company at an assumed offering price of $8.00 per share, and the application
of the estimated net proceeds therefrom to reduce indebtedness and make S
Corporation distributions. See "Use of Proceeds."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading international supplier of aircraft components and
spare parts primarily to maintenance and repair facilities, major commercial
passenger and cargo airlines and other redistributors located throughout the
world. The Company's net sales are principally derived from the redistribution
of engine components and spare parts for the Pratt & Whitney JT8 series of
engines and, to a lesser extent, the General Electric CFM56, as well as rotable,
repairable and expendable airframe components and spare parts for Boeing,
McDonnell-Douglas and Airbus aircraft. The Company acquires engine and airframe
components and spare parts for redistribution through purchases of surplus
aircraft for disassembly, bulk purchases of aircraft components and spare parts
from aircraft operators, purchases of individual components and spare parts from
other redistributors, consignments from aircraft operators and others, and
exchanges of inventoried aircraft components and spare parts for components and
spare parts that require service or overhaul.
The Company's net sales increased 58.6% to over $13 million in 1997 and
increased 57.4% to $3.7 million in the three months ended March 31, 1998
compared to the same period in 1997. The Company believes the growth in net
sales reflects the broadening of the Company's customer base, emphasizing sales
of engines and engine components and spare parts for the JT8 and CFM56 series
engines, capitalizing on the Company's expertise in Boeing 737 and
McDonnell-Douglas MD-80 and DC-9 aircraft, and achieving diversity in sales to
both domestic and international customers of a balanced mix of engine and
airframe components and spare parts. In this regard, with the exception of the
largest participants in its industry, the Company believes it is one of the few
aircraft component and spare part redistributors of its size engaged in the sale
of both engine and airframe components and spare parts to a broad spectrum of
domestic and international customers.
The Company anticipates that the capital provided by this offering will
allow it to (i) expand its existing business through entry into the wide-body
aircraft market for engines and airframe components and spare parts, (ii)
increase inventories of components and spare parts and provide the Company with
financial flexibility to purchase additional engines for both narrow-body and
wide-body aircraft, (iii) enter the market for inventory management services and
increase leasing of engines and airframe components and spare parts, (iv) expand
its purchases of complete aircraft that can be leased to third parties and
which, upon expiration of the lease term, can be disassembled for their
components and spare parts, and (v) accelerate its market penetration in the
international market for complete engines and engine and airframe components and
spare parts. The Company also anticipates that a portion of the proceeds of this
offering will be utilized to acquire FAA-licensed repair facilities, aircraft
component and spare part redistributors, and small manufacturers of aviation
products. The Company believes that, through strategic acquisitions, it may be
successful in vertically integrating repair and manufacturing activities and
aircraft component and spare part redistribution. The Company expended over $3
million in repairs in 1997 and believes that acquisition of one or more repair
facilities will in particular offer synergistic benefits to the Company.
Although the Company has no agreements, understandings or commitments with
respect to potential acquisitions, the Company has identified a number of
industry participants with which it may initiate discussions following this
offering.
The Company records complete engines held for resale or lease at the lower
of cost or market. Engine and airframe components and spare parts are initially
recorded at cost. Cost of sales relative to bulk purchases of engine and
airframe components and spare parts are recorded for all components and spare
parts in the bulk purchase at a historical ratio of cost of sales to net sales.
The Company records the cost of each engine and airframe component and spare
part sold at the time the related sales are recognized, based on such ratio.
Revenue from the sale of aircraft components and spare parts is recognized when
products are shipped to the customer. Revenue from engine sales is recognized
when the Company has received all consideration and title and the risk of
ownership are transferred to the customer, which is generally upon delivery of
the engine.
Prior to this offering, the Company elected for federal and state income
tax purposes to be treated as an S Corporation under the Code and comparable
state tax laws. As a result, earnings of the Company were taxed for federal and
state income tax purposes directly to the Existing Common Stockholders, rather
than to the
19
<PAGE> 21
Company. Immediately prior to the date of this Prospectus, the Company
terminated its S Corporation election and converted from an S Corporation to a C
Corporation in conjunction with its reincorporation in the State of Delaware.
The statement of operations data for all periods includes a pro forma provision
for federal and state income taxes as if the Company were subject to federal and
state income taxes for all periods presented. This pro forma provision is
computed using a combined federal and state tax rate of 40%. See "S Corporation
Distributions" and Note 13 to Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's statements
of operations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------- --------------
1996 1997 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 65.6 60.0 60.0 57.4
----- ----- ----- -----
Gross profit....................................... 34.4 40.0 40.0 42.6
Selling and marketing.............................. 6.6 5.3 5.3 6.3
General and administrative......................... 4.5 4.3 5.7 4.4
----- ----- ----- -----
Operating income................................... 23.3 30.4 29.0 31.9
Interest and other, net............................ -- .3 -- (1.6)
----- ----- ----- -----
Net income......................................... 23.3 30.7 29.0 30.3
Pro forma income taxes............................. 9.3 12.3 11.6 12.1
----- ----- ----- -----
Pro forma net income............................... 14.0% 18.4% 17.4% 18.2%
===== ===== ===== =====
</TABLE>
Comparison of Three Months Ended March 31, 1997 and 1998
Net sales increased $1.3 million, or 57.4%, from $2.3 million in the three
months ended March 31, 1997 to $3.7 million in the three months ended March 31,
1998. Substantially all of the increase in net sales was accounted for by higher
sales of aircraft components and spare parts. One complete engine was sold in
each of the three month periods ended March 31, 1997 and 1998, although the
price of the engine sold in 1998 was 17% higher than the price of the engine
sold in the comparable prior period. Sales to international customers remained
constant at $500,000 in each period. However, as a percentage of net sales,
international sales decreased from 21% of net sales in the 1997 period to 13% of
net sales in the 1998 period.
Cost of sales increased $708,000, or 50.5%, from $1.4 million in the three
months ended March 31, 1997 to $2.1 million in the three months ended March 31,
1998. Gross profit increased $632,000, or 67.7%, from $935,000 in the three
months ended March 31, 1997 to $1.6 million in the three months ended March 31,
1998. As a percentage of net sales, gross profit increased from 40.0% in the
three months ended March 31, 1997 to 42.6% in the comparable 1998 period. The
increase was due primarily to higher sales of aircraft components and spare
parts that were acquired in prior bulk purchases, with an associated lower cost
of sales, and higher sales of engine components and spare parts, which generally
have higher margins than airframe components and spare parts.
Selling and marketing expenses increased $106,000, or 84.7%, from $125,000
in the three months ended March 31, 1997 to $231,000 in the three months ended
March 31, 1998. This increase primarily reflects higher commissions paid to
sales agents, higher compensation to sales personnel and travel related sales
costs. As a percentage of net sales, selling and marketing expenses increased
from 5.3% in the three months ended March 31, 1997 to 6.3% in the comparable
1998 period.
General and administrative expenses increased $28,000, or 21.3%, from
$134,000 in the three months ended March 31, 1997 to $162,000 in the comparable
1998 period. This increase reflects additional staffing expense and a portion of
the increase in occupancy charges due to the Company's relocation of its
20
<PAGE> 22
headquarters facility. As a percentage of net sales, general and administrative
expenses decreased from 5.7% in the three months ended March 31, 1997 to 4.4% in
the three months ended March 31, 1998.
Net other income (expense) decreased from net other income of $3,000 in the
three months ended March 31, 1997 to net other expense of $59,000 in the three
months ended March 31, 1998. The increase in net other expense reflects higher
levels of indebtedness outstanding under the Credit Facility and a decrease in
interest income.
As a result of the above, net income increased $436,000, or 64.2%, from
$679,000 in the three months ended March 31, 1997 to $1.1 million in the three
months ended March 31, 1998. As the Company was not subject to federal and state
income taxes during either period, net income represents the difference between
gross profit and other expenses. To allow comparisons with C corporations, pro
forma federal and state income taxes have been assumed at a combined 40% rate.
Based on this assumption, the Company would have incurred pro forma income taxes
of $272,000 in the three months ended March 31, 1997 and $446,000 in the three
months ended March 31, 1998, resulting in pro forma net income of $407,000 and
$669,000 in the three months ended March 31, 1997 and 1998, respectively.
Comparison of Years Ended December 31, 1996 and 1997
Net sales increased $4.8 million, or 58.6%, from $8.4 million in 1996 to
$13.2 million in 1997. The increase in net sales primarily reflects the sale of
seven complete engines in 1997, as compared to three complete engines in 1996.
Sales of engines increased $2.3 million from $1.49 million in 1996 to $3.75
million in 1997. Average unit prices of the complete engines sold in 1997
increased by approximately 7.5% from 1996. Sales to international customers
increased $3.2 million, from $1.0 million in 1996 to $4.2 million in 1997, as
the Company obtained new customers in Europe and the Far East during 1997.
Cost of sales increased $2.4 million, or 45.0%, from $5.5 million in 1996
to $7.9 million in 1997. Gross profit increased from $2.9 million in 1996 to
$5.3 million in 1997, reflecting an increase in gross profit as a percentage of
net sales from 34.4% to 40.0%. The increase in gross profit was due primarily to
increased engine and engine component and spare part sales in 1997 as compared
to 1996, which generally carry higher margins than airframe components and spare
parts.
Selling and marketing expenses increased $152,000, or 27.6%, from $551,000
in 1996 to $703,000 in 1997. This increase primarily reflects commissions paid
to agents in 1997, higher compensation to sales personnel and travel related
sales costs. As a percentage of net sales, selling and marketing expenses
declined from 6.6% in 1996 to 5.3% in 1997.
General and administrative expenses increased $186,000, or 49.4%, from
$378,000 in 1996 to $564,000 in 1997. This increase reflects increased personnel
expense resulting from higher staffing levels, expenses associated with the
Company's relocation to its new headquarters facility, increased insurance
expense, and an increase in the Company's discretionary contribution to the
employee profit sharing plan. As a percentage of net sales, general and
administrative expenses declined from 4.5% in 1996 to 4.3% in 1997.
Net other income (expense) increased from net other expense of $1,000 in
1996 to net other income of $42,000 in 1997. While interest expense increased
from $74,000 in 1996 to $79,000 in 1997, interest income increased from $71,000
in 1996 to $81,000 in 1997 and other income increased from $1,000 in 1996 to
$35,000 in 1997.
As a result of the above, net income increased $2.1 million, or 109.6%,
from $1.9 million in 1996 to $4.1 million in 1997. As the Company was not
subject to federal and state income taxes, net income represents the difference
between gross profit and other expenses. To allow comparisons with C
Corporations, pro forma federal and state income taxes have been assumed at a
combined 40% rate. Based on this assumption, the Company would have incurred pro
forma income taxes of $777,000 in 1996 and $1.6 million in 1997, resulting in
pro forma net income of $1.2 million and $2.4 million in 1996 and 1997,
respectively.
21
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity to date have been comprised of
cash flow from operating activities, borrowings under the Credit Facility and
advances from the Existing Common Stockholders. The Company requires capital for
the procurement of inventory, to fund the servicing and overhaul of engine and
airframe components and spare parts performed by third-party repair facilities,
for normal operating expenses and for general working capital purposes.
The Credit Facility was initially established with NationsBank in June
1995, and has been renewed annually through September 1998. The Credit Facility
currently permits borrowings of up to $10.0 million as a revolving credit, with
principal due on maturity and interest payable monthly commencing December 1997.
The Credit Facility bears interest at LIBOR plus an amount between 1.75% and
2.25% and is secured by accounts receivable, inventory and the personal
guarantee of Karl F. Brown. As of March 31, 1998, the Company had $3.5 million
outstanding under the Credit Facility, which amount increased to $5.0 million
outstanding at April 30, 1998. The personal guarantee of the Credit Facility by
Karl F. Brown will be released upon completion of this offering.
Since 1993, the Company has periodically received advances from the
Existing Common Stockholders, the proceeds of which were used for working
capital purposes. Advances received from the Existing Common Stockholders bear
interest at rates between 6% and 8% per annum and mature June 30, 1998. At March
31, 1998, amounts outstanding and owed to the Existing Common Stockholders
totalled approximately $1.5 million. The amounts outstanding were reduced to
$650,000 as of April 30, 1998. Upon completion of this offering, the Company
will apply an aggregate of approximately $5.6 million to the repayment of the
Credit Facility and the advances from the Existing Common Stockholders, which
will reduce current liabilities by an equal amount. In connection with the
termination of its S Corporation election, the Company also anticipates
distributing approximately $2.4 million to the Existing Common Stockholders from
the proceeds of this offering. See "Use of Proceeds" and "S Corporation
Distributions."
As of March 31, 1998, the Company's principal sources of liquidity included
cash and cash equivalents of $1.0 million and net accounts receivable of $1.3
million. The Company had working capital of $4.9 million and no long-term debt
as of March 31, 1998.
For the three months ended March 31, 1998, operating activities used cash
of $1.2 million, primarily for increases in inventory, partially offset by net
income, decreases in trade and other receivables and increases in accounts
payable and accrued expenses. Net cash used in investing activities during the
three months ended March 31, 1998 was $245,000, reflecting the purchase of
investments and fixed assets. Net cash provided by financing activities during
the three months ended March 31, 1998 was $1.7 million, consisting of borrowings
under the Credit Facility partially offset by deferred offering costs.
For the year ended December 31, 1997, operating activities used cash of
$630,000, primarily for increases in trade receivables and inventory, partially
offset by net income. Net cash used in investing activities during the year
ended December 31, 1997 was $548,000, reflecting the purchase of certain fixed
assets and investments, while net cash provided by financing activities during
the same period was $155,000, consisting primarily of borrowings under the
Credit Facility and from the Existing Common Stockholders partially offset by S
Corporation distributions.
Historically, the Company's business has not required significant capital
expenditures. The Company's capital expenditures were approximately $40,000,
$263,000 and $70,000 in the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1998, respectively. The increases in 1997 and the three
months ended March 31, 1998 primarily reflect capital expenditures on furniture
and fixtures installed in the new headquarters facility. The Company currently
has no material capital commitments.
The Company believes that existing cash balances, the Credit Facility and
the proceeds of this offering will be sufficient to meet the Company's capital
requirements for at least the next 18 months. Thereafter, if the Company's
capital requirements increase, the Company could be required to secure
additional sources of capital. There can be no assurance the Company will be
capable of securing additional capital or that the terms upon which such capital
will be available to the Company will be acceptable.
22
<PAGE> 24
INFLATION
Although the Company cannot accurately anticipate the effect of inflation
on its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition. Increases in fuel costs due to inflation may
adversely affect demand for used aircraft that typically are less fuel
efficient, thereby decreasing demand for aircraft components and spare parts for
these aircraft.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("Statement 131"), which is effective
for financial statements with fiscal years beginning after December 15, 1997.
Statement 131 requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to stockholders. Statement 131 also requires that public business enterprises
report certain information about their products and services, the geographic
areas in which they operate and their major customers.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("Statement 132"), which revises employers' disclosures
about pension and other postretirement benefit plans. Statement 132 does not
change the measurement or recognition of those plans, but requires additional
information on changes in benefit obligations and fair values of plan assets,
and eliminates certain disclosures previously required by SFAS Nos. 87, 88 and
106. Statement 132 is effective for financial statements with fiscal years
beginning after December 15, 1997.
The Company has not determined what additional disclosures, if any, may be
required by the provisions of Statements 131 and 132, but does not expect
adoption of either statement to have a material effect on its results of
operations.
YEAR 2000 ISSUE
The Company has reviewed all of its current computer applications with
respect to the year 2000 issue. The Company believes that certain of its
applications are substantially year 2000 compliant and that any additional costs
with respect to year 2000 compliance will not be material to the Company. The
Company is currently unable to determine the effect on it, if any, of year 2000
compliance by its customers or suppliers.
23
<PAGE> 25
BUSINESS
GENERAL
The Company is a leading international supplier of primarily high-margin
aircraft components and spare parts to major commercial passenger and cargo
airlines, maintenance and repair facilities and other redistributors located
throughout the world. The Company's net sales are principally derived from the
redistribution of complete engines and engine components and spare parts for the
Pratt & Whitney JT8 series and, to a lesser extent, the General Electric CFM56,
as well as rotable, repairable and expendable airframe components and spare
parts for Boeing, McDonnell-Douglas and Airbus aircraft. The Company acquires
engine and airframe components and spare parts for redistribution through
purchases of surplus aircraft for disassembly, bulk purchases of components and
spare parts from aircraft operators, purchases of individual components and
spare parts from other redistributors, consignments from aircraft operators and
others, and exchanges of inventoried aircraft components and spare parts for
components and spare parts that require service or overhaul.
The Company's net sales increased 58.6% to over $13 million in 1997 and net
income increased approximately 110% to over $4 million in 1997. The growth in
net sales and net income reflects (i) increases in sales of complete engines and
engine components and spare parts, which generally carry higher margins than
airframe components and spare parts, (ii) an increase in the average unit price
per sale due to changes in the Company's product mix to encompass higher priced
engine and airframe component and spare part sales, (iii) diversification of the
Company's engine sales into new engine types such as the CFM56, and (iv)
increasing sales of complete engines and engine and airframe components and
spare parts to both domestic and international customers. The Company believes
it is one of the few aircraft component and spare part redistributors of its
size engaged in the sale of both engine and airframe components and spare parts
to a broad spectrum of domestic and international customers.
INDUSTRY OVERVIEW
The Company believes that the annual worldwide market for aircraft
components and spare parts is approximately $10 billion, of which approximately
$1.3 billion represents sales of aircraft components and spare parts to the
redistribution market. The Company believes that this market will continue to
grow due to the following factors:
Growth in Air Transit Activity. According to the Boeing Report, global air
travel is projected to increase approximately 75% by the year 2006, and the
number of passenger and cargo aircraft in service will increase approximately
48% to 17,000 from 11,500. While new aircraft sales remain strong, increased
demand for air travel is expected to cause aircraft operators to retain older
aircraft. As demand for air travel increases, demand for aircraft components and
spare parts is anticipated to grow as aircraft components and spare parts must
be serviced or replaced at specified intervals. The Boeing Report forecasts the
number of aircraft in the worldwide fleet will continue to increase, as
evidenced by the following chart:
24
<PAGE> 26
Line graph illustrating projected increase in number of aircraft in worldwide
fleet from 11,500 in 1996 to approximately 22,500 in year 2016. Side axis of
graph presents number of aircraft and bottom axis presents years.
[GRAPH]
Source: The Boeing Report
According to the Boeing Report, most of the aircraft delivered to cargo
carriers in the near future are expected to be used aircraft converted from
commercial passenger service. This expected trend appears to be materializing as
well-known cargo carriers have already expanded their fleets of wide-body
aircraft using the Boeing 767, the McDonnell-Douglas DC-10 and the Airbus A300.
In addition, the Boeing Report forecasts a shift to larger aircraft in the cargo
market, as evidenced by the following charts:
Pie chart graphs illustrating breakdown in small, medium and large cargo
aircraft in 1996 and 2006. Pie chart for 1996 sets forth breakdown of 43%, 37%
and 20% for small, medium and large cargo aircraft, respectively; pie chart
for 2006 sets forth breakdown of 38%, 34% and 28% for small, medium and large
cargo aircraft, respectively.
[PIE CHARTS]
<TABLE>
<CAPTION>
CARGO AIRCRAFT TYPE
--------------------------------------------------------
SMALL MEDIUM LARGE
(UNDER 30 TONNES) (30 TO 50 TONNES) (OVER 50 TONNES)
----------------- ----------------- ----------------
<S> <C> <C>
727 707 747
737 757 767
DC-9 DC-8 DC-10
BAe-146 A300 MD-11
BAC-111 A310
L-1011
</TABLE>
Source: The Boeing Report
25
<PAGE> 27
Increased Outsourcing of Inventory Management Function. As airlines have
come under increasing pressure to reduce the cost associated with air
transportation, airlines have made an effort to reduce their operating costs
where possible. While some operating costs are beyond an airline's direct
control, such as the price of aviation fuel, inventory outsourcing is one means
by which airlines can reduce their capital invested in inventory and achieve
certain economies of scale. A number of smaller and start-up airlines and air
cargo operators do not currently own an inventory of aircraft components and
spare parts, but rather have entered into agreements with redistributors to
supply all or a portion of their aircraft components and spare parts
requirements. Some airlines have also begun to outsource portions of their
purchasing services, repair and overhaul activities, and warehouse management.
The Company believes that the trend toward outsourcing of inventory management
services will offer opportunities for redistributors, such as the Company, to
expand their market share.
Increase in the Number of Older Commercial Aircraft. Increased demand for
air travel and air cargo deliveries, and the need for aircraft operators to
reduce operating and capital costs, have prompted many airlines to extend the
useful life of older aircraft. The installation of FAA-approved hush-kits and
extended life maintenance programs have also increased the useful life of many
older aircraft. As a result, most aircraft types have had a longer service life
than originally anticipated. The following chart illustrates the increase in the
worldwide aircraft fleet average age from 1965 through 1995:
Line graph illustrating historical increase in worldwide fleet average age from
less than 4 years in 1965 to 12 years in 1995. Side axis of graph presents
fleet average age expressed in years and bottom axis presents years.
[GRAPH]
Source: World Jet Inventory year-end 1996
Many foreign and domestic aircraft operators and cargo carriers are
increasing their fleets through the acquisition of less expensive used aircraft.
As older aircraft are transitioned from major domestic passenger airlines to
lower cost passenger airlines and cargo carriers, used aircraft have enjoyed
longer service lives than originally anticipated. Older aircraft generally
require more maintenance and replacement components and spare parts than new
aircraft. The FAA recently proposed significant reductions in the maximum
payloads on certain Boeing 727 aircraft modified from passenger to cargo
configurations due to concerns arising from safety and engineering tests. A
final decision on proposed rule changes by the FAA is not expected before April
1998. It is currently unclear what effect, if any, adoption of the proposed rule
changes relating to payloads on certain 727 aircraft would have on demand for
727 aircraft to be converted to cargo use.
Demand for Approved, Full Service Suppliers; Highly Fragmented
Industry. Cost considerations are causing many aircraft operators to reduce the
size of their aircraft component and spare part inventories. In addition,
efficiency and quality considerations are causing aircraft operators to maintain
relationships with a more limited number of approved, full service component and
spare part suppliers. The larger, better capitalized participants in the
components and spare parts redistribution industry have added a broad array of
products and services in order to provide aircraft operators with "one stop
shopping" for their components and spare parts and repair and maintenance
requirements. The Company believes that a majority of the
26
<PAGE> 28
redistribution market is currently divided among a significant number of small
and mid-sized redistributors and that these entities, together with a number of
maintenance and repair facilities and aircraft component and spare part
manufacturers, are viable candidates for acquisition. As airline operators
continue to reduce the number of their suppliers and as the capital required to
compete in the component and spare part redistribution industry increases, the
Company anticipates that the trend toward consolidation will accelerate and
provide industry consolidators with an opportunity to expand their market share.
Leasing. The Company believes that aircraft operators are increasingly
using engine and component and spare part leases in order to reduce working
capital requirements and control overhead expenses. Short-term engine leases are
used by a variety of carriers that do not maintain a pool of spare engines. The
Company believes that leasing of used commercial jet aircraft and complete
engines should grow due to the emphasis by airlines on cost reduction, the
desire of airlines for fleet flexibility and the growth in air travel.
Increased Regulatory Scrutiny and Importance of Capital. In September 1996,
the FAA issued an advisory circular recommending voluntary industry oversight
and accreditation of aircraft component and spare part suppliers. As a result of
heightened regulatory scrutiny, aircraft operators have increased the level of
documentation and traceability required from component and spare part
redistributors. The emphasis on documentation and traceability, which requires
more sophisticated inventory tracking systems, is expected to create additional
barriers to market entry and strain the resources of smaller, less
well-capitalized component and spare part redistributors.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading
redistributor of aircraft components and spare parts to customers worldwide and
to capitalize on the continued expansion of the aircraft components and spare
parts aftermarket. The principal components of the Company's strategy include:
Broaden Engine and Airframe Product Lines. The Company intends to
expand its complete engine and engine components and spare parts product
line by adding products such as the JT9D, CF6 and PW4000 engines used in
Boeing 747 and 767 aircraft, the McDonnell-Douglas DC-10 and the Airbus
A300. In addition, the Company expects to expand its product line to
include airframe components and spare parts for wide-body aircraft, such as
the Boeing 767, McDonnell-Douglas DC-10, and Airbus A300. Following this
offering, the Company also anticipates hiring additional personnel
experienced in avionics and instrumentation in order to allow the Company
to offer an expanded range of higher-margin avionics and instrumentation
products. The Company began purchasing higher thrust CFM56 engines in 1995
and intends to expand its complete engine and engine components and spare
parts inventory for this product. The CFM56 is the second most popular
engine worldwide based on the number of aircraft powered by this engine
type, and is considered likely to be in service for another 25 years. As
fleets of wide-body aircraft and their engines age and as air cargo
carriers transition larger portions of their fleets to widebody aircraft,
the Company will seek to capitalize on the demand for complete engines and
engine and airframe components and spare parts resulting from the aging and
continued use of these aircraft models.
Capitalize on Bulk Inventory Purchase Opportunities. The Company
expects to leverage its management expertise and contacts within the
aviation industry to obtain access to, and exploit, bulk inventory purchase
opportunities. These opportunities arise when aircraft operators, in order
to reduce capital invested in inventory, sell large amounts of inventory in
a single transaction due to the retirement of an aircraft type from their
fleets, inventory reduction programs to reduce costs, the downsizing of
operations or the dissolution of their businesses as a whole. Bulk
inventory purchases allow the Company to obtain large inventories of
aircraft components and spare parts at a lower cost than can ordinarily be
obtained by purchasing aircraft components and spare parts on an individual
basis, resulting generally in higher gross margins on sales of such
components and spare parts. In 1997, the Company successfully completed
three significant, and approximately five small, bulk inventory purchases.
Upon completion of this offering, the Company believes its increased
working capital will allow it to respond quickly to bulk inventory purchase
opportunities. The Company believes that its market presence, experience in
27
<PAGE> 29
evaluating bulk inventory purchases and capital strength will enable the
Company to quickly analyze and complete large bulk inventory purchase
opportunities if the economics of such purchases are favorable.
Pursue Strategic Acquisitions. The Company intends to implement a
consolidation strategy in the highly fragmented aircraft components and
spare parts industry designed to increase the Company's market share and to
achieve some degree of vertical integration through acquisitions of, among
others, FAA-licensed repair facilities. As a result of management's almost
100 years' combined experience in the aircraft components and spare parts
redistribution industry, the Company is familiar with a number of
FAA-licensed repair facilities, aircraft component and spare part
redistributors and small manufacturers of aviation products. The Company
intends, following this offering, to pursue acquisitions of selected
candidates that will complement the Company's existing business, leverage
operating efficiencies and capitalize on opportunities to vertically
integrate repair and maintenance activities and aircraft components and
spare parts redistribution operations. The Company expended over $3 million
in repairs in 1997 and believes that acquisition of one or more repair
facilities will in particular offer synergistic benefits to the Company.
The Company believes that small aftermarket component and spare part
redistributors, many of which are family-owned or capital constrained, may
be unable to provide the extensive inventory and quality control measures
necessary to comply with applicable regulatory and customer requirements,
and will provide acquisition opportunities for the Company. Acquisitions
are expected to increase the Company's customer base, expand its product
line (both with respect to aircraft and engines in which the Company
currently specializes and into new aircraft and engine types), and to
strengthen its relationships with existing customers through providing a
more extensive range of products and services.
Expand Leasing Activities and Penetrate Inventory Management
Market. As aircraft operators have sought to lower working capital
requirements and reduce overhead, a trend has developed among both large
and small carriers to lease complete engines in order to eliminate the need
to maintain spare engine pools. A number of international and regional
carriers have also implemented aircraft component and spare part leasing
programs as a means of preserving capital while maintaining adequate
aircraft components and spare parts support. The Company has from time to
time leased engines and select airframe components and spare parts to
aircraft operators, has entered into one joint venture to lease an engine
to a cargo carrier and another joint venture to convert eight engines into
a different configuration, and intends to further develop its leasing
activities by purchasing and leasing complete aircraft and engines to
aircraft operators and by expanding its engine and airframe component and
spare part leasing programs. The Company believes it can enhance its
customer relationships by offering a broad range of leasing services and,
as aircraft or engines come off-lease at the expiration of the lease term,
the Company will have a range of options for utilization of the asset,
including the re-lease, sale or disassembly of the aircraft or engines for
components and spare parts. The Company also believes that, through its
participation in the components and spare parts leasing market, the Company
will be able to more effectively utilize portions of its components and
spare parts inventory and capitalize on its experience and knowledge of the
market to maximize the residual value of such inventory upon the expiration
of leases. In addition to leasing, aircraft operators have attempted to
reduce overhead by outsourcing inventory management through consignment and
other arrangements. The Company has entered into consignment arrangements
in the past with selected aircraft operators and expects to offer
consignment services in the future to enhance its customer relationships.
Increase Business Through Inventory Expansion and Addition of Sales
Agents. The Company intends to expand its business with existing customers
and to secure new customers by continuing to increase the size and depth of
its inventory and by continuing to expand its marketing efforts to its
international customer base. Following completion of this offering, the
Company will attempt to increase inventory of high turnover engine and
airframe components and spare parts, undertake a targeted expansion of
inventory in additional product lines, and purchase complete aircraft and
engines for leasing that at lease termination will be available for
disassembly or sale. Additionally, the Company is currently seeking to add
sales agents in Central and South America and will seek to selectively
increase its base of international sales agents following this offering
through recruiting of qualified agents principally in
28
<PAGE> 30
Europe, the Middle East and select Asian markets. The Company believes that
the addition of more sales agents not only offers the opportunity to
increase customer sales, but also will assist in the identification of
available purchase opportunities for aircraft, engines and aircraft
components and spare parts on a worldwide basis.
AIRCRAFT COMPONENTS AND SPARE PARTS
Aircraft components and spare parts can be categorized by their ongoing
ability to be repaired and returned to service. The general categories are as
follows: (i) rotable; (ii) repairable; and (iii) expendable. A rotable is a part
which is removed periodically as dictated by the FAA, an original equipment
manufacturer ("OEM") or 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. An important 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. An expendable is
generally a part which is used and not thereafter repaired for further use.
Aircraft components and spare parts' conditions are classified within the
industry as (i) factory new, (ii) new surplus, (iii) overhauled, (iv)
serviceable, and (v) "as removed". A factory new or new surplus part is one that
has never been installed or used. Factory new parts are purchased from OEMs or
their authorized distributors. New surplus parts are purchased from excess stock
of airlines, repair facilities or other redistributors. An overhauled part has
been completely disassembled, inspected, repaired, reassembled and tested by a
licensed repair facility. A part is classified serviceable if it is repaired by
a licensed repair facility but not completely disassembled as in an overhaul. A
part may also be classified serviceable if it is removed by the operator from an
aircraft or engine while operating under an approved maintenance program and is
functional and meets any manufacturer or time and cycle restrictions applicable
to the part. A factory new, new surplus, overhauled or serviceable part
designation indicates that the part can be immediately utilized on an aircraft.
A part in "as removed" condition requires functional testing, repair or overhaul
by a licensed repair facility prior to being returned to service on an aircraft.
The aircraft components and spare parts sold by the Company include rotable,
repairable and expendable airframe and engine components and spare parts for
commercial aircraft. The Company estimates that sales of rotable, repairable and
expendable components and spare parts accounted for approximately 80%, 19% and
1%, respectively, of the Company's 1997 net sales.
PRODUCTS
The Company's inventory of aircraft components and spare parts is comprised
primarily of JT8 series engines and engine components and spare parts and
airframe components and spare parts for all series of Boeing 737 aircraft. The
JT8D engine, certain models of which have not been in production since 1987, is
estimated to power approximately 40% of commercial aircraft worldwide,
consisting almost exclusively of narrow-body aircraft. The Company estimates,
based on publicly available information, that there are in excess of 10,000 JT8D
engines currently in service on Boeing 737-100 and -200 aircraft, 727 aircraft
and McDonnell-Douglas DC-9 aircraft. The Company expanded its components and
spare parts inventory in 1995 to include CFM56 engines and engine components and
spare parts. The CFM56 is a higher thrust engine that, in its three primary
configurations, is used to power the 737-300, -400 and -500 aircraft, the
McDonnell-Douglas DC-8 and a variety of Airbus aircraft.
Engine Components and Spare Parts. The Company's inventory of engine
components and spare parts consists primarily of components and spare parts for
the JT8D series of engines and, to a lesser degree, CFM56 series engines. At
December 31, 1997, the Company's inventory of engine components and spare parts
consisted of over 47,000 items, most of which were obtained by the purchase and
disassembly of complete engines. Generally, the Company's inventory of engine
components and spare parts is purchased in "as removed" condition and therefore
requires repair by a licensed repair facility. Similarly, the Company generally
purchases most of its engines in non-serviceable condition, commissions
necessary repairs by a licensed repair facility, and then resells or leases the
complete overhauled engines to its customers. Where possible, the Company uses
engine components and spare parts from its inventory in order to minimize
out-of-
29
<PAGE> 31
pocket repair cost and maximize inventory turnover. Due to the Company's
repeated use of licensed repair facilities, the Company believes it has
identified certain repair facilities that have developed specific areas of
expertise within the repair industry and that are capable of meeting the
Company's quality standards and scheduling requirements for repairs.
The Company generally begins marketing efforts related to the sale of an
engine as soon as the engine is purchased, and the Company has frequently been
successful in concluding engine sales, subject to repair completion, either
prior to or while repairs are ongoing. Prices for engines depend on the level of
thrust, the availability of the engine type at the time of repair, the
availability of alternative engine types that can be used in a customer's
application and whether an aircraft is "on the ground" awaiting installation of
an engine. The Company's results of operations have in the past, and will in the
future, be significantly impacted by the frequency of complete engine sales.
During 1996 and 1997, the Company completed three and seven complete engine
sales, respectively. The identity of the Company's largest customers will also
vary from period to period as the completion of an engine sale will frequently
place a customer among the largest customers in terms of dollar volume.
Airframe Components and Spare Parts. The Company's inventory of airframe
components and spare parts consists primarily of rotables for Boeing,
McDonnell-Douglas and Airbus aircraft. Airframe components and spare parts are
generally obtained from disassembly of aircraft and purchase of bulk inventory.
The Company's management personnel have considerable experience in the
disassembly of aircraft, having supervised or participated in the disassembly of
aircraft since the Company began active operations in 1990. The Company
typically disassembles aircraft at the aircraft's location when purchased, and
hires local crews to assist in the disassembly process. Components and spare
parts are then returned to the Company's facilities where evaluations are
undertaken and repairs are commissioned as required. The Company currently
maintains a broad selection of over 66,000 individual airframe components and
spare parts and anticipates expanding this inventory following completion of
this offering.
OPERATIONS OF THE COMPANY
The Company's core business is the buying and selling of engines, engine
components and spare parts and airframe components and spare parts. The Company
intends to expand its business following completion of this offering to include
the purchase and sale of engines and components and spare parts for a variety of
wide-body aircraft, and the leasing of aircraft, engines and components and
spare parts, as well as to increase its focus on sales of avionics and
instrumentation. The Company believes that the leasing of aircraft and complete
engines will become a more significant part of the Company's business in the
future and provide significant opportunities for expansion.
Inventory Acquisition. The Company obtains most of its components and spare
parts inventory by purchasing individual components and spare parts from
airlines, repair facilities or other redistributors, by purchasing excess
inventory from aircraft operators ("bulk inventory purchases") or by purchasing
aircraft and engines for disassembly. The Company may also fill a customer order
for a part not held in the Company's inventory by locating the part for the
customer from another vendor, purchasing the part and then reselling the part to
the customer. The Company makes bulk inventory purchases by bidding on the
inventory of companies that are eliminating certain portions of their components
and spare parts inventory due to the retirement of an aircraft type from their
fleets, inventory reduction programs to reduce costs, the downsizing of
operations or the dissolution of their businesses as a whole.
The Company acquires aircraft for disassembly if its initial estimate of
the timing and value of component and spare part sales from such aircraft would
allow the Company to recover the purchase price within one year through the sale
of a portion of the components and spare parts, and to sell the remaining
components and spare parts for amounts in excess of the previously recovered
purchase price over the subsequent five years. The Boeing Report notes that
approximately 1,900 aircraft will be removed from active commercial service
between 1996 and 2006. Many of these aircraft will be disassembled in order to
sell their components and spare parts. The seller of the aircraft will often
provide the Company with a computerized data base listing all the components and
spare parts on the aircraft which is verified by the Company. If a computerized
listing of
30
<PAGE> 32
components and spare parts is not available, the Company will conduct its own
inventory of the aircraft to be disassembled. The components and spare parts are
catalogued and all the relevant information regarding the components and spare
parts, including each part's repair history, is entered into the Company's
computer data base. Management believes that it is essential that such
information be immediately available in order to facilitate sales by the
Company's sales personnel. In certain instances, components and spare parts that
are in high demand are pre-sold prior to the delivery of the disassembled
aircraft to the Company. High value components and spare parts such as engines
and engine components and spare parts are also often pre-sold. Pre-selling
allows the Company to recover a significant amount of its investment within a
short time from the date of the aircraft purchase.
An aircraft purchased for disassembly is often in the same condition as the
aircraft that will utilize the components and spare parts. Sellers are usually
motivated to dispose of their aircraft at prices that justify disassembly for a
variety of reasons, including the seller's need for immediate liquidity or
inability to economically operate or lease the aircraft to a third party.
Additionally, such aircraft may require extensive maintenance or overhaul or may
require government-mandated improvements which are uneconomical for the seller
to perform. The Company has in the past occasionally been involved in the
salvage of aircraft and may engage in salvage operations in the future as
another means of inventory acquisition. The Company's sale of salvaged
components and spare parts is performed in accordance with its normal quality
control procedures and the Company does not provide non-incident certification
on components and spare parts removed from an incident-related aircraft. The
availability of aircraft for disassembly varies based on a number of factors,
including demand for older aircraft, the rate at which aircraft operators retire
older aircraft from their fleet, availability of new aircraft and decisions by
cargo carriers to standardize fleets of cargo aircraft that may formerly have
served as passenger aircraft.
In March 1998, the Company purchased two Boeing 737-200 aircraft from a
European passenger airline. The aircraft were sold by the airline after the
airline acquired other Boeing 737 aircraft with common avionics and
instrumentation. The Company purchased the two 737s for an aggregate purchase
price of $2.2 million, which was funded from borrowings under the Credit
Facility. The Company has retained a third party contractor to disassemble these
aircraft for parts and anticipates disassembly will be substantially completed
during the quarter ending June 30, 1998.
Aircraft and Engine Sales and Leasing. The Company has determined that its
component and spare part sales opportunities will be enhanced by providing
existing and new customers with complete aircraft and engines through lease
transactions. Such transactions will allow the Company to expand its customer
base for components and spare parts and, through leasing, reduce the cost basis
in its aircraft and engines. Once leased, the Company will derive revenue from
lease payments and will seek to sell components and spare parts to the lessee
from inventory both for the leased aircraft or engines as well as other aircraft
or engines in the lessee's fleet. Upon return of the aircraft or engines at the
expiration of the lease term, the Company will either re-lease, sell or
disassemble the aircraft or engines for components and spare parts in order to
achieve the highest utilization of the asset.
The Company's anticipated leasing activities are expected to be based on
operating leases with its customers. Under an operating lease, the Company will
retain title to the aircraft or engine, thereby retaining the potential benefits
and assuming the risk of the residual value of the aircraft or engine. Operating
leases allow aircraft operators greater fleet and financial flexibility due to
their shorter-term nature, the relatively small initial capital outlay necessary
to obtain use of the aircraft or engine and off-balance sheet accounting
treatment. The Company expects to focus on leasing to its customers older,
narrow-body aircraft and the engines they use and older, wide-body aircraft with
engines they use for periods between six months to three years. The Company
believes that there is an increasing demand by customers for operating leases,
which are being used as an alternative to traditional financing arrangements.
In January 1998, the Company entered into a joint venture that then
executed an operating lease for an engine with a cargo carrier. The lease
extends for a period calculated based upon flight cycles and/or 11,000 flight
hours. The joint venture also relates to two other engines that the Company and
its co-venturer intend to
31
<PAGE> 33
lease to customers following completion of overhaul. In addition, the Company
has entered into a second joint venture to convert eight engines into a
different configuration for a customer.
Exchange Transactions. An "exchange transaction" generally involves a high
value/high turnover rotable component or spare part which an operator frequently
replaces when performing aircraft maintenance. In an exchange transaction, a
customer pays an exchange fee and returns a "core" unit to the Company within 14
days. A "core" unit is the same part which is being delivered to the customer by
the Company, but in need of overhaul. The Company has the customer's core unit
overhauled and bills the customer for the overhaul charges and retains the
overhauled core unit in its inventory for re-sale. If the "core" unit cannot be
repaired, it is returned to the customer and the exchange transaction is
converted to an outright sale of the component or spare part that was previously
delivered or installed, at a sales price agreed upon at the time the exchange
transaction was negotiated. The Company estimates that exchanges accounted for
less than 2% of 1997 net sales. Because exchanges tend to be more labor
intensive than outright sale transactions, the Company does not expect to target
exchanges as a transaction type for future expansion.
SALES AND MARKETING; CUSTOMERS
The Company has developed a sales and marketing program which includes
well-trained and knowledgeable in-house sales personnel and commissioned
independent sales agents, computerized inventory management, listing of its
aircraft components and spare parts in two electronic industry data bank
catalogues and a home page on the Internet. The Company's Chief Executive
Officer, two key employees and a customer service specialist are currently
engaged in sales and marketing activities. The Company expects to hire two
additional in-house sales personnel prior to completion of this offering.
Crucial to the successful marketing of the Company's inventory is the Company's
ability to make timely delivery of components and spare parts in reliable
condition. The Company believes aircraft operators are more sensitive to
reliability and timely delivery than price.
In addition to directly marketing its inventory, the Company utilizes the
services of three independent sales agents, two of whom specialize in
international sales and one of whom specializes in domestic sales. Each of the
Company's sales agents has extensive experience with the requirements of
aircraft operators and other customers and, in addition to performing sales
activities, assist the Company in identifying opportunities to purchase
aircraft, engines and bulk components and spare parts inventories. The Company's
sales agents are paid on a commission basis and are retained under agency
agreements terminable at will by either party. The Company is currently seeking
to add two additional sales agents for Central and South America. The Company
expects to further expand its network of sales agents following this offering
and anticipates that most, if not all, of such expansion will be in the
international market.
As a means of generating exposure to existing and potential customers, the
Company lists its inventory in the Inventory Locator Service ("ILS") and the Air
Transport Association's ("AIRS") computerized data banks. Buyers of aircraft
components and spare parts can access the ILS or AIRS, as well as other spare
parts data bases, to determine the companies which have the desired inventory
available. Neither the ILS nor AIRS lists price information relating to
particular components and spare parts. In addition, the Company places
advertisements in select industry catalogues and attends a number of industry
conferences and tradeshows in order to acquaint potential customers with the
Company's redistribution capabilities.
Market forces establish the price for aircraft components and spare parts.
No pricing service or price catalogue exists for aftermarket components and
spare parts. Rather, aftermarket aircraft components and spare parts prices are
determined by referencing new parts catalogues with consideration given to
existing supply and demand conditions. Often, aircraft operators will opt for
quality aftermarket components and spare parts even when new components and
spare parts are still in production. Aftermarket aircraft components and spare
parts must meet the same FAA quality standards as new parts, but cost less than
the same new components and spare parts, and are often more readily available
than new components and spare parts.
The Company's customer base is comprised of approximately 70% domestic and
30% international customers. The Company's customers include a number of
domestic and international commercial passenger airlines, maintenance and repair
facilities and other redistributors. Management believes that its customer
32
<PAGE> 34
relationships are critical to the Company's operational success. The Company
maintains an adequate level of inventory in order to service its customers in a
timely manner. Management believes that availability and timely delivery of
quality components and spare parts are the primary factors considered by
customers when making a purchase decision. In 1997, none of the Company's
customers accounted for in excess of 10% of the Company's net sales, although
three customers each accounted for between 5% and 10% of the Company's 1997 net
sales. Sales to each of these three customers exceeded 5% of the Company's 1997
net sales as a result of each customer purchasing an engine from the Company. In
the three months ended March 31, 1998, sales to one customer that purchased an
engine accounted for approximately 22% of net sales and sales to two customers
each accounted for between 5% and 10% of net sales. In a given period, a
substantial portion of the Company's net sales may be attributable to the sale
of one or more engines. Sales of engines, the timing of aircraft component and
spare part sales or a lease transaction during a given period may result in a
customer being considered a significant customer of the Company for that period.
Currently, the Company believes that it has no customer, the loss of which would
have a material adverse effect on the Company's results of operations.
QUALITY ASSURANCE
The Company adheres to stringent quality control standards and procedures
in the purchase and sale of its products. The Company is a member of the Airline
Suppliers Association ("ASA") and is periodically audited by certain of its
customers to ensure compliance with such customer's quality standards. The
Company has applied for accreditation as an aftermarket aircraft components and
spare parts supplier by the ASA and is currently awaiting completion of an
on-site audit by the ASA. Components and spare parts procured from an accredited
supplier convey assurance to the purchaser that the quality is as stated and the
appropriate documentation is on file at the supplier's place of business.
Accreditation also provides assurance that the supplier has implemented an
appropriate quality assurance system and has demonstrated the ability to
maintain such system. Although the Company believes that accreditation is not
required in order to conduct its operations, the Company believes that
accreditation is consistent with the Company's long-term objectives as a
redistributor of aircraft components and spare parts.
Because aircraft operators require a readily available and identifiable
source of inventory meeting regulatory requirements, the Company has implemented
a total quality assurance program. This program consists of numerous quality
procedures, including (i) inspection procedures mandating that procured
aircraft, engines and components and spare parts be traceable to a source
approved by the Company, (ii) training and supervision of personnel to properly
carry out the total quality assurance program, and (iii) ongoing quality review
board meetings conducted by senior management to oversee the total quality
assurance program.
An important factor in the aircraft components and spare parts
redistribution market relates to the documentation and traceability of aircraft
components and spare parts. The Company requires all of its suppliers to provide
adequate documentation as dictated by the Company's customers. The Company
utilizes electronic data scanning and storage techniques to maintain complete
copies of all documentation. Documentation required includes, where applicable,
(i) a maintenance release from a licensed repair facility signed and dated by
the licensed airframe and/or power plant mechanic who repaired the aircraft
components and spare parts and an inspection to certify that the proper methods,
materials and workmanship were used, (ii) a "tear-down" report detailing the
discrepancies and corrective actions taken during the last shop repair, and
(iii) an invoice or purchase order from an approved source.
The Company provides no warranties with respect to the aircraft components
and spare parts it sells. Engine repairs are customarily warranted by
maintenance and repair facilities for a period of six months or 1,000 flying
hours and, upon resale of engines, the Company provides a pass-through to its
customers of all warranty rights it received from the maintenance and repair
facility. The Company generally accepts returns of aircraft components and spare
parts by its customers within a period of 45 days from the date of shipment.
33
<PAGE> 35
REGULATION
The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar regulatory agencies. These regulations are
designed to ensure that all aircraft, engines and aircraft components and spare
parts are continuously maintained in proper condition for the safe operation of
aircraft. While the Company's operations are not currently regulated directly by
the FAA, the independent facilities that repair and overhaul the Company's
products and the aircraft operators that ultimately utilize the Company's
products are subject to extensive regulation. Accordingly, the Company must
consider the regulatory requirements of its customers and provide them with
aircraft components and spare parts that comply with airworthiness standards
established by the FAA and OEMs, together with required documentation that will
enable these customers to comply with other applicable regulatory requirements.
The inspection, maintenance and repair procedures and schedules for the various
types of aircraft, engines and aircraft components and spare parts are
prescribed by regulatory authorities and can be performed only by licensed
repair facilities utilizing licensed technicians. Compliance with applicable FAA
and OEM standards are required prior to installation of a component or spare
part on an aircraft. The Company only utilizes licensed repair facilities to
repair and certify the aircraft, engines and aircraft components and spare parts
it sells.
In June 1996, the FAA adopted a series of changes in the FAA's inspection
policies to enhance its oversight of aircraft operators that rely on third-party
repair and overhaul facilities. The effect on the Company of such changes to the
FAA's inspection policies may be to reduce the number of third-party maintenance
facilities that provide services to the Company. To date, the Company's
operations have not been materially adversely affected as a result of such
regulations.
In September 1996, the FAA issued an advisory circular to support the
implementation of a voluntary accreditation program for civil aircraft parts
suppliers. This accreditation program establishes quality standards applicable
to aftermarket suppliers, such as the Company, and designates FAA approved
organizations such as the ASA to perform quality assurance audits for initial
accreditation of aftermarket suppliers. The Company has an application pending
to become accredited by the ASA as an aircraft components and spare parts
supplier.
Because the Company's sales consist largely of engines, components and
spare parts for older aircraft, regulations promulgated by the FAA governing
noise emission standards for older aircraft and the FAA's Aging Aircraft Program
Plan (the "Aging Aircraft Program") have a material impact on the market for the
Company's products. All stage 2 aircraft must install hush-kits pursuant to such
noise emission standards or be phased out of operation in the United States by
December 31, 1999 and in the European Union by April 1, 2002. The Aging Aircraft
Program requires aircraft operators to perform structural modifications and
inspections to address airframe fatigue and to implement corrosion prevention
and control programs, which increase the operating and maintenance costs of
older aircraft. Furthermore, the U.S. Environmental Protection Agency and the
various environmental agencies of the European Union have sought the adoption of
stricter standards limiting the emission of nitrous oxide from aircraft engines.
The Company believes that notwithstanding the substantial costs imposed by noise
emission standards and the Aging Aircraft Program on older aircraft, estimated
by the Company to average less than $4 million per aircraft on aircraft such as
the DC-9, certain aircraft operators will continue to utilize older aircraft due
to the substantially greater cost of acquiring new replacement aircraft.
The core operations of the Company may in the future be subject to FAA or
other regulatory requirements. The Company closely monitors the FAA and industry
trade groups in an attempt to understand how possible future regulations might
impact the Company.
PRODUCT LIABILITY
The commercial aviation industry periodically experiences catastrophic
losses. As a redistributor, the Company may be named as a defendant in a lawsuit
as a result of a catastrophic loss if a part sold by the Company were installed
in an incident-related aircraft. In this regard, the Company maintains product
liability insurance in the amount of $25 million. While the Company believes
this amount to be adequate liability insurance to protect it from such claims,
and while no lawsuit has ever been filed against the Company based
34
<PAGE> 36
upon a product liability theory, no assurance can be given that claims will not
arise in the future or that such insurance coverage will be adequate.
Additionally, there can be no assurance that insurance coverages can be
maintained in the future at an acceptable cost, if at all. Any such liability
not covered by insurance could have a material adverse effect on the financial
condition of the Company.
COMPETITION
The aircraft component and spare part redistribution market is highly
competitive. The market consists of a limited number of well-capitalized
companies selling a broad range of products and numerous small competitors
serving distinct market niches. Certain of these competitors have substantially
greater financial, marketing and other resources than does the Company. The
Company believes that current industry trends will benefit larger,
well-capitalized companies. The Company believes that range and depth of
inventories, timeliness of parts delivery, quality and traceability of products,
service and price are the key competitive factors in the industry. The principal
companies with which the Company currently competes are AAR Corp., The AGES
Group, Aviation Sales Company, AVTEAM, Inc., Banner Aerospace and The Memphis
Group, all of which are significantly larger than the Company. Customers in need
of aircraft parts have access, through computer-generated inventory catalogues,
to a broad array of suppliers, including aircraft manufacturers, OEMs of
components and spare parts, airlines and aircraft services companies, which may
have the effect of increasing competition for, and lowering prices on, parts
sales.
EMPLOYEES
At March 31, 1998, the Company had 18 full-time employees and one part-time
employee. Of these, four are principally engaged in management, four are engaged
in sales and marketing and the remainder are engaged in operations, accounting
and administration. None of the Company's employees are subject to collective
bargaining agreements. The Company believes its employee relations are
excellent.
FACILITIES
The Company's offices are located in Fort Mill, South Carolina and consist
of approximately 25,000 square feet, of which approximately 6,000 square feet
are used for offices and approximately 19,000 square feet are used for shipping,
receiving and inventory storage. The offices are leased for an annual base rent
of $87,000 through July 31, 2002, subject to extension for an additional five
years at a rental rate that increases in accordance with the Consumer Price
Index. The Company also leases a 15,000 square foot warehouse facility located
in Fort Mill, South Carolina for an annual rental of approximately $50,000
through December 2002. The Company is also obligated to pay its pro rata share
of taxes, assessments and maintenance expenses attributable to each of its
facilities. The Company leases both of its facilities from two partnerships in
which Herman O. Brown, Jr., one of the Existing Common Stockholders and father
of Karl F. Brown, is a partner, and in one of which Karl F. Brown, an officer
and director of the Company, is a partner. See "Management -- Certain
Transactions."
LITIGATION
The Company is not a party to any litigation and is not aware of any
threatened or pending legal proceeding which would have a material adverse
effect on the Company's business, operations or financial condition.
35
<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME(1) AGE POSITION
------- --- --------
<S> <C> <C>
Karl F. Brown(1)..................... 34 Chairman of the Board, Chief Executive Officer
and President
Elaine T. Rudisill................... 42 Chief Financial Officer
David M. Furr(2)..................... 40 Director
Pamela K. Clement(1)(2).............. 43 Director
James T. Comer, III(1)............... 49 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
stockholders or until a successor has been duly elected and qualified. All of
the Company's officers devote full-time to the Company's business and affairs.
Karl F. Brown has served as President of the Company since 1990. Mr. Brown
has served as Chairman of the Board and Chief Executive Officer of the Company
since January 1, 1998. From 1986 to 1990, Mr. Brown served as a salesman for
U.S. Aviation, Inc., an aircraft components and spare parts redistributor
partially owned by Herman O. Brown, Jr., Mr. Brown's father. Mr. Brown attended
the University of North Carolina at Charlotte and received a Bachelor of Arts
degree in Business in 1986.
Elaine T. Rudisill has served as Chief Financial Officer of the Company
since December 1997. From 1987 through 1996, Ms. Rudisill served as assistant
controller and controller of IGI, Inc., Buena, New Jersey, a publicly-traded
diversified animal healthcare and human cosmetics manufacturer. In 1996, Ms.
Rudisill became chief financial officer and vice president of finance of
Novavax, Inc., Columbus, Maryland, which until late 1995 was a subsidiary of
IGI, Inc. Novavax, Inc. is engaged in the development of biopharmaceutical
products and, since its spin-off from IGI, Inc., has been publicly traded. In
her capacity as chief financial officer of Novavax, Inc., Ms. Rudisill was
responsible for financial reporting, human resources and management information
systems and was involved significantly in the spin-off from IGI, Inc. Ms.
Rudisill received a Bachelor of Science degree in Accounting from the University
of North Carolina in 1977.
David M. Furr has served as a director of the Company since January 1998.
Mr. Furr has been a partner in the law firm of Gray, Layton, Drum, Solomon,
Sigmon, Furr & Smith, P.A., Gastonia, North Carolina, and a partner of a
predecessor firm for in excess of five years. Mr. Furr has practiced corporate
and tax law since 1983 and has represented the Company with respect to corporate
and tax matters since 1990. Mr. Furr served as a director of Swisher
International, Inc., a publicly-traded hygiene service company, from 1991
through September 1995. Mr. Furr is also a member of Seaside Advisors, LLC, the
general partner of Seaside Partners, L.P., a privately-held limited partnership
formed primarily to invest in securities of publicly-traded companies with stock
market capitalizations of $100 million or less. Mr. Furr received a Bachelor of
Arts degree and his Juris Doctor degree from Wake Forest University in 1980 and
1982, respectively, and a Master of Taxation degree from the University of
Florida in 1983. Mr. Furr is admitted to practice before the United States Tax
Court.
Pamela K. Clement has been a director of the Company since February 1998.
She is currently employed as a managing director of Piedmont Venture Partners, a
Charlotte, North Carolina-based venture capital fund which she cofounded in May
1996. Piedmont Venture Partners invests primarily in technology related private
concerns located in the southeastern United States. From April 1995 to May 1996,
Ms. Clement was engaged in investing for her own account. From September 1992 to
March 1995, she served as president, chief operating officer and a director of
Sovereign Advisers, Inc., a Charlotte, North Carolina-based investment advisory
firm. Ms. Clement sold her interest in Sovereign Advisers, Inc. to
Interstate/Johnson Lane
36
<PAGE> 38
Corporation in 1995. From 1976 through 1992, Ms. Clement was employed in a
variety of positions with a number of investment banking and money management
firms. Ms. Clement received a Bachelor of Arts degree in Economics from Cornell
University in 1976.
James T. Comer, III has been a director of the Company since March 1998.
Since 1991, Mr. Comer has been the president of J.T. Comer Consulting, Inc. and
chairman of Southern Pension Services, Inc., both of which are wholly-owned by
Mr. Comer. J.T. Comer Consulting, Inc. provides employee benefit consulting
services and Southern Pension Services, Inc. provides pension administration
services. From 1979 to 1986, Mr. Comer served as president of J.T. Comer &
Associates, Inc., a pension administration and benefit consulting firm that was
sold to the D & B Plan Services Division of the Dunn & Bradstreet Corporation in
1986. Mr. Comer was employed as the president of the D & B Plan Services
Division from 1986 to 1991. Mr. Comer received a Bachelor of Arts degree in
Economics from the University of North Carolina at Charlotte in 1971.
KEY EMPLOYEES
William E. Werts has been employed by the Company since 1990 as Director of
Sales. Mr. Werts has been employed in the aircraft components and spare parts
redistribution industry for over 35 years, including five years at U.S.
Aviation, Inc. and 22 years at Charlotte Aircraft Corporation.
James E. Cauble has been the Company's Director of Quality Control since
1990. Mr. Cauble has been employed in the aircraft components and spare parts
redistribution industry for over 35 years, including eight years at U.S.
Aviation, Inc. and 22 years at Charlotte Aircraft Corporation. Mr. Cauble has
held an Airframe and Powerplant License since 1970 and an FAA Inspection
Authorization since 1975.
David B. Abbott has served as the Company's Director of Marketing since
1990. Prior to joining the Company, Mr. Abbott was employed in various sales and
marketing positions for over 14 years in the aviation industry.
BOARD COMMITTEES
The Board of Directors maintains a Compensation Committee and an Audit
Committee. The Compensation Committee is composed of Mr. Comer and Ms. Clement,
both non-management directors. The Audit Committee is composed of Messrs. Brown
and Furr and Ms. Clement. The primary function of the Compensation Committee is
to review and make recommendations to the Board with respect to the
compensation, including bonuses, of the Company's officers and to administer the
Option Plan. The function of the Audit Committee is to review and approve the
scope of audit procedures employed by the Company's independent auditors, review
and approve the audit reports rendered by the Company's independent auditors and
approve the audit fee charged by the independent auditors. The Audit Committee
reports to the Board of Directors with respect to such matters and recommends
the selection of the independent auditors.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company in the
fiscal years ended December 31, 1995, 1996 and 1997 of Karl F. Brown, the only
executive officer of the Company whose total annual salary and bonus exceeded
$100,000 during the relevant periods (the "Named Officer").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
FISCAL COMPENSATION(1)
YEAR ENDED --------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION DECEMBER 31, SALARY BONUS (SHARES) COMPENSATION(2)
--------------------------- ------------ -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Karl F. Brown, 1997 $150,000 $-0- -- $17,788
Chairman of the Board, Chief 1996 150,000 -0- -- 17,972
Executive Officer and
President 1995 95,000 -0- -- 17,994
</TABLE>
37
<PAGE> 39
- ---------------
(1) Excludes S Corporation distributions.
(2) Represents costs attributable to two Company automobiles provided for use by
the Named Officer and his spouse and cash advances made in connection with a
split-dollar life insurance plan maintained by the Company on behalf of the
Named Officer.
No employee of the Company receives any additional compensation for his
services as a director. Non-management directors receive no salary for their
services as such, but receive a fee of $250 per meeting or committee meeting
attended. The Board of Directors has also authorized payment of reasonable
travel or other out-of-pocket expenses incurred by non-management directors in
attending meetings of the Board of Directors or committees thereof.
Employment and Other Agreements. In January 1998, the Company entered into
an employment agreement with Karl F. Brown. The employment agreement requires
that he devote his full business time to the Company, may be terminated by the
Company for "cause" (as defined in the employment agreement) and, as currently
in effect, calls for Mr. Brown to receive an annual salary of $200,000 and a
discretionary bonus determined by the Compensation Committee. The employment
agreement extends for a three-year term. Mr. Brown is also entitled to receive
lump sum compensation equal to approximately three times his annual salary and
bonus in the event of a change in control of the Company and upon Mr. Brown's
services being terminated or his status, authority or responsibilities being
substantially diminished.
In February 1998, the Company has also entered into an employment agreement
with Elaine T. Rudisill, the Chief Financial Officer of the Company. This
agreement extends for a one-year term, is subject to successive one-year
automatic renewals unless either party provides notice of non-renewal, and
provides for Ms. Rudisill to receive an annual salary of $65,000 and a
discretionary bonus.
The Company has also entered into confidentiality and non-compete
agreements with its officers and key employees.
The Company maintains a 401(k) profit sharing plan and a medical
reimbursement plan covering substantially all of its employees.
STOCK OPTION PLAN
The Company adopted its 1998 Omnibus Stock Option Plan in February 1998
(the "Option Plan"). An aggregate of 350,000 shares of Common Stock are
currently reserved for issuance under the Option Plan.
The Option Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Code and
non-qualified stock options. Non-qualified stock options may be granted to
employees, directors and consultants of the Company, while Incentive Stock
Options may be granted only to employees. The Option Plan is currently
administered by the Compensation Committee of the Board of Directors, which
determines the terms and conditions of the options granted under the Option
Plan, including the exercise price, the number of shares subject to a particular
option and the exercisability thereof.
The exercise price of all Incentive Stock Options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant, and must be 110% of fair market value when granted
to a 10% or more stockholder. The exercise price of all non-qualified stock
options granted under the Option Plan shall be not less than 85% of the fair
market value of the Common Stock on the date of grant. The term of all options
granted under the Option Plan may not exceed ten years, except the term of
Incentive Stock Options granted to a 10% or more stockholder may not exceed five
years. The Option Plan may be amended or terminated by the Board of Directors,
but no such action may impair the rights of a participant under a previously
granted option.
The Option Plan provides the Board of Directors or the Compensation
Committee with the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options. Upon termination of a
participant's employment or consulting relationship with the Company, all
unvested options terminate and are no longer exercisable. Vested non-qualified
options remain exercisable for a period not to exceed three months following the
termination date.
The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any
38
<PAGE> 40
outstanding unexercised option shall become immediately exercisable as of the
date of such agreement. Upon the consummation of the merger or sale of assets
such options shall terminate unless they are assumed or another option is
substituted therefor by the successor corporation.
As of April 30, 1998, a total of 263,600 non-qualified and Incentive Stock
Options were outstanding with exercised prices ranging from $6.00 to $6.60 per
share. The Option Plan was approved by Karl F. Brown, the sole stockholder of
American Aircarriers Support, Incorporated, a Delaware corporation, as of
February 9, 1998. All of the options granted by the Company to date are eligible
to purchase Common Stock of American Aircarriers Support, Incorporated, a
Delaware corporation. Accordingly, such options are ineligible to purchase
shares of Common Stock of American Aircarriers Support, Inc., a South Carolina
corporation. None of the options granted under the Option Plan are exercisable
prior to September 1998. Pursuant to the terms of the Underwriting Agreement,
the Representative has required that the Company not file a registration
statement covering shares issuable upon exercise of outstanding options until 12
months from the date of this Prospectus.
CERTAIN TRANSACTIONS
In June 1995, the Company obtained the Credit Facility that, following
successive annual renewals, is now due in May 1998. Repayment of advances under
the Credit Facility are personally guaranteed by the Existing Common
Stockholders, who received no additional compensation in connection with
providing such guarantees. The Company expects to repay outstanding indebtedness
under the Credit Facility of approximately $1.5 million using a portion of the
proceeds of this offering. See "Use of Proceeds."
Herman O. Brown, Jr., a principal stockholder of the Company and the father
of Karl F. Brown, is a co-founder, officer and director of U.S. Aviation, Inc.
In 1993, the Company borrowed $525,000 from the unaffiliated co-founder of U.S.
Aviation, Inc. The repayment of amounts due under the promissory note that
evidences this borrowing was personally guaranteed by the Existing Common
Stockholders. Neither of the Existing Common Stockholders received any
compensation for providing the guarantees. At December 31, 1997, the principal
amount outstanding under this promissory note totalled $121,000, which was
repaid in April 1998. The Company was also indebted to U.S. Aviation, Inc. in
the principal amount of $46,000 at December 31, 1997, which amount was repaid in
February 1998.
U.S. Aviation, Inc. has in the past consigned aircraft components and spare
parts to the Company. Under the consignment arrangement, the Company remits to
U.S. Aviation, Inc. 60% of the sales price of the components and spare parts,
less any overhaul and repair costs incurred by the Company. Consignment sales on
behalf of U.S. Aviation, Inc. totalled $97,000 and $77,000 in 1996 and 1997,
respectively. Consignment sales on behalf of U.S. Aviation, Inc. for the three
months ended March 31, 1998 were immaterial and are expected to be immaterial in
future periods.
At various times from 1993 through December 31, 1997, the Existing Common
Stockholders made unsecured advances to the Company. The proceeds of such
advances were used for working capital purposes. The advances bear interest at
rates between 6% and 8% per annum and mature June 30, 1998. In April 1998, the
Company repaid $829,000 in principal and accrued interest to the Existing Common
Stockholders and distributed $683,000 to the Existing Common Stockholders for
payments due in connection with 1997 and 1998 tax liabilities. At April 30,
1998, the Company was indebted to Messrs. Karl F. Brown and Herman O. Brown, Jr.
in the amounts of $101,000 and $547,000, respectively. The Company expects to
repay such advances using a portion of the proceeds of this offering. See "Use
of Proceeds" and Note 8 to the Financial Statements.
The Company currently leases a 15,000 square foot facility, consisting
primarily of warehouse storage, from B & C Enterprises, a partnership in which
Herman O. Brown, Jr. is a 50% partner. The facility is leased to the Company
through December 2002 for an annual rental of $50,000. The Company leases its
headquarters facility from Brown Enterprises, a partnership of the Existing
Common Stockholders, for an annual rental of $87,000. The lease extends through
July 30, 2002, with a right on the part of the Company to extend the lease for
an additional five-year period. Each of the foregoing leases requires the
Company to pay taxes, insurance and maintenance expenses for the facility in
question. The Company believes that such facilities were leased to it on terms
at least as favorable as could have been obtained from unaffiliated third
parties. See "Business -- Facilities."
39
<PAGE> 41
In January 1998, the Company entered into an employment agreement with Karl
F. Brown. See "-- Executive Compensation."
In connection with this offering, the Company will terminate its S
Corporation election and anticipates distributing approximately $2.4 million to
the Existing Common Stockholders to provide such persons with funds sufficient
to pay personal tax liabilities related to 1998 taxable income earned prior to
the date of termination of the Company's S Corporation election, together with
an amount equal to approximately 50% of the previously undistributed accumulated
taxable income. The Company and the Existing Common Stockholders have entered
into the Tax Agreement, which relates to their respective income tax
liabilities, indemnification obligations and tax adjustments. See "S Corporation
Distributions."
Prior to the date of this offering, the Existing Common Stockholders were
parties to agreements providing that, in the event of the death of Karl F.
Brown, the shares of Common Stock owned by him would be placed in a family trust
under which Herman O. Brown, Jr., as trustee, would retain all voting rights
with respect to such Common Stock. Additionally, the agreements provided that in
the event of the death of Herman O. Brown, Jr., Karl F. Brown would retain the
right to purchase the Common Stock owned by Herman O. Brown, Jr. at a price
equal to the book value of such Common Stock at the time of Herman O. Brown,
Jr.'s death. Pursuant to an agreement between the Existing Common Stockholders,
upon consummation of this offering, such prior agreements shall be terminated
and be of no further force or effect. In February 1998, Herman O. Brown, Jr.
entered into a voting trust agreement (the "Voting Trust") pursuant to which
David M. Furr, a director of the Company, has been vested with all voting rights
relating to the Common Stock currently owned or hereafter acquired by Herman O.
Brown, Jr. See "Principal Stockholders."
The Company has adopted a policy that future transactions between the
Company and its officers, directors and 5% or more stockholders are subject to
approval by a majority of the disinterested directors of the Company. Any such
transactions will be on terms believed to be no less favorable to the Company
than could be obtained from unaffiliated parties.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law; (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law; and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, through its Bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law. The
Company intends to enter into separate indemnification agreements with its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
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 or 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 directors' and officers' insurance if
available on reasonable terms.
At present, there is no pending litigation or proceeding 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.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and control 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 1933 Act and is, therefore, unenforceable.
40
<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 30, 1998 and as adjusted to
reflect the sale of the Common Stock offered by this Prospectus, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual to acquire shares within 60 days are treated as
outstanding only when determining the amount and percentage of Common Stock
owned by such individual. Except as noted, each person has sole voting and
investment power with respect to the shares shown. The address of each person
listed is 3516 Centre Circle Drive, Fort Mill, South Carolina 29715, except as
otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING PERCENTAGE
------------------------ OWNED
NAME NUMBER PERCENT AFTER OFFERING
---- ----------- --------- --------------
<S> <C> <C> <C>
Karl F. Brown(1).................................... 3,075,000 75.0% 50.4%
Elaine T. Rudisill(2)............................... -- -- --
Herman O. Brown, Jr.(3)............................. 1,025,000 25.0 16.8
David M. Furr(2)(3)................................. 1,025,000 25.0 16.8
516 South New Hope Road
Gastonia, North Carolina 28053
Pamela K. Clement(4)................................ -- -- --
1 Morrocroft Centre
Suite 380
6805 Morrison Boulevard
Charlotte, North Carolina 28211
James T. Comer, III(5).............................. -- -- --
4731 Hedgemore Drive
Charlotte, North Carolina 28209
All directors and officers as a group (five
persons).......................................... 4,100,000 100.0% 67.2%
</TABLE>
- ---------------
(1) Excludes 60,000 shares of Common Stock subject to options exercisable
commencing September 1998.
(2) Excludes 20,000 shares of Common Stock subject to options exercisable by
each individual noted commencing September 1998.
(3) In February 1998, Herman O. Brown, Jr., David M. Furr and the Company
entered into the Voting Trust pursuant to which David M. Furr has been
vested with all voting rights relating to the Common Stock currently owned
or hereafter acquired by Herman O. Brown, Jr. for the term of the Voting
Trust. See below for further information concerning the Voting Trust.
(4) Excludes 5,000 shares of Common Stock subject to options exercisable
commencing September 1998.
(5) Excludes 5,000 shares of Common Stock subject to options exercisable
commencing September 1998.
The Company and Messrs. David M. Furr and Herman O. Brown, Jr. entered into
the Voting Trust in February 1998. During the term of the Voting Trust, Mr. Furr
has the exclusive right to exercise all of the voting rights and powers with
respect to the Common Stock subject to the Voting Trust. The Voting Trust will
terminate on the earlier to occur of (i) sale of all of the Common Stock subject
to the Voting Trust, (ii) the death of Herman O. Brown, Jr., or (iii) expiration
of the ten-year term of the Voting Trust, subject to the automatic renewal of
the Voting Trust for an additional period of ten years in the event Herman O.
Brown, Jr. continues to own Common Stock of the Company upon expiration of the
initial ten-year term of the Voting Trust. Under the Voting Trust, Herman O.
Brown, Jr. retains the power to receive dividends and to instruct the trustee to
dispose of shares of Common Stock within the Voting Trust, subject to compliance
with applicable federal and state securities laws and the lock-up agreement
entered into with the Representative.
41
<PAGE> 43
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
Upon consummation of this offering, 6,100,000 shares of Common Stock will
be issued and outstanding (assuming no options are exercised after March 31,
1998, and assuming the Underwriters' over-allotment option is not exercised). If
the over-allotment option is exercised in full, 6,400,000 shares of Common Stock
will be issued and outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The Company's
Certificate of Incorporation denies cumulative voting rights in the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights. All
of the outstanding shares of Common Stock are, and the shares to be sold in this
offering when issued and paid for will be, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority, without further stockholder
approval, to issue up to 2,000,000 shares of Preferred Stock from time to time
in one or more series, to establish the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuances could have the effect of decreasing the market
price of the Common Stock. As of the closing of this offering, no shares of
Preferred Stock will be outstanding and the Company currently has no plans to
issue any shares of Preferred Stock.
DELAWARE BUSINESS COMBINATION PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which regulates large
accumulations of shares, including those made by tender offers. Section 203 may
have the effect of significantly delaying a purchaser's ability to acquire the
entire interest in the Company if such acquisition is not approved by the
Company's Board of Directors. In general, Section 203 prevents an "Interested
Stockholder" (defined in Section 203 generally as a person with 15% or more of a
corporation's outstanding voting stock) from engaging in a "Business
Combination" (defined below) with a Delaware corporation for three years
following the date such person became an Interested Stockholder, except as
described below. For purposes of Section 203, the term "Business Combination" is
defined broadly to include mergers and certain other transactions with or caused
by the Interested Stockholder; sales or other dispositions to the Interested
Stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to 10% or more of the
aggregate market value of the corporation's consolidated assets or outstanding
stock; the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the Interested Stockholder (except for
transfers in a conversion or exchange or a pro-rata distribution, or certain
other transactions, none of which increase the Interested Stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); or the receipt by the Interested Stockholder (except
proportionately as a stockholder), directly or
42
<PAGE> 44
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on Business Combinations by Section 203
does not apply if: (a) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board approves either the Business Combination or
the transaction that resulted in the person becoming an Interested Stockholder;
(b) the Interested Stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction that made such stockholder an Interested
Stockholder (excluding from the 85% calculation shares owned by directors who
are also officers of the corporation and shares held by employee stock plans
which do not permit employees to decide confidentially whether to accept a
tender or exchange offer); or (c) on or after the date a stockholder becomes an
Interested Stockholder, the Board approves the Business Combination, and the
Business Combination is also approved at a stockholder meeting by 66 2/3% of the
voting stock not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things, the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203. The Company's
Certificate of Incorporation does not contain such a provision. The restrictions
described above also do not apply to certain Business Combinations proposed by
an Interested Stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a stockholder
who had not been an Interested Stockholder during the previous three years or
who became an Interested Stockholder with the approval of a majority of the
corporation's directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer & Trust, Inc.
43
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,100,000 shares of
Common Stock outstanding, assuming no options are exercised after March 31, 1998
and assuming the Underwriters' over-allotment option is not exercised. If the
Underwriters' over-allotment option is exercised in full, 6,400,000 shares of
Common Stock will be outstanding. Of these shares, the 2,000,000 shares sold in
this offering (and any shares sold by the Company upon exercise of the
Underwriters' over-allotment option) will be freely transferable by persons
other than "affiliates" of the Company (as that term is defined under the 1933
Act) without restriction or further registration under the 1933 Act.
The remaining 4,100,000 outstanding shares of Common Stock are "restricted
securities" within the meaning of Rule 144 under the Act and may not be sold in
the absence of registration under the 1933 Act unless an exemption from
registration is available, including the exemption contained in Rule 144. All of
such shares are eligible for sale under Rule 144 commencing 90 days from the
date of this Prospectus. Pursuant to the terms of the Underwriting Agreement,
the Representative has required that the Common Stock owned by officers,
directors and the Existing Common Stockholders may not be sold until 12 months
from the date of this Prospectus without the prior written consent of the
Representative.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period, a number of "restricted" shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. Rule 144(k) provides that a stockholder who is not deemed to be an
"affiliate" and who has beneficially owned shares for at least two years is
entitled to sell such shares at any time under Rule 144(k) without regard to the
limitations described above.
In addition to the shares of Common Stock that are currently outstanding, a
total of 350,000 shares of Common Stock have been reserved for issuance upon
exercise of options granted under the Option Plan, under which options to
acquire 263,600 shares of Common Stock at exercise prices of between $6.00 and
$6.60 per share have been granted and are exercisable commencing in September
1998. Shares purchased pursuant to options will be freely tradeable without
restriction under the 1933 Act, except for shares held by an "affiliate" of the
Company, which shares will remain subject to certain restrictions. See
"Management -- Stock Option Plan."
The Company is unable to estimate the number of shares that may be sold in
the future by the Existing Common Stockholders or holders of options or the
effect, if any, that sales of shares by the Existing Common Stockholders or
option holders will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock by the Existing
Common Stockholders or holders of options could adversely affect then prevailing
market prices.
44
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for which Cruttenden Roth Incorporated is acting as
the representative (the "Representative"), have severally agreed to purchase
from the Company the shares of Common Stock offered hereby. Each Underwriter
will purchase the number of shares set forth opposite its name below, and will
purchase the shares at the price to public less underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Cruttenden Roth Incorporated................................
Laidlaw Global Securities, Inc..............................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if the Underwriters purchase any
shares.
The Representative has advised the Company that the several Underwriters
propose to offer the shares of Common Stock in part directly to the public at
the price to public set forth on the cover page of this Prospectus, and in part
to certain dealers at the price to public less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not exceeding $ per share to other dealers. After the
initial public distribution of the shares of Common Stock, the Representative
may change the initial price to public and other selling terms. No change in
such terms shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus. Cruttenden Roth Incorporated and
Laidlaw Global Securities, Inc. will also receive an aggregate nonaccountable
expense allowance equal to 3% of the gross proceeds of the offering including
the over-allotment option, if exercised, of which $30,000 has been paid.
The Company has granted the Underwriters an option, exercisable for 45 days
after the date of this Prospectus, to purchase up to 300,000 additional shares
of Common Stock at the initial price to public. The Underwriters may purchase
these shares solely to cover over-allotments, if any, in connection with the
sale of the shares of Common Stock offered hereby. If the Underwriters exercise
the over-allotment option, the Underwriters will purchase additional shares in
approximately the same proportions as those in the above table.
The Representative has informed the Company that it does not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts by the Underwriters.
The Underwriting Agreement provides that the Company and the Underwriters
will indemnify each other against certain liabilities under the 1933 Act.
45
<PAGE> 47
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the 1934 Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions.
Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company's officers and directors, holding in the aggregate 4,100,000
shares of Common Stock, have agreed not to offer, sell or otherwise dispose of
any shares of Common Stock for a period of 365 days after the date of this
Prospectus (the "lock-up period") without the prior written consent of the
Representative. The Representative has no present intention to waive or shorten
the lock-up period. The Company has undertaken to file a post-effective
amendment to the Registration Statement that includes this Prospectus if and
when such intention changes and 10% or more of the shares of Common Stock will
be released from the lock-up. If less than 10% but more than 5% of the shares of
Common Stock subject to the lock-up are released, the Company has undertaken to
supplement this Prospectus.
The Company has also agreed to sell to Cruttenden Roth Incorporated and
Laidlaw Global Securities, Inc., for nominal consideration, warrants (the
"Representative's Warrants") to purchase an aggregate of 200,000 shares of
Common Stock. The Representative's Warrants will be exercisable, at a price per
share equal to 120% of the initial price to public, commencing one year from the
date hereof and for a period of four years thereafter. During the exercise
period, holders of the Representative's Warrants are entitled to certain demand
and incidental registration rights with respect to the securities issuable upon
exercise of the Representative's Warrants. The number of shares of Common Stock
issuable upon exercise of the Representative's Warrants is subject to adjustment
in certain events to prevent dilution. The Representative's Warrants cannot be
transferred, assigned or hypothecated for a period of one year from the date of
issuance except to Underwriters, selling group members and their employees,
officers or partners.
Prior to this offering, there has not been a public market for the Common
Stock. The public offering price of the Common Stock has been determined by
arms-length negotiation between the Company and the Representative. There is no
direct relation between the offering price of the Common Stock and the assets,
book value or net worth of the Company. Among the factors considered by the
Company and the Representative in pricing the Common Stock were the results of
operations, the current financial condition and future prospects of the Company,
the experience of management, the amount of ownership to be retained by the
Existing Common Stockholders, the general condition of the economy and the
securities markets, and the demand for securities of companies considered
comparable to the Company.
46
<PAGE> 48
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
Berliner Zisser Walter & Gallegos, P.C., Denver, Colorado. A partner of such
firm holds options to acquire 20,000 shares of Common Stock. Berliner Zisser
Walter & Gallegos, P.C. has represented the Representative from time to time in
other matters. Certain legal matters will be passed upon for the Underwriters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, Salt Lake City, Utah.
EXPERTS
The balance sheets of the Company as of December 31, 1996 and 1997 and the
statements of operations, stockholders' equity and cash flows for the years then
ended, have been included herein in reliance on the report of Cherry, Bekaert &
Holland, L.L.P., independent accountants, given on the authority of that firm as
experts in auditing and accounting. With respect to the unaudited interim
financial information for the three months ended March 31, 1997 and 1998, the
independent accountants have not audited or reviewed such financial information
and have not expressed an opinion or any other form of assurance with respect to
such financial information.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement
(together with all amendments thereto, the "Registration Statement") under the
1933 Act with respect to the Common Stock of the Company offered hereby. This
Prospectus, filed as part of the Registration Statement, omits certain
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement and to the exhibits filed therewith, which
may be inspected without charge at the principal office of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of the material contained
therein may be obtained from the Commission upon payment of applicable copying
charges. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement.
Upon completion of this offering, the Company will be subject to the
reporting and other informational requirements of the 1934 Act and, in
accordance therewith, will file reports and other information with the
Commission. Such reports, proxy statements and other information, once filed by
the Company, can be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New
York, New York 10048. The Commission also maintains a Web site on the Internet
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
such site is http://www.sec.gov. Copies of such materials can also be obtained
by written request to the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
47
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets -- December 31, 1996 and 1997, March 31, 1998
(unaudited) and pro forma March 31, 1998 (unaudited)...... F-3
Statements of Operations -- For the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997
and 1998 (unaudited)...................................... F-4
Statements of Stockholders' Equity -- For the years ended
December 31, 1996 and 1997 and the three months ended
March 31, 1998 (unaudited)................................ F-5
Statements of Cash Flows -- For the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997
and 1998 (unaudited)...................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Aircarriers Support, Inc.
We have audited the accompanying balance sheets of American Aircarriers
Support, Inc. as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Aircarriers
Support, Inc. at December 31, 1996 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Cherry, Bekaert & Holland, L.L.P.
Charlotte, North Carolina
February 18, 1998, except for Notes 7., 12., and 13.,
as to which the date is April 30, 1998
F-2
<PAGE> 51
AMERICAN AIRCARRIERS SUPPORT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31,
------------------------ MARCH 31, 1998
1996 1997 1998 (NOTE 13)
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $1,773,294 $ 750,448 $ 1,031,209 $ 1,031,209
Receivables:
Trade and other, net of allowances of
$115,000, $130,000 and $130,000 in 1996
and 1997, and March 31, 1998,
respectively.............................. 708,951 1,958,798 1,293,619 1,293,619
Affiliate................................... 16,200 13,589 -- --
Inventory...................................... 1,803,695 5,625,107 9,204,762 9,204,762
Prepaid expenses and other assets.............. 6,393 30,725 54,119 54,119
---------- ---------- ----------- -----------
Total current assets................... 4,308,533 8,378,667 11,583,709 11,583,709
Property and equipment, net...................... 127,117 335,795 382,237 382,237
Investments...................................... 50,000 335,000 510,000 510,000
Other assets..................................... -- -- 227,696 272,696
---------- ---------- ----------- -----------
TOTAL ASSETS........................... $4,485,650 $9,049,462 $12,703,642 $12,748,642
========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit............................ $ -- $1,500,000 $ 3,500,000 $ 3,500,000
Current maturities of long-term debt........... 112,287 120,708 120,708 120,708
Current maturities of notes payable to related
parties..................................... 42,607 1,501,846 1,456,267 1,456,267
Accounts payable and accrued expenses.......... 722,349 1,057,700 1,642,698 1,642,698
Distributions payable to stockholders.......... -- -- -- 2,700,000
---------- ---------- ----------- -----------
Total current liabilities.............. 877,243 4,180,254 6,719,673 9,419,673
Long-term debt, less current maturities.......... 120,708 -- -- --
Notes payable to related parties, less current
maturities..................................... 691,846 -- -- --
---------- ---------- ----------- -----------
Total liabilities...................... 1,689,797 4,180,254 6,719,673 9,419,673
Commitments and contingencies
Stockholders' equity (Notes 12 and 13):
Preferred stock, $.01 par value; 2,000,000
shares authorized; no shares issued or
outstanding................................. -- -- -- --
Common stock, $.001 par value; 20,000,000
shares authorized; 4,100,000 shares issued,
as adjusted................................. 4,100 4,100 4,100 4,100
Additional paid-in capital..................... -- -- -- 3,324,869
Retained earnings.............................. 2,791,753 4,865,108 5,979,869 --
---------- ---------- ----------- -----------
Total stockholders' equity............. 2,795,853 4,869,208 5,983,969 3,328,969
---------- ---------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $4,485,650 $9,049,462 $12,703,642 $12,748,642
========== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 52
AMERICAN AIRCARRIERS SUPPORT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------------
1996 1997 1997 1998
-------------- -------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales...................................... $ 8,352,095 $ 13,250,328 $2,336,538 $3,677,341
Cost of sales.................................. 5,479,380 7,946,467 1,401,900 2,109,912
------------ ------------ ---------- ----------
GROSS PROFIT......................... 2,872,715 5,303,861 934,638 1,567,429
Operating expenses:
Selling and marketing........................ 550,656 702,809 125,004 230,929
General and administrative................... 377,499 563,981 134,073 162,677
------------ ------------ ---------- ----------
Total operating expenses............. 928,155 1,266,790 259,077 393,606
------------ ------------ ---------- ----------
INCOME FROM OPERATIONS............... 1,944,560 4,037,071 675,561 1,173,823
Other income (expense):
Interest income.............................. 70,898 80,978 23,311 7,723
Interest expense............................. (73,588) (79,435) (19,859) (66,785)
Other income................................. 1,440 34,741 -- --
------------ ------------ ---------- ----------
Total other income (expense)......... (1,250) 36,284 3,452 (59,062)
------------ ------------ ---------- ----------
NET INCOME........................... $ 1,943,310 $ 4,073,355 $ 679,013 $1,114,761
============ ============ ========== ==========
Pro forma data (unaudited):
Net income as reported....................... $ 1,943,310 $ 4,073,355 $ 679,013 $1,114,761
Pro forma income tax expense................. 777,300 1,629,300 271,600 445,900
------------ ------------ ---------- ----------
Pro forma net income......................... $ 1,166,010 $ 2,444,055 $ 407,413 $ 668,861
============ ============ ========== ==========
Pro forma basic earnings per share........... $ 0.28 $ 0.60 $ 0.10 $ 0.16
============ ============ ========== ==========
Pro forma diluted earnings per share......... $ 0.28 $ 0.59 $ 0.10 $ 0.16
============ ============ ========== ==========
Pro forma weighted average shares
outstanding:
Basic..................................... 4,100,000 4,100,000 4,100,000 4,100,000
============ ============ ========== ==========
Diluted................................... 4,161,400 4,161,400 4,161,400 4,161,400
============ ============ ========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 53
AMERICAN AIRCARRIERS SUPPORT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED STOCKHOLDERS'
SHARES DOLLARS EARNINGS EQUITY
--------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996.................................. 4,100,000 $4,100 $ 2,048,843 $ 2,052,943
Net income................................................ 1,943,310 1,943,310
Stockholder distributions................................. (1,200,400) (1,200,400)
--------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996................................ 4,100,000 4,100 2,791,753 2,795,853
Net income................................................ 4,073,355 4,073,355
Stockholder distributions................................. (2,000,000) (2,000,000)
--------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997................................ 4,100,000 4,100 4,865,108 4,869,208
Net income, three months ended March 31, 1998
(Unaudited)............................................. 1,114,761 1,114,761
--------- ------ ----------- -----------
BALANCE, MARCH 31, 1998 (Unaudited)....................... 4,100,000 $4,100 $ 5,979,869 $ 5,983,969
========= ====== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 54
AMERICAN AIRCARRIERS SUPPORT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ------------------------
1996 1997 1997 1998
----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 1,943,310 $ 4,073,355 $ 679,013 $ 1,114,761
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization.................... 22,769 54,557 13,639 23,900
Decrease (increase) in trade and other
receivables.................................... 8,421 (1,249,847) (28,652) 665,179
Decrease (increase) in receivables from
affiliate...................................... 330 2,611 (3,194) 13,589
Increase in inventory............................ (971,542) (3,821,412) (259,193) (3,579,655)
Increase in prepaid expenses and other
assets......................................... (5,393) (24,332) (12,160) (23,394)
Increase (decrease) in accounts payable and
accrued expenses............................... 204,337 335,351 (256,057) 584,998
----------- ----------- ---------- -----------
Net cash provided by (used in)
operating activities...................... 1,202,232 (629,717) 133,396 (1,200,622)
INVESTING ACTIVITIES
Investments......................................... (50,000) (285,000) -- (175,000)
Capital expenditures................................ (39,902) (263,235) (2,678) (70,342)
----------- ----------- ---------- -----------
Net cash used in investing activities....... (89,902) (548,235) (2,678) (245,342)
FINANCING ACTIVITIES
Proceeds from bank line of credit................... -- 1,500,000 -- 2,000,000
Proceeds from notes payable to related parties...... -- 810,000 -- --
Principal repayments on long-term debt.............. (104,453) (112,287) -- --
Principal repayments on notes payable to
related parties.................................. (187,772) (42,607) -- (45,579)
Deferred costs associated with planned public
offering......................................... -- -- -- (227,696)
Distributions to stockholders....................... (1,200,400) (2,000,000) -- --
----------- ----------- ---------- -----------
Net cash provided by (used in)
financing activities...................... (1,492,625) 155,106 -- 1,726,725
----------- ----------- ---------- -----------
Net decrease in cash and cash
equivalents............................... (380,295) (1,022,846) 130,718 280,761
Cash and cash equivalents, beginning of year.......... 2,153,589 1,773,294 1,773,294 750,448
----------- ----------- ---------- -----------
Cash and cash equivalents, end of year................ $ 1,773,294 $ 750,448 $1,904,012 $ 1,031,209
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 55
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
American Aircarriers Support, Inc. is an international supplier of aircraft
parts primarily to maintenance and repair facilities, major commercial passenger
and cargo airlines and other redistributors located throughout the world. The
Company's offices and inventory storage locations are in Fort Mill, South
Carolina.
BASIS OF PRESENTATION
The financial statements include the accounts of American Aircarriers
Support, Inc., a South Carolina corporation (the "Company"). Certain pro forma
information has been provided in connection with the Agreement and Plan of
Exchange and initial public offering of securities (Notes 12 and 13).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The Company's financial statements for the three months ended March 31,
1997 and 1998, and all related footnote information for those periods, are
unaudited, and reflect all adjustments which, in management's opinion, are
necessary for fair presentation. All such adjustments are of a normal, recurring
nature.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments purchased with a maturity of
90 days or less to be cash equivalents. Included in cash equivalents are
investments in overnight repurchase agreements and a tax-exempt money market
mutual fund. These investments are recorded at cost, which approximates market.
TRADE RECEIVABLES
The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to normal
business conditions.
INVENTORIES
Inventories are valued at lower of cost or market. The cost of aircraft
parts purchased individually is determined on a specific identification basis,
which includes the cost associated with the overhaul and repair necessary for
resale. For parts acquired through bulk purchases or through whole aircraft
purchases, the costs are assigned to pools, which are amortized as part sales
are recognized. The amount of cost amortized is based upon the gross profit
percentage as determined from the estimated sales value of the parts. The sales
value estimates and gross profit percentages are based on historical experience,
are monitored by management, and are adjusted periodically as necessary.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation of furniture,
fixtures and equipment is provided under the straight-line method over the
estimated useful lives, generally five and seven years. Amortization of
leasehold improvements is provided on the straight-line method over the
estimated useful lives of leased assets or the term of the lease, whichever is
shorter.
Repair and maintenance costs are charged to operations as incurred while
major improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation thereon are removed from the accounts and any
gains or losses are included in operations.
F-7
<PAGE> 56
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenue from the sales of parts and related costs is recognized when
products are shipped to the customer. Revenue from engine sales is recognized
when the Company has received all consideration and title and risk of ownership
are transferred to the customer, which is generally upon delivery of the engine.
The Company provides its customers the right to return products within 45 days
of shipment. The effect of this program is estimated and a provision for sales
returns and allowances is established.
PRO FORMA EARNINGS PER SHARE (UNAUDITED)
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is required to be adopted for the fiscal years ending after
December 15, 1997. SFAS No. 128 supercedes APB Opinion No. 15, "Earnings Per
Share" and specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Essentially, this Statement replaces the primary EPS and
fully diluted EPS presentations under APB Opinion No. 15 with a basic EPS and a
diluted EPS. Pro forma earnings per share for all periods presented have been
determined under the provisions of SFAS No. 128, and include certain pro forma
adjustments to income and shares as discussed in Note 13.
INCOME TAXES
The Company, with the consent of its stockholders, elected to be taxed as
an S Corporation for federal and state income tax purposes as defined in Section
1361 of the Internal Revenue Code of 1986. Therefore, the Company is generally
exempt from all federal and state income taxes as stockholders of the Company
are taxed on corporate income. Pro forma income and earnings per share have been
determined using estimated effective federal and state income tax rates as
discussed in Note 13.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value approximates book value for the following financial instruments
due to their short-term nature: cash and cash equivalents, accounts receivable,
and accounts payable. Fair values of notes payable and long-term debt are based
on estimates using present value techniques. Fair values of investments
accounted for at cost were based on prices of recently-made investments in the
companies, and at December 31, 1996 and 1997 and March 31, 1997 and 1998,
approximated carrying values.
At December 31, 1996 and 1997 and March 31, 1997 and 1998, the carrying
values of the Company's notes payable and long-term debt approximated their fair
values as the interest rates on such financial instruments are comparable to
market rates and/or remaining principal is due in a relatively short period of
time. Fair value of unused line of credit arrangements approximate carrying
value as the terms are at current market for similar agreements.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable and investments.
Cash balances in financial institutions periodically exceed amounts insured
by the FDIC. These balances and investments in overnight repurchase agreements
are held by a national financial institution and management believes risk of
loss related to these amounts is remote.
Accounts receivable subject the Company to a potential concentration of
credit risk. Receivables are usually due within 30 days and the Company performs
periodic credit evaluations of its customer's financial
F-8
<PAGE> 57
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK -- (CONTINUED)
condition. Substantially all of the Company's customers are in the aviation
industry and sales are usually affected by the current economic condition of the
industry. The Company estimates that sales to international customers accounted
for approximately 12% of net sales in 1996 and approximately 30% of net sales in
1997. The Company anticipates that international sales will continue to
represent a material portion of the Company's net sales in future periods. Sales
to international customers may be subject to greater risks, including variations
in local economies, fluctuating exchange rates and greater difficulty in
accounts receivable collection.
In a given period, a substantial portion of the Company's net sales may be
attributable to the sale of one or more engines. Sales of engines, the timing of
aircraft spare parts sales or a lease transaction during a given period may
result in a customer being considered a major customer of the Company for that
period. In 1996 and 1997, none of the Company's customers accounted for in
excess of 10% of net sales. In the three months ended March 31, 1998, one
customer that purchased an engine accounted for approximately 22% of net sales
and sales to two customers each accounted for between 5% and 10% of net sales.
Currently, the Company believes that it has no customer, the loss of which would
have a material adverse effect on the Company's results of operations.
USE OF 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 period. Actual results could differ from those estimates.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred. For the years
ended December 31, 1996 and 1997 and the three-month period ended March 31,
1998, advertising costs were $14,251 and $17,437, and $3,655, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
There currently are no additional disclosures in the financial statements of the
Company that are expected to be required by the provisions of this Statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which changes the way public companies
report information about segments of their business in annual financial
statements and requires segment information in quarterly reports to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate, and their major customers. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company has not determined what
additional disclosures may be required by the provisions of this Statement.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other postretirement benefit plans. The Statement
does not change the measurement or recognition of those plans, but requires
additional
F-9
<PAGE> 58
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS -- (CONTINUED)
information on changes in benefit obligations and fair values of plan assets,
and eliminates certain disclosures previously required by SFAS Nos. 87, 88 and
106. This Statement is effective for fiscal years beginning after December 15,
1997. The Company has not determined what additional disclosures may be required
by the provisions of this Statement.
NOTE 3. TRADE RECEIVABLES AND NET SALES BY REGION
Trade receivables are shown net of the following allowances at December 31:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for doubtful accounts..................... $ 25,000 $100,000 $100,000
Reserve for sales returns and allowances............ 90,000 30,000 30,000
-------- -------- --------
Total accounts receivable allowances................ $115,000 $130,000 $130,000
======== ======== ========
</TABLE>
Net sales to unaffiliated customers by geographic region are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------------------
1996 1997 1997 1998
---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Domestic............................ $7,334,391 $ 9,010,357 $1,841,311 $3,181,789
Canada.............................. 33,115 872,222 41,440 12,063
Europe and Middle East.............. 945,460 2,512,730 405,568 427,339
Far East............................ 4,800 820,800 39,300 38,850
Other............................... 34,329 34,219 8,919 17,300
---------- ----------- ---------- ----------
Total..................... $8,352,095 $13,250,328 $2,336,538 $3,677,341
========== =========== ========== ==========
</TABLE>
NOTE 4. INVENTORY
Inventory, stated at lower of cost or market, is comprised of the
following:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Aircraft parts................................... $1,372,695 $3,186,364 $2,912,734
Complete engines................................. 365,000 2,438,743 4,092,028
Complete aircraft................................ -- -- 2,200,000
Deposits on inventory............................ 66,000 -- --
---------- ---------- ----------
Total.................................. $1,803,695 $5,625,107 $9,204,762
========== ========== ==========
</TABLE>
F-10
<PAGE> 59
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................. $ -- $ 154,353 $ 183,901
Office furniture and equipment..................... 78,247 155,866 186,563
Vehicles........................................... 114,273 115,657 115,657
Shop equipment..................................... 20,169 36,283 46,380
-------- --------- ---------
212,689 462,159 532,501
Less accumulated depreciation...................... (85,572) (126,364) (150,264)
-------- --------- ---------
Property and Equipment, net........................ $127,117 $ 335,795 $ 382,237
======== ========= =========
</TABLE>
NOTE 6. INVESTMENTS
During the three months ended March 31, 1998, the Company invested $175,000
for a 50% interest in a joint venture arrangement with Global Turbine Services,
Inc. to convert eight engines from a short duct configuration to a long duct
configuration for a certain customer. The Company and the other venturer share
equally in the profits and losses of the joint venture. The investment is
accounted for on the equity method. No income has been recognized from the joint
venture through March 31, 1998.
During 1997, the Company invested $235,000 for a 50% interest in a joint
venture arrangement with Global Turbine Services, Inc. to purchase and lease
three aircraft engines. The Company and the other venturer share equally in the
profits and losses of the joint venture. The investment is accounted for on the
equity method. Income recognized from the joint venture in 1997 and in the three
months ended March 31, 1998 was insignificant.
The Company made investments of $50,000 in 1996 and $50,000 in 1997 in
nonpublic companies, which are accounted for at cost. The investment made in
1997 was in a company in which a director is a principal (see Note 11). No
income was recognized from these investments in 1996 or 1997 or in the three
months ended March 31, 1998.
NOTE 7. LINE OF CREDIT
In June 1995, the Company entered into a revolving line of credit ("the
facility") with a bank under which the Company could borrow up to $1,000,000 at
the bank's prime rate (8.25% at December 31, 1996). No amounts were borrowed
under the facility during 1996. On December 10, 1997, the Company renewed and
amended the facility to increase the borrowing limit to $2,000,000. Upon
renewal, the facility bore interest at the bank's prime rate (8.50% at December
31, 1997) and matured May 31, 1998. On December 31, 1997, $1,500,000 was
outstanding under the facility. On March 4, 1998, the facility was modified to
increase the borrowing limit to $4,000,000, and reduce the interest rate to the
three-month London Interbank Offered Rate (LIBOR) plus 2%. The facility is
collateralized by the Company's accounts receivable and inventory, and
guaranteed by one of the existing stockholders.
On April 9, 1998, the Company entered into an agreement with the bank for a
$10 million line of credit, at an annual interest rate of LIBOR plus an amount
between 1.75% to 2.25%. The line of credit matures September 30, 1998, is
collateralized by the Company's accounts receivable and inventory, and is
guaranteed by one of the existing stockholders. On April 30, 1998, $5,000,000
was outstanding under the facility.
F-11
<PAGE> 60
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt as of December 31, 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt
Note payable to unaffiliated co-founder of U.S.
Aviation originated July 1993, bearing interest at
7.75% on $525,000, guaranteed by the existing
stockholders, payable in five (5) equal annual
installments of principal and interest, maturity
June 30, 1998...................................... $ 232,995 $ 120,708 $ 120,708
Less current maturities............................ (112,287) (120,708) (120,708)
--------- ----------- -----------
Long-term debt, less current maturities............ $ 120,708 $ -- $ --
========= =========== ===========
Notes payable to related parties
Note payable to stockholder dated July 1993, bearing
interest at 6% on $525,000 principal amount,
guaranteed by one of the existing stockholders,
interest only payable for five (5) years, principal
and any unpaid interest due at maturity on June 30,
1998............................................... $ 525,000 $ 525,000 $ 525,000
Note payable to U.S. Aviation originated October
1993, bearing interest at 7% on $200,000, secured
by inventory and guaranteed by one existing
stockholder, payable in five (5) equal annual
installments of principal and interest, maturity
October 1998, paid in full February 1998........... 88,186 45,579 --
Notes payable to existing stockholders, $121,267
originated December 1996, bearing interest at 8%,
principal and accrued interest payable at maturity
on June 30, 1998. Notes payable for an additional
$810,000 originated in December 1997, bearing
interest at 8%, principal and accrued interest
payable at maturity on April 15, 1998.............. 121,267 931,267 931,267
--------- ----------- -----------
Total notes payable to related parties............. 734,453 1,501,846 1,456,267
Less current maturities......................... (42,607) (1,501,846) (1,456,267)
--------- ----------- -----------
Notes payable to related parties, less current
maturities...................................... $ 691,846 $ -- $ --
========= =========== ===========
</TABLE>
Interest paid during the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998, was $62,227, $83,248, $-0- and
$43,065, respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company neither manufacturers nor repairs aircraft parts and requires
that all of the parts it sells are properly documented and traceable to an
approved 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 with coverage it believes to
be in sufficient amounts and on terms that are generally consistent with
industry practice, 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 or partially insured loss could have a material adverse effect upon
the Company's financial condition.
F-12
<PAGE> 61
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
OPERATING LEASES
The Company leases its office and warehouse facilities from partnerships
owned in whole or in part by the Company's existing stockholders. Terms of the
lease agreements are described in Note 11. Rental expense under all cancelable
and noncancelable operating leases, and commitments for future minimum lease
payments under noncancelable operating leases with remaining terms of more than
one year are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Operating lease rental expense............. $41,268 $ 83,750 $34,350
======= ======== =======
Future minimum lease payments at December
1997 (all to related parties):
1998..................................... $137,400
1999..................................... 137,400
2000..................................... 137,400
2001..................................... 137,400
2002..................................... 101,150
--------
$650,750
========
</TABLE>
NOTE 10. EMPLOYEE BENEFIT PLANS
For the year ended December 31, 1996, the Company had a profit sharing plan
for employees who met certain eligibility requirements. Contributions to the
plan were discretionary. The Company's contribution to the plan was $53,827
(approximately 10% of eligible salaries) in 1996.
In January 1997, the Company amended the plan and adopted a 401(k) profit
sharing plan that covers substantially all of its employees. Employees who have
completed more than one year of service and are over the age of 21 may
contribute from 1% to 15% of their base pay. The Company match on the 401(k)
portion is discretionary up to 100% of contributions up to 6% of eligible
salaries. The profit sharing contribution by the Company is also discretionary.
The Company made no contribution to the plan for the 401(k) portion and
contributed $63,261 for the profit sharing portion (approximately 10% of
eligible salaries) for the year ended December 31, 1997.
The Company has a medical reimbursement plan covering substantially all of
its employees that pays up to $500 per quarter per employee for all medical
bills not covered by another group plan. Reimbursement to employees under this
plan for the years ended December 31, 1996 and 1997 were $17,281 and $16,266,
respectively.
The Company has a security interest in a certain life insurance policy for
cash advances made in connection with a collateral assignment split-dollar life
insurance plan provided to a key employee of the Company. An assignment of the
Company's security interest in the policy has been made for the purpose of
providing security for indebtedness incurred by the Company to facilitate
implementation of the split-dollar plan without utilizing working capital needed
for other business purposes. Expense for the plan was $12,209 for each of the
years ended December 31, 1996 and 1997.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company leases a 15,000 square foot warehouse facility from B & C
Enterprises, a partnership in which an existing stockholder is a 50% partner.
The lease is for an initial term of five years effective January 1,
F-13
<PAGE> 62
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS -- (CONTINUED)
1993, with a five-year renewal option. Rent expense under this lease in each of
the periods ended December 31, 1996 and 1997 was $45,000. Effective January 1,
1998, the Company exercised its option to renew at an annual rental of $50,400
through December 31, 2002. Rent expense under this lease in the three months
ended March 31, 1997 and 1998 was $11,250 and $12,600, respectively.
The Company leases approximately 25,000 square feet of warehouse storage
and administrative and sales offices from Brown Enterprises, a partnership owned
by the Company's existing stockholders. The lease is for an initial term of five
years beginning August 1, 1997, with a five year renewal option. The annual rent
is $87,000. Rent expense pertaining to this lease for the period ended December
31, 1997 and March 31, 1998 was $36,250 and $21,750, respectively.
In October 1993, the Company borrowed $200,000 from U.S. Aviation, Inc.
("USAC") related to the balance of the purchase price of aircraft parts acquired
in December 1989. An existing stockholder is a co-founder, officer and director
of USAC. The note bears an interest rate of 7%, payable in five equal annual
installments of principal and interest, with a maturity of October 1, 1998. The
note is secured by inventory and guaranteed by one existing stockholder.
Principal and interest paid on this note during the periods ended December 31,
1996 and 1997 was $48,780. Subsequent to year end, the note was paid in full.
The Company presently sells inventory owned by USAC on consignment and
remits payments quarterly to USAC for 60% of the sales price, less any overhaul
and repair costs incurred by the Company necessary to facilitate the sale of the
inventory. Sales on consignment for USAC were $97,160 and $76,959 in 1996 and
1997, respectively. Consignment sales on behalf of USAC for the three months
ended March 31, 1998 were immaterial. The Company also pays monthly insurance
premiums for three employees of USAC and is reimbursed annually by USAC for the
premiums incurred. Such premiums were $16,200 and $13,589 for 1996 and 1997,
respectively.
In July 1993, the Company borrowed $525,000 from an existing stockholder.
The note bears an interest rate of 6%, with interest only payable at each
anniversary date and the note balance payable in full on June 30, 1998. The note
is guaranteed by the other existing stockholder. Interest expense recognized was
$31,500 in 1996 and 1997. Interest expense recognized during the each of
three-month periods ended March 31, 1997 and 1998 was $7,875.
The Company has historically made distributions to stockholders in amounts
estimated to cover individual tax liabilities on income from the Company in
connection with its S Corporation election. In 1996, the stockholders loaned
back to the Company funds in excess of their tax liabilities. The notes payable
totaling $121,267 bear interest at an annual rate of 8% and are due and payable
at maturity on June 30, 1998. In December 1997, the Company made distributions
to the stockholders the amount necessary to fund their anticipated 1997 tax
liabilities. The stockholders loaned back to the Company funds in excess of 110%
of their 1996 tax liabilities. The notes payable totaling $810,000 bear interest
at an annual rate of 8%. Principal and interest are due and payable at maturity
on April 15, 1998.
In April 1998, the Company repaid $829,000 in principal and accrued
interest to the Existing Common Stockholders. At the same time, the Company also
distributed $683,000 to the Existing Common Stockholders for payments due
related to 1997 and 1998 tax liabilities.
In 1997, the Company invested $50,000 in a company in which a director is a
principal. The investment, an equity interest of less than 2% of the investee,
is accounted for at cost, and no income has been received or recognized in 1997
in connection with the investment.
The Company incurred legal expenses of $2,200 in 1996 and $15,985 in 1997
from a law firm in which a director is a partner. During the three months ended
March 31, 1998, the Company incurred expenses of $45,000. These expenses have
been included in other assets as part of the deferred costs relating to the
planned public offering.
F-14
<PAGE> 63
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. SUBSEQUENT EVENT -- ADOPTION OF AGREEMENT AND PLAN OF EXCHANGE AND
RELATED CONTRACTS
Effective February 10, 1998, an Agreement and Plan of Exchange
("Agreement") was adopted by and among the Company, American Aircarriers
Support, Incorporated, a Delaware corporation ("AASI"), Karl F. Brown and Herman
O. Brown, Jr. The Agreement provides that, one day prior to the effective date
of a registration statement related to the initial public offering of stock,
existing stockholders of the Company will exchange all outstanding shares of the
Company for 4.1 million shares of common stock of AASI, and the Company will
merge with and into AASI (together, the "Reincorporation"). Contemporaneously
with the merger, the Company will terminate its S Corporation income tax
election. AASI was formed for the purpose of merging with the Company and
otherwise has no operations. The authorized capital stock of AASI consists of
20,000,000 shares of common stock and 2,000,000 shares of preferred stock. The
authorized capital stock of the Company consists of 100,000 shares of common
stock, $1 par value. At December 31, 1996 and 1997 and March 31, 1998, 100
shares were outstanding. The balance sheets, statements of stockholders' equity,
and pro forma earnings per share calculations give effect to the stock to be
issued in connection with the Reincorporation.
In February 1998, the Company entered into employment agreements with
certain key executives. The employment agreements require the executives to
devote their full business time to the Company, specify annual salaries and
provide for payments to the executives in the event their responsibilities are
substantively changed as a result of a change in control of the Company.
In February 1998, AASI adopted the 1998 Omnibus Stock Option Plan. An
aggregate of 350,000 shares of common stock are reserved for issuance under the
Option Plan. Subsequent to its adoption, AASI granted stock options to
individuals who are employees, directors or consultants of the Company, totaling
263,600 shares. The options have an exercise price ranging from $6.00 to $6.60
per share, with a weighted average exercise price of $6.14 per share, vest over
four years from the date of grant and have terms of five to ten years. AASI
intends to measure compensation expense using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."
In connection with the Offering, the Company has agreed to sell to the
representative of the underwriters, for nominal consideration, warrants to
purchase 200,000 shares of common stock. The warrants will be exercisable, at a
price of 120% of the initial price to public, commencing one year from the
effective date of the offering and for a period of four years thereafter.
NOTE 13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The Company intends to file a Registration Statement with the Securities
and Exchange Commission covering a proposed initial public offering of common
stock (the "Offering") at an estimated offering price of $8.00 per share.
Prior to the Offering, the Company anticipates distributing to the existing
stockholders, funds sufficient to pay personal tax liabilities related to 1997
and 1998 taxable income earned prior to the termination of the S Corporation
election together with an amount equal to approximately 50% of the previously
undistributed accumulated taxable income. The Company estimates that if the
Company had been converted to a C Corporation as of March 31, 1998, the
distribution would have been $2,700,000.
As described in Note 2, the Company has elected to be taxed as an S
Corporation under the provisions of the Internal Revenue Code. Assuming the
completion of the Offering, the Company will terminate its S Corporation
election and will accordingly become subject to federal and state income taxes.
Upon termination of the S Corporation election, deferred income taxes reflecting
the tax effect of temporary differences between the Company's financial
statement and tax bases of certain assets and liabilities will become a net
liability or asset of the Company and will be reflected on the balance sheet
with a corresponding
F-15
<PAGE> 64
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
nonrecurring tax expense or benefit in the statement of operations for the first
calendar quarter following the Offering. Deferred taxes relate primarily to
accounts receivable allowances, accrued expenses and property and equipment. The
amount of such net deferred tax asset approximated $45,000 at December 31, 1997
and March 31, 1998.
The pro forma data in the balance sheet provides information as if the
Company had terminated its S Corporation election, declared the distribution and
recorded the deferred income tax asset as of March 31, 1998. The estimated
distribution of $2,700,000 has been reflected as a distribution payable to
shareholders. The pro forma data does not give effect to the receipt of any
proceeds from the Offering or earnings from March 31, 1998 through the date of
termination of the S Corporation election.
The Company and the existing stockholders are parties to an S Corporation
Tax Allocation and Indemnification Agreement (the "Tax Agreement") relating to
their respective income tax liabilities. The Tax Agreement indemnifies the
existing stockholders for any adjustments causing an increase in their federal
and state income tax liability (including interest and penalties) related to the
Company's tax years prior to revocation of the S Corporation election. Subject
to certain limitations, the Tax Agreement also provides that the Company will be
indemnified by the existing stockholders with respect to federal and state
income taxes (plus interest and penalties) shifted from an S Corporation taxable
year to a Company taxable year subsequent to revocation of the S Corporation
election. The Company is not aware of any tax adjustments that may arise under
the Tax Agreement. Any payment made by the Company pursuant to the tax agreement
may be non-deductible by the Company for income tax purposes.
The pro forma data in the statement of operations provides information as
if the Company had been treated as a C Corporation for income tax purposes for
all periods presented. The following unaudited pro forma information reflects
the reconciliation between the statutory provision for income taxes and the
actual provision relating to the incremental income tax expense that the Company
would have incurred if it had been subject to federal and state income taxes.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 THREE MONTHS ENDED
--------------------- -------------------
1996 1997 1997 1998
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Income taxes at federal statutory rate... $660,700 $1,384,900 $230,900 $379,000
State taxes, net of federal benefit...... 97,200 203,700 34,000 55,700
Other.................................... 19,400 40,700 6,700 11,200
-------- ---------- -------- --------
Pro forma income taxes................. $777,300 $1,629,300 $271,600 $445,900
======== ========== ======== ========
</TABLE>
The provisions of SFAS No. 128 have been adopted in determining pro forma
basic and diluted EPS for 1996 and 1997. The weighted average number of shares
outstanding have been retroactively restated to give effect to the shares to be
issued in the Reincorporation (Note 12).
Determination of pro forma diluted shares gives effect to the options for
263,600 shares of Common Stock issued by AASI pursuant to the 1998 Omnibus Stock
Option Plan prior to the Reincorporation
F-16
<PAGE> 65
AMERICAN AIRCARRIERS SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
(Note 12). Pro forma net income includes a provision for income taxes as if the
Company were subject to federal and state income taxes as described above.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ---------
<S> <C> <C> <C>
Net income..................................... $ 1,943,310
Pro forma income taxes......................... (777,300)
-----------
Pro forma basic earnings per share........ 1,166,010 4,100,000 $0.28
=====
Effect of dilutive securities
Options...................................... 61,400
----------- ---------
Pro forma diluted earnings per share...... $ 1,166,010 4,161,400 $0.28
=========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ---------
<S> <C> <C> <C>
Net income..................................... $ 4,073,355
Pro forma income taxes......................... (1,629,300)
-----------
Pro forma basic earnings per share........ 2,444,055 4,100,000 $0.60
=====
Effect of dilutive securities
Options...................................... 61,400
----------- --------- =====
Pro forma diluted earnings per share...... $ 2,444,055 4,161,400 $0.59
=========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ---------
<S> <C> <C> <C>
Net income...................................... $ 679,013
Pro forma income taxes.......................... (271,600)
---------
Pro forma basic earnings per share......... 407,413 4,100,000 $0.10
=====
Effect of dilutive options...................... 61,400
--------- ---------
Pro forma diluted earnings per share....... $ 407,413 4,161,400 $0.10
========= ========= =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ---------
<S> <C> <C> <C>
Net income...................................... $1,114,761
Pro forma income taxes.......................... (445,900)
----------
Pro forma basic earnings per share......... 668,861 4,100,000 $0.16
=====
Effect of dilutive options...................... 61,400
---------- ---------
Pro forma diluted earnings per share....... $ 668,861 4,161,400 $0.16
========== ========= =====
</TABLE>
Warrants to purchase 200,000 shares of common stock at 120% of the initial
per share price to public were not included in the computation of pro forma
diluted earnings per share because the warrants' exercise price is greater than
the estimated offering price of the common stock.
F-17
<PAGE> 66
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 14
S Corporation Distributions........... 15
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Management............................ 36
Principal Stockholders................ 41
Description of Securities............. 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,000,000 SHARES
[AMERICAN CARRIERS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
CRUTTENDEN ROTH
INCORPORATED
LAIDLAW GLOBAL
SECURITIES, INC.
, 1998
======================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law permits a corporation organized
thereunder to indemnify its directors and officers for certain of their acts.
The Certificate of Incorporation of the Company has been framed so as to conform
to the Delaware General Corporation Law. (Reference is made to the Certificate
of Incorporation filed as Exhibit 3.1.2 to this Registration Statement.)
In general, any officer, director, employee or agent may be indemnified
against expenses, fines, settlements or judgments arising in connection with a
legal proceeding to which such person is a party, if that person's actions were
in good faith, were believed to be in the Company's best interest and were not
unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent
decision of the Board of Directors, by legal counsel or by a vote of the
stockholders that the applicable standard of conduct was met by the person to be
indemnified.
The circumstances under which indemnification is granted in connection with
an action brought on behalf of the Company are generally the same as those set
forth above; however, with respect to such actions, indemnification is granted
only with respect to expenses actually incurred in connection with the defense
or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith, in a manner believed to have been in the Company's
best interest and with respect to which such person was not adjudged liable for
negligence or misconduct.
Indemnification may also be granted pursuant to the terms of agreements
which may be entered into in the future pursuant to a vote of stockholders or
directors. The statutory provision cited above and the referenced portion of the
Certificate of Incorporation also grant the power to the Company to purchase and
maintain insurance which protects its officers and directors against any
liabilities incurred in connection with their services in such a position, and
such a policy may be obtained by the Company in the future.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with this offering which will be paid by
American Aircarriers Support, Incorporated (hereinafter in this Part II, the
"Company") are estimated to be substantially as follows:
<TABLE>
<CAPTION>
AMOUNT
PAYABLE
BY THE
ITEM COMPANY*
---- -----------
<S> <C>
S.E.C. Registration Fees.................................... $ 6,369.08
N.A.S.D. Filing Fees........................................ 2,659.01
State Securities Laws (Blue Sky) Legal Fees................. 10,000.00*
Printing and Engraving...................................... 120,000.00*
Legal Fees.................................................. 250,000.00*
Representative's Non-Accountable Expense Allowance.......... 480,000.00
Accounting Fees and Expenses................................ 80,000.00*
Transfer Agent's Fees and Cost of Certificates.............. 5,000.00*
Miscellaneous Expenses...................................... 25,971.91*
-----------
Total............................................. $980,000.00*
===========
</TABLE>
- ---------------
* Estimated for the purpose of this filing.
II-1
<PAGE> 68
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) The Company has made no sales of its Common Stock within the past three
years. The Company relied on Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"), for the exemption from the registration requirements
with respect to the plan of reorganization effecting a change of corporate
domicile from the State of South Carolina to the State of Delaware. American
Aircarriers Support, Incorporated, a Delaware corporation, issued ten shares of
its Common Stock to Karl F. Brown upon the formation of such corporation in
February 1998. The consideration paid for such Common Stock was $1.00. Mr. Brown
will donate such ten shares of Common Stock to the capital of American
Aircarriers Support, Incorporated, a Delaware corporation, upon the
reincorporation of the Company.
In February 1998, American Aircarriers Support, Incorporated, a Delaware
corporation, granted options to certain employees and consultants pursuant to
its 1998 Omnibus Stock Option Plan. The issuance of such options was exempt
pursuant to Rule 701 and Section 4(2) of the 1933 Act. None of such options are
exercisable prior to September 1, 1998.
ITEM 27. EXHIBITS.
The following is a complete list of Exhibits filed as part of this
Registration Statement and which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
+1.1 -- Form of Underwriting Agreement by and between American
Aircarriers Support, Incorporated (the "Company") and
Cruttenden Roth Incorporated (the "Representative").
*1.2 -- Form of Master Selected Dealers Agreement by and between
the Representative and selected dealers.
*2.1 -- Form of Agreement and Plan of Exchange, dated May ,
1998, by and among American Aircarriers Support, Inc., a
South Carolina corporation, American Aircarriers Support
Incorporated, a Delaware corporation, and Messrs. Karl F.
Brown and Herman O. Brown, Jr.
*3.1.1 -- Articles of Incorporation, as amended, of American
Aircarriers Support, Inc. as filed on June 27, 1985, and
as amended January 8, 1990, with the Secretary of State
of the State of South Carolina.
*3.1.2 -- Certificate of Incorporation of the Company as filed on
February 9, 1998 with the Secretary of State of the State
of Delaware.
*3.2 -- Bylaws of the Company.
+4.1.1 -- Form of specimen certificate for Common Stock of the
Company.
+4.1.2 -- Form of Representative's Warrant Agreement to be issued
by the Company to the Representative.
+5. -- Opinion of Berliner Zisser Walter & Gallegos, P.C.,
regarding legality of the securities covered by this
Registration Statement.
*10.1.1 -- Employment Agreement, dated January 31, 1998, by and
between Karl F. Brown and the Company.
*10.1.2 -- Employment Agreement, effective January 1, 1998, by and
between Elaine T. Rudisill and the Company.
*10.2 -- Form of Indemnification Agreement to be entered into
between the Company and each officer and director of the
Company.
*10.3 -- 1998 Omnibus Stock Option Plan, effective February 9,
1998, authorizing 350,000 shares of Common Stock for
issuance pursuant to the Plan.
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
*10.4.1 -- Promissory Note, dated June 29, 1995, issued to
NationsBank, N.A. by the Company.
*10.4.2 -- Security Agreement, dated June 29, 1995, between
NationsBank, N.A. and the Company.
*10.4.3 -- Continuing and Unconditional Guaranty, dated June 29,
1995, from Karl F. Brown to NationsBank, N.A.
*10.4.4 -- Promissory Note Renewal, increasing principal amount
borrowable to $2 million, issued to NationsBank, N.A. by
the Company.
*10.4.5 -- Promissory Note, increasing principal amount borrowable
to $4 million, issued to NationsBank, N.A. by the
Company.
*10.4.6 -- Commitment Letter, dated February 19, 1998, from
NationsBank, N.A. to the Company.
+10.4.7 -- Promissory Note, dated April 9, 1998, issued to
NationsBank, N.A. by the Company.
+10.4.8 -- Loan Agreement, dated April 9, 1998, between NationsBank,
N.A. and the Company.
+10.4.9 -- Security Agreement, dated April 9, 1998, between
NationsBank, N.A. and the Company.
+10.4.10 -- Continuing and Unconditional Guaranty, dated April 9,
1998, from Karl F. Brown to NationsBank, N.A.
*10.5.1 -- Lease Agreement, dated June 30, 1993, by and between B &
C Enterprises and the Company.
*10.5.2 -- Lease Agreement, dated July 30, 1997, by and between
Brown Enterprises and the Company.
*10.6 -- Form of S Corporation Tax Allocation and Indemnification
Agreement, dated May , 1998, by and among the Company,
Karl F. Brown and Herman O. Brown, Jr.
*10.7 -- Joint Venture Agreement, dated January 26, 1998, between
Global Turbine Services, Inc. and the Company.
+10.7.1 -- Joint Venture Agreement, dated January 26, 1998, between
Global Turbine Services, Inc. and the Company.
*10.8 -- Voting Trust Agreement, dated February 23, 1998, by and
among Herman O. Brown, Jr., David M. Furr, as Trustee,
and the Company.
+10.9 -- Form of Lock-Up Agreements between shareholders of the
Company and the Representative.
+10.10 -- Sale and Purchase Agreement, Two Boeing 737-200 Aircraft,
between European Aviation Limited and the Company.
11. -- Not applicable.
13. -- Not applicable.
14. -- Not applicable.
15. -- Not applicable.
16. -- Not applicable.
21. -- Not applicable.
22. -- Not applicable.
</TABLE>
II-3
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
+23.1 -- The consent of Berliner Zisser Walter & Gallegos, P.C.,
to the use of its opinion with respect to the legality of
the securities covered by this Registration Statement and
to the references to such firm in the Prospectus filed as
part of this Registration Statement is included in
Exhibit 5.
+23.2 -- Consent of Cherry, Bekaert & Holland, L.L.P., independent
certified public accountants for the Company.
*24. -- The Power of Attorney is included in the signature page
of this Registration Statement.
+27. -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Filed herewith.
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Include any additional material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(d) Prompt Delivery.
The undersigned Registrant undertakes to provide the Underwriters at the
closing as specified in the Underwriting Agreement certificates for Common Stock
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(e) Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the 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 Act, and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 71
(f) Rule 430A.
The undersigned Registrant hereby undertakes that:
(i) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant under 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 the Commission declared
it effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Lock-up Agreement Release.
The undersigned Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement in the event the Representative waives
or shortens the lock-up period and 10% or more of the shares of Common Stock
will be released from the lock-up. If less than 10% but more than 5% of the
shares of Common Stock subject to lock-up are released, the undersigned
Registrant undertakes to supplement the Prospectus filed as part of this
Registration Statement.
II-5
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement or Amendment to be signed on its behalf by the undersigned in the City
of Fort Mill, State of South Carolina on April 30, 1998.
AMERICAN AIRCARRIERS SUPPORT,
INCORPORATED
By: /s/ KARL F. BROWN
----------------------------------
Karl F. Brown
Chief Executive Officer
Each person whose signature appears below constitutes and appoints Karl F.
Brown or David M. Furr, his or her attorneys-in-fact, with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KARL F. BROWN Chairman of the Board, Chief April 30, 1998
- ----------------------------------------------------- Executive Officer and
Karl F. Brown President (Principal
Executive Officer)
/s/ ELAINE T. RUDISILL Chief Financial Officer April 30, 1998
- ----------------------------------------------------- (Principal Financial and
Elaine T. Rudisill Accounting Officer)
/s/ DAVID M. FURR* Director April 30, 1998
- -----------------------------------------------------
David M. Furr
/s/ PAMELA K. CLEMENT* Director April 30, 1998
- -----------------------------------------------------
Pamela K. Clement
/s/ JAMES T. COMER, III* Director April 30, 1998
- -----------------------------------------------------
James T. Comer, III
*By
-------------------------------------------------
Karl F. Brown
attorney-in-fact
</TABLE>
II-6
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
+1.1 -- Form of Underwriting Agreement by and between American
Aircarriers Support, Incorporated (the "Company") and
Cruttenden Roth Incorporated (the "Representative").
*1.2 -- Form of Master Selected Dealers Agreement by and between
the Representative and selected dealers.
*2.1 -- Form of Agreement and Plan of Exchange, dated May ,
1998, by and among American Aircarriers Support, Inc., a
South Carolina corporation, American Aircarriers Support
Incorporated, a Delaware corporation, and Messrs. Karl F.
Brown and Herman O. Brown, Jr.
*3.1.1 -- Articles of Incorporation, as amended, of American
Aircarriers Support, Inc. as filed on June 27, 1985, and
as amended January 8, 1990, with the Secretary of State
of the State of South Carolina.
*3.1.2 -- Certificate of Incorporation of the Company as filed on
February 9, 1998 with the Secretary of State of the State
of Delaware.
*3.2 -- Bylaws of the Company.
+4.1.1 -- Form of specimen certificate for Common Stock of the
Company.
+4.1.2 -- Form of Representative's Warrant Agreement to be issued
by the Company to the Representative.
+5. -- Opinion of Berliner Zisser Walter & Gallegos, P.C.,
regarding legality of the securities covered by this
Registration Statement.
*10.1.1 -- Employment Agreement, dated January 31, 1998, by and
between Karl F. Brown and the Company.
*10.1.2 -- Employment Agreement, effective January 1, 1998, by and
between Elaine T. Rudisill and the Company.
*10.2 -- Form of Indemnification Agreement to be entered into
between the Company and each officer and director of the
Company.
*10.3 -- 1998 Omnibus Stock Option Plan, effective February 9,
1998, authorizing 350,000 shares of Common Stock for
issuance pursuant to the Plan.
*10.4.1 -- Promissory Note, dated June 29, 1995, issued to
NationsBank, N.A. by the Company.
*10.4.2 -- Security Agreement, dated June 29, 1995, between
NationsBank, N.A. and the Company.
*10.4.3 -- Continuing and Unconditional Guaranty, dated June 29,
1995, from Karl F. Brown to NationsBank, N.A.
*10.4.4 -- Promissory Note Renewal, increasing principal amount
borrowable to $2 million, issued to NationsBank, N.A. by
the Company.
*10.4.5 -- Promissory Note, increasing principal amount borrowable
to $4 million, issued to NationsBank, N.A. by the
Company.
*10.4.6 -- Commitment Letter, dated February 19, 1998, from
NationsBank, N.A. to the Company.
+10.4.7 -- Promissory Note, dated April 9, 1998, issued to
NationsBank, N.A. by the Company.
+10.4.8 -- Loan Agreement, dated April 9, 1998, between NationsBank,
N.A. and the Company.
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
+10.4.9 -- Security Agreement, dated April 9, 1998, between
NationsBank, N.A. and the Company.
+10.4.10 -- Continuing and Unconditional Guaranty, dated April 9,
1998, from Karl F. Brown to NationsBank, N.A.
*10.5.1 -- Lease Agreement, dated June 30, 1993, by and between B &
C Enterprises and the Company.
*10.5.2 -- Lease Agreement, dated July 30, 1997, by and between
Brown Enterprises and the Company.
*10.6 -- Form of S Corporation Tax Allocation and Indemnification
Agreement, dated May , 1998, by and among the Company,
Karl F. Brown and Herman O. Brown, Jr.
*10.7 -- Joint Venture Agreement, dated January 26, 1998, between
Global Turbine Services, Inc. and the Company.
+10.7.1 -- Joint Venture Agreement, dated January 26, 1998, between
Global Turbine Services, Inc. and the Company.
*10.8 -- Voting Trust Agreement, dated February 23, 1998, by and
among Herman O. Brown, Jr., David M. Furr, as Trustee,
and the Company.
+10.9 -- Form of Lock-Up Agreements between shareholders of the
Company and the Representative.
+10.10 -- Sale and Purchase Agreement, Two Boeing 737-200 Aircraft,
between European Aviation Limited and the Company.
11. -- Not applicable.
13. -- Not applicable.
14. -- Not applicable.
15. -- Not applicable.
16. -- Not applicable.
21. -- Not applicable.
22. -- Not applicable.
+23.1 -- The consent of Berliner Zisser Walter & Gallegos, P.C.,
to the use of its opinion with respect to the legality of
the securities covered by this Registration Statement and
to the references to such firm in the Prospectus filed as
part of this Registration Statement is included in
Exhibit 5.
+23.2 -- Consent of Cherry, Bekaert & Holland, L.L.P., independent
certified public accountants for the Company.
*24. -- The Power of Attorney is included in the signature page
of this Registration Statement.
+27. -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Filed herewith.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
May ___, 1998
CRUTTENDEN ROTH INCORPORATED
LAIDLAW GLOBAL SECURITIES, INC.
As Representative of the Several Underwriters
named on Schedule "A" hereto
c/o Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
Re: American Aircarriers Support, Incorporated
Ladies and Gentlemen:
American Aircarriers Support, Incorporated, a Delaware corporation
(the "Company"), addresses you collectively as the Representative of each of
the persons, firms and corporations listed on Schedule "A" attached hereto
(herein collectively called the "Underwriters") and hereby confirms its
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell two
million (2,000,000) shares of its authorized and unissued Common Stock, $0.001
par value per share (the "Firm Shares"), to the several Underwriters. The
Company also proposes to grant to the Underwriters an option to purchase up to
three hundred thousand (300,000) additional shares of the Company's Common
Stock, $0.001 par value per share (the "Option Shares"), as provided in Section
7 hereof. In addition, the Company proposes to sell to you, individually and
not in your capacity as Representative, five (5) year warrants exercisable
commencing one (1) year from the effective date of the Company's Registration
Statement (as hereinafter defined) (the "Representative's Warrants") to
purchase up to two hundred thousand (200,000) shares of Common Stock, $0.001
par value per share, of the Company (the "Representative's Warrant Stock"),
which sale will be consummated in accordance with the terms and conditions of
the Representative's Warrant Agreement (the "Representative's Warrant
Agreement"), the form of which is filed as an exhibit to the Registration
Statement. As used in this Underwriting Agreement (the "Agreement"), the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock, $.001 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as the "Common Stock". Unless the context
otherwise requires, references herein to the "Company" include American
Aircarriers Support, Incorporated, a Delaware corporation, together with its
subsidiaries described in the Prospectus, if any, and includes American
Aircarriers Support, Incorporated, a South Carolina corporation, the
predecessor thereto.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to and agrees with each
Underwriter that:
<PAGE> 2
(a) The Registration Statement on Form SB-2 (File No. 333-48497)
with respect to the Shares, the Representative's Warrants and the
Representative's Warrant Stock, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the United States Securities
and Exchange Commission (the "Commission") under the 1933 Act and have been
filed with the Commission; such amendments to the Registration Statement and
such amended prospectuses subject to completion as may have been required prior
to the date hereof have been similarly prepared and filed with the Commission;
and the Company will file such additional amendments to the Registration
Statement and such amended prospectuses subject to completion as may hereafter
be required. Copies of the Registration Statement and all amendments and of
each related prospectus subject to completion (collectively, the "Preliminary
Prospectuses") have been delivered to you.
If the Registration Statement relating to the Shares has been
declared effective under the 1933 Act by the Commission, the Company will
prepare and promptly file with the Commission the information previously
omitted from the Registration Statement, as applicable, pursuant to Rule
430A(a) of the Rules and Regulations pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the Registration Statement (including a final form of prospectus).
If the Registration Statement relating to the Shares has not been declared
effective under the 1933 Act by the Commission, the Company will prepare and
promptly file amendments to the Registration Statement, including a final form
of prospectus, as applicable. The term "Registration Statement" as used in
this Agreement shall mean such registration statement, including financial
statements (and the notes thereto), and all schedules and exhibits thereto, in
the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed
to be a part of the registration statement at the time it became effective
pursuant to Rule 430A(b) of the Rules and Regulations) and, in the event of any
amendment thereto after the effective date of such registration statement,
shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in the
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations), except that if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus on file with the
Commission at the time the Registration Statement became or becomes, as the
case may be, effective (whether or not such revised prospectus is required to
be filed with the Commission pursuant to Rule 424(b)(3) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of the filing
thereof, has conformed in all material respects to the requirements of the 1933
Act and the Rules and Regulations, and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (as hereinafter defined) and
on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the 1933 Act and the Rules and Regulations and will in all
material respects conform to
-2-
<PAGE> 3
the requirements of the 1933 Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) the Prospectus, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or the Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and otherwise) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company taken as a whole; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from all state, federal and other
regulatory authorities that are material to the conduct of its business, all of
which are valid and in full force and effect; the Company is not in material
violation of its Certificate of Incorporation or Bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness, or in any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or partnership agreement, or any other agreement
or instrument to which the Company is a party or by which it or its properties
or assets may be bound; and the Company is not in material violation of any
known law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government, or regulatory or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its properties, assets or
operations. The Prospectus accurately describes any corporation, company,
partnership, association or other entity owned or controlled, directly or
indirectly, by the Company.
(d) The Company has full legal right, power and authority to enter
into this Agreement and the Representative's Warrant Agreement and to perform
the transactions contemplated hereby and thereby. Each of this Agreement and
the Representative's Warrant Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representative's Warrant Agreement
may be limited by applicable law and except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws or rules relating to or affecting creditors' rights
generally or by general equitable principles; the performance of this Agreement
and the Representative's Warrant Agreement and the consummation of the
transactions herein or therein contemplated will not result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, (i) any bond, debenture, note or other evidence of indebtedness,
or under any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or partnership agreement, or other agreement or
instrument to which the Company is a party or by which it or its properties or
assets may be bound, (ii) the Certificate of Incorporation or Bylaws of the
Company, or (iii) any law, order, rule, regulation, writ, injunction, judgment
or decree of any court, government, or regulatory or governmental agency or
body,
-3-
<PAGE> 4
domestic or foreign, having jurisdiction over the Company or its properties,
assets or operations. No consent, approval, authorization or order of or
qualification with any court, government, or regulatory or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or its
properties, assets or operations is required for the execution and delivery of
this Agreement or the Representative's Warrant Agreement and the consummation
by the Company of the transactions herein and therein contemplated, except such
as may be required under the 1933 Act or the Rules and Regulations, or under
state or other securities or "blue sky" laws, rules or regulations, all of
which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, or
any of its officers or any of its properties, assets or rights before any
court, government, or regulatory or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its officers, properties or
assets or otherwise that (i) is reasonably likely to result in any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company or that might materially and
adversely affect its officers, properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby, or (iii) is required to
be disclosed in the Registration Statement or the Prospectus and is not so
disclosed; and there are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement by the 1933 Act or the Rules and Regulations or by the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or the rules and
regulations of the Commission thereunder that have not been accurately
described in all material respects in the Registration Statement or the
Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
rules and regulations, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
the authorized and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the documents and instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right exists with respect to any of the Firm Shares or Option Shares or the
issuance and sale thereof other than those that will automatically expire upon
the consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and the sale or transfer of
the Shares except as may be required under the 1933 Act, the Rules and
Regulations, or under state or other securities or "blue sky" laws, rules or
regulations. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company (and the notes thereto) included in the
Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or purchase, any securities
or obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights under the 1933 Act and the Rules and
Regulations.
-4-
<PAGE> 5
(g) Cherry, Bekaert & Holland, L.L.P., which has examined the
financial statements of the Company, together with the related schedules and
notes thereto, as of December 31, 1996 and 1997 filed with the Commission as a
part of the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the 1933 Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes thereto, and the unaudited financial information,
forming part of the Registration Statement and the Prospectus, fairly present
the financial position and results of operations of the Company at the
respective dates and for the respective periods to which they apply; and all
audited financial statements of the Company, together with the related
schedules and notes thereto, and the unaudited financial information, filed
with the Commission as part of the Registration Statement, have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as may be otherwise stated
therein. The selected and summary financial and statistical data included in
the Registration Statement presents fairly the information shown therein and
have been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules or notes are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (ii) any
transaction that is material to the Company outside the ordinary course of
business, (iii) any material obligation, direct or contingent, incurred by the
Company, except obligations incurred in the ordinary course of business, (iv)
any material change in the capital stock or outstanding indebtedness of the
Company, (v) any dividend or distribution of any kind or nature declared, paid
or made on the capital stock of the Company (other than the distributions made
to the Existing Common Stockholders (as that term is defined in the
Prospectus), as disclosed under "S Corporation Distributions" therein), or (vi)
any loss or damage (whether or not insured) to the property or assets of the
Company that has had or may have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(i) Except as set forth in the Registration Statement and the
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and the Prospectus as being
owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, and (ii) the
agreements to which the Company is a party described in the Registration
Statement and the Prospectus are valid agreements, enforceable by the Company,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and,
to the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements. Except as set forth in the Registration Statement and the
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted and as described in the Registration Statement
and the Prospectus.
(j) The Company has timely filed all federal, state, local and
foreign tax returns required to be filed by it and has paid all taxes shown
thereon as being due, and there is no tax deficiency that has been or, to the
best of the Company's knowledge, is reasonably likely to be asserted against
the Company or any of its properties or assets that might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, and all tax liabilities are
adequately provided for on the books of the Company.
-5-
<PAGE> 6
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business, including, but not limited to, (i) insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, and (ii) product liability insurance concerning the products
sold and leased by the Company and the services provided by the Company in
connection therewith, all of which insurance is in full force and effect; the
Company has not been refused any insurance coverage sought or applied for; and
the Company does not have any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business, at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company exists or is imminent. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all trade
secrets, know-how, trademarks, service marks and trade names that are necessary
to conduct its businesses as described in the Registration Statement and the
Prospectus; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any trade secrets, know-how, trademarks, service marks
or trade names; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any trade secrets, know-how, trademarks, service marks or trade
names that, singly or in the aggregate, in the event of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g) of
the 1934 Act and is approved for quotation on the Nasdaq National Market, and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. (the "NASD") is contemplating terminating such
registration or listing.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
conduct, its business and affairs in such a manner as to ensure that it will
not become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may be, and (ii) the completion of the distribution
of the Shares, any offering material in connection with the offer and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the 1933 Act.
(q) The Company has not at any time since its inception (i) made
any unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state regulatory or governmental officer or official, or any
other person charged
-6-
<PAGE> 7
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization in violation of law or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each beneficial
owner of five percent (5%) or more of the Company's Common Stock has agreed in
writing that such person will not, for a period of three hundred sixty-five
(365) days following the date of the Prospectus relating to the public offering
of the Shares (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock, or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
owned directly by such person or entity or with respect to which such person or
entity has the power to dispose of as of the date of this Agreement, other than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written consent
of Cruttenden Roth Incorporated. The foregoing restriction is expressly agreed
to preclude the holder of the Securities from engaging in any hedging or other
transaction that is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) 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 the Securities. Furthermore, such person or entity will also
agree and consent to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person or
entity except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all security
holders of the Company and the number and type of securities held by each
security holder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and stockholders have agreed to such restrictions (the
"Lock-up Agreements").
(t) Except as set forth in the Registration Statement and the
Prospectus, (i) the Company is in material compliance with all laws, rules and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
that are applicable to its business, (ii) the Company has received no notice
from any regulatory or governmental authority or third party of an asserted
claim under any Environmental Laws, which claim is required to be disclosed in
the Registration Statement or the Prospectus, (iii) to its best knowledge, the
Company is not likely to be required to make future material capital
expenditures to comply with any Environmental Laws, and (iv) no property that
is owned and, to the Company's knowledge, no property that is leased or
occupied by the Company, has been designated as a Superfund site pursuant to
the Comprehensive Response, Compensation and Liability Act of 1980, as amended
(42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated
site under applicable state or local law.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for property and assets, including, without limitation,
cash receipts, (iii) access to inventory and assets is permitted only in
-7-
<PAGE> 8
accordance with management's general or specific authorization, and (iv) the
recorded accountability for property and assets is compared with existing
inventory and assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(w) The Representative's Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with the
Representative's Warrant Agreement, will be duly issued and legal, valid and
binding obligations of the Company.
(x) The Representative's Warrant Stock has been duly authorized
and reserved for issuance upon the exercise of the Representative's Warrants
and, when issued upon payment of the exercise price therefor, will be validly
issued, fully paid and nonassessable shares of Common Stock of the Company.
(y) All relationships involving control persons within the meaning
of the 1933 Act are accurately and fully described in the Registration
Statement, and there are no relationships between the Company and any control
person that are not fully described in the Registration Statement.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____________ per share, the
respective number of Firm Shares as set forth in Schedule "A" attached hereto.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of Firm Shares set forth opposite the name of such
Underwriter in Schedule "A" attached hereto (subject to adjustment as provided
in Section 10 hereof).
Delivery of definitive certificates evidencing the Firm Shares to
be purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters by
certified or official bank check or checks drawn in next-day funds, payable to
the order of the Company (and the Company agrees not to deposit any such check
in the bank on which it is drawn, and not to take any other action with the
purpose or effect of receiving immediately available funds, until the business
day following the date of its delivery to the Company and in the event of any
breach of the foregoing, the Company shall reimburse the Underwriters for the
interest lost and any other expenses borne by the Underwriters by reason of
such breach), at the offices of Cruttenden Roth Incorporated 18301 Von Karman,
Suite 100, Irvine, California or such other place as may be agreed upon by the
Representative and the Company, at 7:00 a.m., Los Angeles, California time, (a)
on the third (3rd) full business day following the first day that the Shares
begin trading, (b) if this Agreement is executed and delivered after 1:30 p.m.
Los Angeles, California time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered, or (c) at such other time
and date not later than seven (7) full business days following the first day
that Shares are traded as the Representative, the Company and legal counsel for
the Representative and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date"; provided, however, that if the Company has not made available
to the Representative a copy of the Prospectus within the time provided in
Section 4(d) hereof, the Representative may, in its sole discretion, postpone
the Closing Date until no later than two (2) full business days following
delivery of copies
-8-
<PAGE> 9
of the Prospectus to the Representative. The Shares will begin trading on the
day the Registration Statement is declared effective by the Commission, or if
the Registration Statement is declared effective after the close of trading,
then on the next trading day. The certificates evidencing the Firm Shares to
be so delivered will be made available to you at such office or such other
location including, without limitation, New York City, as you may reasonably
request for checking at least one (1) full business day prior to the Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to the Closing
Date. If the Representative so elects, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $___________ per share.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover page (concerning stabilization, passive market marking, penalty
bids, purchases to cover short positions and over-allotment by the
Underwriters), and under the caption "Underwriting", in any Preliminary
Prospectus and in the final form of the Prospectus filed pursuant to Rule
424(b), constitutes the only information furnished by the Underwriters to the
Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company that the statements made therein do not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company further agrees
with the several Underwriters that:
(a) The Company will use reasonable efforts to cause the
Registration Statement and any amendments thereto, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; it will notify you, promptly after
it shall receive notice thereof, of the times when the Registration Statement
or any subsequent amendments to the Registration Statement have become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment
to the Registration Statement as originally declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amendment or
supplementation of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and file
with the Commission any
-9-
<PAGE> 10
amendments or supplements to the Registration Statement or the Prospectus that,
in the opinion of counsel for the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or the Prospectus that may be
necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the 1933
Act, any event shall have occurred as a result of which the Prospectus or any
other prospectus relating to the Shares as then in effect would include any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the applicable effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the 1933 Act; and it will file no amendment or supplement
to the Registration Statement or the Prospectus that shall not previously have
been submitted to you a reasonable time prior to the proposed filing thereof or
to which you shall reasonably object in writing, subject, however, to
compliance with the 1933 Act and the Rules and Regulations of the Commission
thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
at the earliest possible moment if any such stop order should be issued.
(c) The Company will use reasonable efforts to qualify the Shares
for offer and sale under the securities laws of such states and jurisdictions
as you may designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any state or jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service of
process. In each state or jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be reasonably required by the laws of such
state or jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following
the first day that Shares are traded, copies of the Registration Statement (two
of which will be signed and will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably
request. Notwithstanding the foregoing, if Cruttenden Roth Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434,
the Company shall provide to you copies of a Preliminary Prospectus updated in
all respects through the date specified by you in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the forty-fifth
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the 1933 Act and covering a
twelve (12) month period beginning after the effective date of the Registration
Statement.
-10-
<PAGE> 11
(f) During a period of five (5) years after the date hereof and
for so long as the Company is subject to Section 13 or Section 15 of the 1934
Act, the Company will furnish to its stockholders as soon as practicable after
the end of each respective fiscal year, annual reports (including financial
statements audited by an independent certified public accountant) and unaudited
quarterly reports of operations for each of the first three (3) quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters of the fiscal year in the form furnished to the Company's
stockholders, (ii) concurrently with furnishing to its stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with
statements of operations, stockholders' equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the certificate or report
thereon of the independent certified public accountant, (iii) as soon as they
are available, copies of all reports (financial or otherwise) mailed to
stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article related to the Company or its affairs that was generally
released to stockholders or prepared by the Company, and (vi) any additional
information of a public nature concerning the Company or its business that you
may reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary that is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the state or jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i)
hereof, the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel), but not to exceed an aggregate of $30,000, incurred by the
Underwriters in investigating or preparing to market or marketing the Shares
and shall pay all state securities or "blue sky" filing fees and expenses
(including "blue sky" legal fees) not to exceed an aggregate of $15,000 and, to
the extent any advances to the Underwriters exceed such expenses, the
Underwriter shall return such excess to the Company.
(j) If at any time during the sixty (60) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
if reasonably requested by you, forthwith prepare, and, if permitted by law,
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly or indirectly, any Securities other than (i)
-11-
<PAGE> 12
the sale of the Firm Shares and the Option Shares hereunder, (ii) the Company's
issuance of options or Common Stock under the Company's presently authorized
stock option plans or restricted stock plans (collectively, the "Option
Plans"), and (iii) any securities issued in connection with acquisitions.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits thereto),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary "Blue Sky" Survey and any
Supplemental "Blue Sky" Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, the cost of all certificates evidencing the Shares and
transfer agents' and registrars' fees; the fees and disbursements of counsel
and accountants for the Company; all fees and other charges of the Company's
independent certified public accountant; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including financial
statements and appropriate schedules and exhibits thereto), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the
laws of such states and jurisdictions as you may designate; all state
securities or "blue sky" filing fees and fees and disbursements of
Underwriters' Counsel related to such "blue sky" matters up to a maximum of
$15,000; the Company's road show costs and expenses, the cost of preparing
bound volumes of the documents relating to the public offering of Common Stock
contemplated hereby; and all other expenses directly incurred by the Company in
connection with the performance of its obligations hereunder.
(ii) In addition to its other obligations under Section
5(a)(i) hereof, the Company will pay to you a non-accountable expense allowance
equal to three percent (3%) of the gross sales price of the Shares to the
public. This non-accountable expense allowance with respect to the Firm Shares
shall be paid to you on the Closing Date and the non-accountable expenses with
respect to the Option Shares shall be paid to you on the closing of the sale to
you of the Option Shares. The Company has previously paid to you a fee of
$30,000, which shall be credited to said non-accountable expense allowance.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 p.m., Los Angeles, California time, on the day following the
date of this Agreement, or such later date as shall be consented to in writing
by you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request by the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
-12-
<PAGE> 13
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of the Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and Underwriters' Counsel shall have been furnished with such documents and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section 6.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or the
Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, the following
opinion of Berliner Zisser Walter & Gallegos, P.C., counsel for the Company,
dated the Closing Date or such later date on which Option Shares are purchased,
addressed to the Underwriters (and stating that it may be relied upon by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., Underwriters' Counsel, in rendering its
opinion pursuant to Section 6(e) of this Agreement) and with reproduced copies
or signed counterparts thereof for each of the Underwriters, to the effect
that:
(i) The Company is a corporation in good standing under
the laws of the jurisdiction of its incorporation and the Company
has validly been reincorporated in the State of Delaware;
(ii) The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties and
assets or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing
would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company taken as a whole. To such
counsel's knowledge, the Prospectus accurately describes any
corporation, association or other entity owned or controlled,
directly or indirectly, by the Company;
(iv) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly
and validly issued and are fully paid and nonassessable, and, to
such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) The Firm Shares and the Option Shares, as the case
may be, to be issued by the Company pursuant to the terms of this
Agreement each have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right of the stockholders;
-13-
<PAGE> 14
(vi) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and authority to
enter into the Representative's Warrant Agreement and to issue,
sell and deliver to the Representative the Representative's
Warrants to be issued and sold by it thereunder;
(viii) Each of this Agreement and the Representative's
Warrant Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be
limited by applicable law and to which counsel need not express
any opinion and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become effective under
the 1933 Act and, to such counsel's knowledge, no stop orders
suspending the effectiveness of the Registration Statement have
been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the 1933 Act;
(x) The Registration Statement and the Prospectus and
each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial and
statistical data included in the Registration Statement, as to
which such counsel need express no opinion), as of its effective
date, and with respect to the Prospectus as of ________, 1998,
complied as to form in all material respects with the requirements
of the 1933 Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the captions
(a) "Management", "Description of Securities" and "Shares Eligible
For Future Sale," to the extent that the same constitutes a matter
of law or a legal conclusion, has been reviewed by such counsel
and is a fair summary of such matters and conclusions, and (b)
"Business," to the extent that it reflects matters of law or
summaries of laws or regulations, is correct in all material
respects (provided that such counsel need not express any opinion
as to its completeness);
(xii) The form of certificate evidencing the Common Stock
and filed as an exhibit to the Registration Statement complies
with Delaware law;
(xiii) The descriptions in the Registration Statement and
the Prospectus of the Certificate of Incorporation and Bylaws of
the Company and of any applicable statutes are accurate and fairly
present the information required to be presented by the 1933 Act
and the applicable Rules and Regulations (provided that such
counsel need not express any opinion as to its completeness);
(xiv) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of
a character required to be described or referred to in the
Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or
referred to in this Agreement or filed as required;
-14-
<PAGE> 15
(xv) The performance of this Agreement and the
Representative's Warrant Agreement and the consummation of the
transactions herein and therein contemplated (other than
performance of the Company's indemnification obligations hereunder
or under the Representative's Warrant Agreement, concerning which
no opinion need be expressed) will not (a) result in any violation
of the Company's Certificate of Incorporation or Bylaws or (b) to
such counsel's knowledge, result in a material breach or violation
of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture agreement, or other
agreement or instrument known to such counsel to which the Company
is a party or by which its properties or assets are bound, or any
applicable statute, law, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having
jurisdiction over the Company or over any of its properties,
assets or operations;
(xvi) To such counsel's knowledge, no consent, approval,
authorization or order of or qualification with any court,
government, or regulatory or governmental agency or body having
jurisdiction over the Company or over any of its properties,
assets or operations is necessary in connection with the
consummation by the Company of the transactions contemplated by
the Agreement, except such as have been obtained under the 1933
Act or as may be required by the NASD, the National Market System
or under any state or other securities or "blue sky" laws, rules
or regulations in connection with the purchase and distribution of
the Shares by the Underwriters;
(xvii) To such counsel's knowledge, there are no legal,
regulatory or governmental proceedings pending or threatened
against the Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the 1933 Act or the
Rules and Regulations or by the 1934 Act or the applicable rules
and regulations of the Commission thereunder, other than those
described therein;
(xviii) The Representative's Warrants have been duly and
validly authorized by the Company and, upon delivery to you in
accordance with the Representative's Warrant Agreement, will be
duly issued and legal, valid and binding obligations of the
Company;
(xix) The Representative's Warrant Stock to be issued by
the Company pursuant to the terms of the Representative's Warrant
has been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms of the
Representative's Warrant Agreement, will be duly and validly
issued and fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of
first refusal or other similar right of the stockholders;
(xx) To such counsel's knowledge, no holders of Common
Stock or other securities of the Company have registration rights
with respect to any securities of the Company; and
(xxi) The offer and sale of all outstanding securities of
the Company made since its inception as set forth in the
Registration Statement were exempt from the registration
requirements of the 1933 Act and from the registration or
qualification requirements of all relevant state securities or
"blue sky" laws, rules and regulations.
-15-
<PAGE> 16
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representative, Underwriters' Counsel and the independent
certified public accountant for the Company, at which the contents of the
Registration Statement and the Prospectus and related matters were discussed,
and although (except as specifically set forth in paragraphs (x) and (xiii)
above) they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel that leads such counsel to believe that, at the
time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which Option
Shares are to be purchased, the Registration Statement and any amendments or
supplements thereto, when such documents became effective or were filed with
the Commission (other than the financial statements, including supporting
schedules and other financial and statistical data included in the Registration
Statement, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or on the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case such counsel's opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to
you, as Representative of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of LeBoeuf, Lamb, Greene & MacRae, L.L.P. in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the effective date of the
Registration Statement and on the Closing Date and on any later date on which
Option Shares are to be purchased, as the case may be, a letter from Cherry,
Bekaert & Holland, L.L.P., addressed to the Company and the Underwriters, dated
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the 1933 Act and
the applicable Rules and Regulations and based upon the procedures described in
such letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter that are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the
-16-
<PAGE> 17
Registration Statement or the Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The Original Letter from Cherry, Bekaert & Holland, L.L.P.
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the 1933 Act and the applicable Rules and
Regulations, (ii) set forth its opinion with respect to its examination of the
balance sheets of the Company as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended and its review of the balance sheet as of March 31, 1998 and the
related statements of operations, stockholders' equity and cash flows for the
quarter then ended, and (iii) address other matters agreed upon by Cherry,
Bekaert & Holland, L.L.P. and you. In addition, you shall have received from
Cherry, Bekaert & Holland, L.L.P. a letter addressed to the Company and made
available to you for the use of the Underwriters stating that its review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of its examination of the Company's
financial statements as of December 31, 1997 and March 31, 1998, did not
disclose any weaknesses in internal controls that they considered to be
material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate from the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
President and the Chief Financial Officer of the Company, to the effect that,
and you shall be satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied, in
all material aspects, with all the agreements and satisfied all
the conditions on its part to be performed or satisfied, in all
material respects, at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may
be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to their knowledge, are pending
or threatened under the 1933 Act;
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such
officer's certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained
all material information required to be included therein by the
1933 Act and the Rules and Regulations or the 1934 Act and the
applicable rules and regulations of the Commission thereunder, as
the case may be, and in all material respects conformed to the
requirements of the 1933 Act and the Rules and Regulations or the
1934 Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, the Registration
Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event that is required to be set
forth in an amended or supplemented Prospectus that has not been
so set forth;
-17-
<PAGE> 18
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has not been (a) any material adverse change in
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (b) any transaction
that is material to the Company, except transactions entered into
in the ordinary course of its business, (c) any obligation, direct
or contingent, that is material to the Company, incurred by the
Company, except obligations incurred in the ordinary course of its
business, (d) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company, (e)
any dividend or distribution of any kind or nature declared, paid
or made on the capital stock of the Company (other than the
distributions made to the Existing Common Stockholders (as that
term is defined in the Prospectus), as disclosed under "S
Corporation Distributions" therein), or (f) any loss or damage
(whether or not insured) to the property or assets of the Company
that had a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects
of the Company; and
(v) The S Corporation distributions made by the Company as
of the date of termination of its S Corporation election shall not
exceed or shall not have exceeded the lesser of (a) 50% of the
accumulated adjustments account of the Company (after taking into
account the distributions made to pay any applicable federal and
state income taxes at the highest applicable rates for the tax
years ending (i) December 31, 1997, and (ii) with the date of the
public offering (that is, the date the Company terminates its S
Corporation election)), or (b) $2,000,000.
(h) The Company shall have obtained and delivered to you
a written agreement from each officer and director of the Company,
and each beneficial owner of five percent (5%) or more of the
Common Stock immediately after the offering contemplated hereby,
prior to the date hereof that such person or entity will not,
during the Lock-up Period, effect the Disposition of any
Securities owned directly by such person or entity or with respect
to which such person or entity has the power of disposition as of
the date of this Agreement, otherwise than (i) as a bona fide gift
or gifts, provided the donee or donees thereof agrees in writing
to be bound by this restriction, or (ii) with the prior written
consent of Cruttenden Roth Incorporated. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction that is designed to
or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would include, without
limitation, any short sale (whether or not against the box) 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 the Securities. Furthermore,
such person or entity will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person
or entity except in compliance with this restriction.
(i) The Company shall have furnished to you such further
certificates and documents as you shall request, including,
without limitation, certificates of officers of the Company as to
the accuracy of the representations and warranties of the Company
herein, the performance by the Company of its obligations
hereunder, and as to the other conditions concurrent and precedent
to the obligations of the Underwriters hereunder.
(j) The Representative's Warrant Agreement shall have
been entered into by the Company and you, and the Representative's
Warrants shall have been issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are satisfactory to
Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall request.
-18-
<PAGE> 19
7. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of three hundred
thousand (300,000) Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by the
Representative on behalf of the several Underwriters on one (1) or more
occasions in whole or in part during the period of forty-five (45) days after
the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (as set forth in Schedule "A"
attached hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (as set forth in Schedule "A" attached hereto), adjusted
by the Representative in such manner as to avoid fractional shares.
Delivery of definitive certificates evidencing the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn until the day following the date of its delivery to the
Company). Such delivery and payment shall take place at the offices of
Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California,
or at such other place as may be agreed upon between the Representative and the
Company (i) on the Closing Date, if written notice of the exercise of such
option is received by the Company at least two (2) full business days prior to
the Closing Date, or (ii) on a date that shall not be later than the third
(3rd) full business day following the date the Company receives written notice
of the exercise of such option, if such notice is received by the Company less
than two (2) full business days prior to the Closing Date.
The certificates evidencing the Option Shares to be so
delivered will be made available to you at such office or such other location
as you may reasonably request for inspection at least one (1) full business day
prior to the date of payment and delivery and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to such date of payment and delivery. If the
Representative so elects, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of the option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
-19-
<PAGE> 20
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be reasonably satisfactory in form and substance to you and
to Underwriters' Counsel, and you shall have been furnished with all such
documents, instruments, certificates and opinions as you may reasonably request
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company, or the compliance with any of the
conditions herein contained in each case in all material respects.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter within the meaning of Rule 2720
of the Bylaws of the NASD (formerly Schedule E to the NASD Bylaws), under the
1933 Act, the 1934 Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any breach of any representation, warranty, agreement or
covenant of the Company herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement
or any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or in
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and further agrees to reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus or in the Prospectus, or any amendment or supplement
thereto, in reliance upon, and in conformity with, written information relating
to any Underwriter furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof; provided further,
however, that the indemnity agreement provided in this Section 8(a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person or entity asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person or entity
within the time required by the 1933 Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 4(d)
hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person or entity, if any, who controls any Underwriter within the meaning of
the 1933 Act or the 1934 Act. This indemnity agreement shall be in addition to
any liabilities that the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under
the 1933 Act or otherwise, specifically including, but not limited to, losses,
claims,
-20-
<PAGE> 21
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach
of any representation, warranty, agreement or covenant of such Underwriter
contained herein, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or in any amendments or
supplements thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or in the Prospectus or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, in the
case of subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company and each person or entity, if any, who controls the Company
within the meaning of the 1933 Act or the 1934 Act. This indemnity agreement
shall be in addition to any liabilities each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability that it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or in addition to those available to the
indemnifying party that pose a conflict of interest for such counsel, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of such counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one (1) separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 8(a) or Section 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be
-21-
<PAGE> 22
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement in writing
in advance; provided, however, that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding or action in respect of which any indemnified party is or could have
been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such indemnification.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but in which it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
the Underwriters severally and not jointly are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the initial public offering price, and the Company is responsible for the
remaining portion; provided, however, that (i) no Underwriter shall be required
to contribute any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. The contribution agreement in this Section
8(d) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person or entity, if any, who controls each of the
Underwriters or the Company within the meaning of the 1933 Act or the 1934 Act
and each officer of the Company who signed the Registration Statement and each
director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and the Prospectus as required by the 1933
Act and the 1934 Act. The parties are advised that federal or state public
policy, as interpreted by the courts in certain jurisdictions, may be contrary
to certain of the provisions of this Section 8, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under this Section 8 and further agree not to
attempt to assert any such defense.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof, shall remain operative and in full force and effect for a period of the
applicable federal and state statutes of limitations regardless of any
investigation made by or on behalf of any Underwriter or any control person
within the meaning of the 1933 Act or the 1934 Act, or by or on behalf of the
Company or any of its officers, directors or control persons within the meaning
of the 1933 Act or the 1934 Act, and shall survive the delivery of the Shares
to the several Underwriters hereunder and the termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares
-22-
<PAGE> 23
that such defaulting Underwriter or Underwriters so agreed but fails to
purchase does not exceed ten percent (10%) of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares that such defaulting Underwriter or Underwriters agreed
but fails to take up and pay for exceeds ten percent (10%) of the Firm Shares,
the remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them) the
Firm Shares that the defaulting Underwriter or Underwriters so agreed but fail
to purchase. If such remaining Underwriters do not, on the Closing Date, take
up and pay for the Firm Shares that the defaulting Underwriter or Underwriters
so agreed but fail to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the opportunity of
substituting within said twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any non-defaulting
Underwriter or Underwriters) reasonably satisfactory to the Company. If no
such underwriter or underwriters shall have been substituted as aforesaid by
such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for an additional twenty-four (24) hours, if necessary,
to allow the Company the opportunity of finding another underwriter or
underwriters, satisfactory to you, to purchase the Firm Shares that the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus that
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares
so agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of the termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" as used in this Agreement shall include any
person or entity substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT; TERMINATION.
(a) This Agreement shall become effective at the earlier of (i)
6:30 a.m., Los Angeles, California time, on the first full (1st) business day
following the effective date of the Registration Statement, or (ii) the time of
the initial public offering of any of the Shares by the Underwriters after the
Registration Statement
-23-
<PAGE> 24
becomes effective. The time of the initial public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in
Section 12 hereof before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representative of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled, including,
without limitation, there shall have occurred any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or the
Prospectus, which, in your sole judgment, is material and adverse to the
Company, or (ii) if additional material regulatory or governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange, the American
Stock Exchange or in the over- the-counter market by the NASD, or trading in
securities generally shall have been suspended on either such exchange or in
the over-the-counter market by the NASD, or if a banking moratorium shall have
been declared by federal, New York or California authorities, or (iii) if the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially in your
reasonable judgment with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political,
regulatory or economic conditions or financial markets that affects the issuer
and materially impairs the investment quality of the Shares and that, in your
reasonable judgment, makes it inadvisable or impracticable to proceed with the
offer, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency that,
in the opinion of the Representative, makes it impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party, except as
provided in Sections 4(i), 5 and 8 hereof; provided, however, that the Company
will reimburse the Representative for a maximum of $30,000 for its
out-of-pocket expenses (which $30,000 was paid by the Company upon the
execution of the Letter of Intent with the Representative). In the event of
termination pursuant to subparagraph (i) above, the Company shall also remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof
(in addition to the out-of-pocket expenses identified in Section 4(i) hereof).
If you elect to prevent this Agreement from becoming effective or
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company elects to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case promptly confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, hand-delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o Cruttenden Roth Incorporated,
18301 Von Karman, Suite 100, Irvine, California 92715, telecopier number (714)
852-9603, Attention: Byron C. Roth
-24-
<PAGE> 25
and Monte Brem; and, if sent to the Company, such notice shall be mailed,
hand-delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to 3516 Centre Circle Drive, Fort Mill, South Carolina
29715, telecopier number (803) 548-2207, Attention: Karl F. Brown.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their control persons within the
meaning of the 1933 Act or the 1934 Act, and the officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions contained herein, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective
executors, administrators, successors and assigns and said control persons and
said officers and directors, and for the benefit of no other person or entity.
No purchaser of any of the Shares from any Underwriter shall be construed as
being a successor or assign of such Underwriter by reason merely of such
purchase. This Agreement constitutes the entire agreement and understanding of
the parties with respect to the subject matter hereof.
In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you on behalf of each of the several Underwriters.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-25-
<PAGE> 26
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this Agreement shall constitute a binding
agreement among the Company and the several Underwriters as provided herein.
Very truly yours,
AMERICAN AIRCARRIERS SUPPORT,
INCORPORATED
By: ----------------------------
Karl F. Brown
Its: President
ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
CRUTTENDEN ROTH INCORPORATED,
on its behalf and on behalf of each of the several
Underwriters named in Schedule "A" attached hereto.
By:
----------------------
Name:
---------------------
Its:
---------------------
LAIDLAW GLOBAL SECURITIES, INC.
on its behalf and on behalf of each of the several
Underwriters named on Schedule "A" attached hereto.
By:
----------------------
Name:
---------------------
Its:
---------------------
<PAGE> 27
SCHEDULE "A"
<TABLE>
<CAPTION>
NUMBER OF
FIRM
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
<S> <C>
Cruttenden Roth Incorporated . . . . . . . . . . . . . . . . . . . . . . . ________
Laidlaw Global Securities, Inc. . . . . . . . . . . . . . . . . . . . . . . ________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 4.1.1
[American Aircarriers Support, Incorporated Logo]
Number Shares
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP 023758 10 5
THIS CERTIFIES THAT __________________________________________ IS THE
OWNER OF ______________________________________ FULLY PAID AND NON-ASSESSABLE
SHARES OF THE COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation of the Corporation and Bylaws of the Corporation and all
amendments thereto, to all of which the owner by the acceptance hereof assents.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers.
DATED:___________________________, 19_____
AMERICAN AIRCARRIERS SUPPORT,
INCORPORATED
[SEAL]
By:
------------------------------------
Karl F. Brown, President
By:
------------------------------------
David M. Furr, Secretary
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596
Denver, Colorado 80201
By: ___________________________________________
Transfer Agent Authorized Signature
<PAGE> 2
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
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> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___________ Custodian ____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________________
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 _______________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated: _____________________, 19____
NOTICE: ___________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
_____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
THE CORPORATION IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE CLASS. THE
CORPORATION WILL FURNISH UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF
EACH CLASS AUTHORIZED TO BE ISSUED AND THE VARIATIONS IN RELATIVE RIGHTS AND
PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF PREFERRED CLASS, SO FAR AS THE
SAME HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS
TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
<PAGE> 1
EXHIBIT 4.1.2
--------------------------------------------------
REPRESENTATIVE'S WARRANT AGREEMENT
by and between
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
and
CRUTTENDEN ROTH INCORPORATED
-------------------------
______, 1998
--------------------------------------------------
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Agreement") is dated as
of _________, 1998 and entered into by and between AMERICAN AIRCARRIERS
SUPPORT, INCORPORATED, a Delaware corporation (the "Company"), and CRUTTENDEN
ROTH INCORPORATED and its registered assigns (the "Warrantholder").
The Company hereby issues and sells, and the Warrantholder hereby
purchases, for the price of $0.001 per warrant, warrants (the "Warrants"), to
purchase up to an aggregate of 200,000 shares (the "Warrant Shares") of the
Company's Common Stock, $0.001 par value per share (the "Common Stock"), in
connection with the initial public offering (the "Public Offering") by the
Company of 2,000,000 Shares of Common Stock pursuant to an Underwriting
Agreement dated as of ________, 1998 (the "Underwriting Agreement") between the
Company and the Warrantholder, as Representative of the several Underwriters
named in the Underwriting Agreement.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
1. TRANSFERABILITY OF WARRANTS.
1.1 Registration. The Warrants shall be numbered and
shall be registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on
the books of the Company maintained at its principal office in Fort Mill, South
Carolina or wherever its principal office may then be located, upon delivery
thereof duly endorsed by the Warrantholder or by its duly authorized attorney
or representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new certificate evidencing the Warrants to the person
entitled thereto and the surrendered Warrants shall be canceled by the Company.
Canceled Warrants shall be disposed of by the Company in a manner satisfactory
to the Company.
1.3 Limitations on Transfer of the Warrants. Subject to
the provisions of Section 11 hereto, the Warrants shall not be sold,
transferred, assigned or hypothecated by the Warrantholder until ____________,
1999, except to (i) one or more persons, each of whom on the date of transfer
is an employee, officer or partner of the Warrantholder; (ii) a successor to
the Warrantholder in a merger or consolidation; (iii) a purchaser of all or
substantially all of the Warrantholder's assets; or (iv) any person receiving
the Warrants from one or more of the persons listed in this Section 1.3 at such
person's or persons' death pursuant to will, trust or the laws of intestate
succession. The Warrants may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of Warrant Shares. Unless the
context indicates otherwise, the term "Warrantholder" shall include any
transferee or transferees of the Warrants pursuant to this Section 1.3, and the
term "Warrants" shall include any and all warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.
<PAGE> 3
1.4 Warrants. The number of Warrant Shares issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by its President or by a Vice President, attested to by
its Secretary or an Assistant Secretary, and if none, then by its Chief
Financial Officer. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office
prior to the delivery of such Warrant or did not hold such office on the date
of this Agreement. The Warrants shall be dated as of the date of signature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.4.1 Legend on Warrant Shares. Each certificate
for Warrant Shares initially issued upon exercise of the Warrants shall bear
the following legend, unless, at the time of exercise, such Warrant Shares are
subject to a currently effective Registration Statement under (as that term is
defined in Section 11.1) the Securities Act of 1933, as amended (the "1933
Act"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION
11 OF THE REPRESENTATIVE'S WARRANT AGREEMENT DATED ________, 1998,
PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a Registration Statement under
the 1933 Act, of the securities represented thereby) shall also bear the above
legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.
2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of Warrant Shares as the
certificate or certificates surrendered entitled the Warrantholder to purchase.
The Warrantholder desiring to exchange a Warrant certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant to
be so exchanged. Thereupon, the Company shall execute and deliver to the
Warrantholder entitled thereto a new Warrant certificate as so requested.
3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
3.1 Term; Termination Date. Subject to the terms of this
Agreement, the Warrantholder shall have the right to exercise the Warrants as
set forth herein, at any time during the period commencing at 9:00 a.m., Los
Angeles, California time on __________, 1999 and ending at 5:00 p.m. Los
Angeles, California time, on ___________, 2003 (the "Termination Date"), to
purchase from the Company up to the number of fully-paid and nonassessable
Warrant Shares to which the Warrantholder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, or at the office of the Company's transfer agent, of the
certificate evidencing the Warrants to be exercised, together with a copy of
the purchase form attached hereto (the "Purchase Form") duly completed and
signed, with signatures guaranteed, and upon payment to the Company of the
Warrant Price (as defined in and determined in
-2-
<PAGE> 4
accordance with the provisions of this Section 3 and Sections 7 and 8 hereof),
for the number of Warrant Shares in respect of which such Warrants are then
exercised, but in no event for less than one hundred (100) Warrant Shares
(unless fewer than an aggregate of one hundred (100) Warrant Shares are then
purchasable under all outstanding Warrants held by the Warrantholder).
3.2 Exercise Methods. Payment of the Warrant Price (as
that term is defined in Section 7 below) may be made in the manner provided
below in this Section 3.2 for the number of Warrant Shares specified in the
attached Purchase Form. The Warrantholder may make payment of the Warrant
Price, in his, her or its sole discretion, by (i) the payment of cash in the
amount of the Warrant Price multiplied by the number of Warrant Shares being
purchased in connection with such exercise; (ii) the cancellation of
indebtedness, if any, owing by the Company to the Warrantholder in the amount
of the Warrant Price multiplied by the number of Warrant Shares being purchased
in connection with such exercise; (iii) surrendering to the Company shares of
the Company's Common Stock owned by the Warrantholder and having an aggregate
Current Market Price (as determined in accordance with Section 9 below) equal
to the Warrant Price multiplied by the number of shares being purchased in
connection with such exercise; (iv) surrendering to the Company the right to
acquire a number of Warrant Shares such that the aggregate Current Market Price
of such surrendered Warrant Shares equals the Warrant Price multiplied by the
total number of Warrant Shares desired to be exercised by the Warrantholder
(which type of cashless exercise shall be referred to herein as an
"Appreciation Currency" exercise (as that term is defined in Section 3.3
below)); (v) a same day sale brokered exercise; (vi) a margined exercise; (vii)
the issuance of a nonrecourse promissory note (which can be made recourse at
any time at the Warrantholder's option) in the amount of the Warrant Price
multiplied by the number of Warrant Shares being purchased in connection with
such exercise and secured by the Warrant Shares being purchased (or other
collateral of sufficient value specified or substituted by the Warrantholder)
and payable one (1) year from the date of such promissory note, if not prepaid
earlier, and bearing interest at the statutory rate applicable on the date of
the promissory note under the Internal Revenue Code of 1986, as amended, with
such interest payable quarterly in cash or in shares of the Company's Common
Stock valued in accordance with Section 9 hereof; or (viii) any combination of
the foregoing exercise methods. If the Warrants should be exercised only in
part, the Company shall, if the Warrants are surrendered for cancellation,
execute and deliver a new Warrant certificate of the same tenor evidencing the
right of the Warrantholder to purchase the balance of the Warrant Shares
purchasable hereunder upon the same terms and conditions as herein set forth.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of the Warrants, the Company, at its cost and
expense, shall execute and deliver in lieu of the Warrants, new warrants of
like tenor and amount. Upon receipt by the Company or its transfer agent of a
Purchase Form in proper form for exercise, and (except in the case of an
exercise pursuant to clauses (iii) or (iv) above of this Section 3.2)
accompanied by payment as herein provided, the Warrantholder shall be deemed to
be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to the Warrantholder. If the Warrantholder elects to use
either of the exercise methods described in clauses (iii) or (iv) of this
Section 3.2, the number of Warrant Shares issuable upon such exercise shall be
based on the determination, as of the date of the Purchase Form relating to
such exercise, of the Current Market Price of the Company's Common Stock
issuable upon such exercise as determined in accordance with Section 9 below.
Upon payment of such Warrant Price as set forth hereinabove,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrantholder and in the name or names of
the Warrantholder or, subject to compliance with the provisions of Section 11.1
hereof, in such name or names as the Warrantholder may designate, a certificate
or certificates for the number of full Warrant Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in Section 9
-3-
<PAGE> 5
hereof, in respect of any fractional Warrant Shares otherwise issuable upon
such surrender. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such securities as of the date of surrender of the
Warrants and payment of the Warrant Price, as aforesaid. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Warrant Shares specified therein
at any time prior to the Termination Date, a new certificate evidencing the
remaining portion of the Warrants will promptly be issued by the Company.
Notwithstanding the foregoing, if at 5:00 p.m.,
California time on the Termination Date, any Warrantholder of Warrants has not
exercised its Warrants and has not notified the Company that it waives
automatic issuance pursuant to this paragraph, then all such unexercised
Warrants shall be automatically converted into a number of Warrant Shares
issuable pursuant to the formula set forth in Section 3.2(iv) and Section 3.3.
3.3 Appreciation Currency. As used herein, "Appreciation
Currency" shall mean the consideration given by the surrender of Warrants in
exchange for Warrant Shares. The number of Warrant Shares to which the holder
shall be entitled upon such surrender of Warrants shall be determined by
applying the following formula: WS=NWS$ x [(CMP$-WP$)/CMP$], where:
"WS" is the number of Warrant Shares to which the
holder shall be entitled upon surrender of Warrants;
"NWS$" is the number of Warrant Shares if the entire
Warrant is being exercised, or, in the case of a partial exercise, the Warrant
Shares underlying the portion of the Warrant being exercised;
"CMP$" is the Current Market Price (as defined in
Section 9 hereof) per share of Common Stock; and
"WP$" is the Warrant Price (as defined in Section 7
hereof) as adjusted and readjusted as set forth in Section 8 hereof.
4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Warrant Shares; provided, however, that the Company
shall not be required to pay any tax or taxes that may be payable (i) in
respect of any secondary transfer of the Warrants or the securities comprising
the Warrant Shares; or (ii) as a result of the issuance of Warrant Shares to
any person or entity, other than Cruttenden Roth Incorporated. The Company
shall not be required to issue or deliver any certificate for any Warrant
Shares unless and until the person or entity requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have produced
evidence that such tax has been paid to the appropriate taxing authority.
5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and in substitution for the
certificate or certificates that have been lost, stolen or destroyed, a new
Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or
-4-
<PAGE> 6
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount, and issued at the applicant's cost and
expense. Any such applicant for a substitute Warrant certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe in writing.
6. RESERVATION OF WARRANT SHARES. There has been reserved, and
the Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of
Common Stock as shall be subject to purchase under the Warrants. The Company
will supply every transfer agent for the Common Stock and other securities of
the Company issuable upon the exercise of the Warrants with duly executed stock
and other certificates, as appropriate, for such purpose and will provide or
otherwise make available any cash that may be payable as provided in Section 9
hereof.
7. WARRANT PRICE. The price per share at which Warrant Shares
shall be purchasable by the Warrantholder upon the exercise of the Warrants
(the "Warrant Price") shall be ______ Dollars and ____/No ($________ ), subject
to further adjustment pursuant to Section 8 hereof and payable as provided in
Section 3.2 hereof.
8. ADJUSTMENT OF NUMBER OF WARRANT SHARES. The number and kind
of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
8.1 Adjustments. The number of Warrant Shares
purchasable upon the exercise of the Warrants shall be subject to adjustment as
follows: In case the Company shall (i) pay a dividend in Common Stock or make
a distribution in Common Stock; (ii) subdivide or split its outstanding Common
Stock; (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock; or (iv) issue by reclassification of its Common Stock
other securities of the Company, then the Warrant Price and the number of
Warrant Shares purchasable upon exercise of the Warrants immediately prior
thereto shall be proportionately adjusted so that the Warrantholder shall be
entitled to receive the kind and number of Warrant Shares or other securities
of the Company that he, she or it would have owned or would have been entitled
to receive immediately after the happening of any of the events described
above, had the Warrants been exercised at the Warrant Price immediately prior
to the happening of such event or any record date with respect thereto,
whichever is earlier. Any adjustment made pursuant to this Section 8.1 shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event. For the purpose of this Section
8.1, the term "Common Stock" shall mean (i) the class of stock designated as
the Common Stock of the Company at the date of this Agreement; or (ii) any
other class of stock resulting from successive changes in or reclassifications
of such Common Stock consisting solely of changes in its par value, or changes
from par value to no par value, or changes from no par value to par value.
8.2 No Adjustment for Dividends. Except as provided in
Section 8.1 hereof, no adjustment in respect of any dividends or distributions
out of earnings shall be made during the term of the Warrants or upon the
exercise of the Warrants.
8.3 Certificate of Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrants is adjusted as
herein provided, the Company shall cause to be promptly prepared and mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the Chief Financial Officer of the Company
setting forth the number of Warrant Shares purchasable upon the exercise of the
Warrants after such adjustment, a brief statement of the facts requiring
-5-
<PAGE> 7
such adjustment and the computation by which such adjustment was made;
provided, however, that such a notice of adjustment and certificate shall only
be required for adjustments that result in a change in the Warrant Price or in
the number of Warrant Shares purchasable upon exercise of the Warrants of five
percent (5%) or more.
8.4 Adjustment for Reclassification, Reorganization,
Merger and Other Events. In case of any capital reorganization or
reclassification or change of the outstanding securities of the Company or of
any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, or in case, after such date, the Company
(or any such other corporation) shall consolidate or merge with or into another
corporation or convey or lease all or substantially all of its assets to
another corporation or enter into a statutory exchange, then and in each such
case the Warrantholder, upon the exercise hereof at any time after the
consummation of such reorganization, reclassification, change, consolidation,
exchange, merger, sale, lease or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which the Warrantholder would have been entitled upon such consummation if the
Warrantholder had exercised this Warrant immediately prior thereto, all subject
to further adjustment as provided in this Section 8; in each such case, the
terms of this Section 8 shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after such
consummation. At the time of any reorganization, reclassification, merger,
consolidation or conveyance or lease of assets subject to this Section 8, the
successor or acquiring entity (if other than the Company) shall expressly
assume the due and punctual observance and performance of the terms, covenants
and conditions of this Warrant to be performed and observed by the Company and
all of the obligations and liabilities hereunder, subject to such modifications
as may be deemed appropriate (as determined by resolution of the Board of
Directors of the Company) in order to provide for adjustments of the Warrant
Shares (or any shares of stock or securities at the time receivable upon
exercise of this Warrant) for which this Warrant is exercisable. These
adjustments shall be as nearly equivalent as practicable to the adjustments
provided for in this Section 8.
8.5 Par Value of Warrant Shares. Before taking any
action that would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each Warrant Share below the then par value per
share of the Common Stock issuable upon exercise of the Warrants, the Company
will take any corporate action that may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully-paid
and nonassessable Common Stock upon exercise of the Warrants.
8.6 Independent Public Accountants. The Company may
retain a firm of independent public accountants of recognized national standing
(which may be any such firm regularly employed by the Company) to make any
computation required under this Section 8.
8.7 Statement on Warrant Certificates. Irrespective of
any adjustments in the number of securities issuable upon exercise of the
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same number of securities as are stated in the Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at
any time, make any change in the form of Warrant certificate that it may deem
appropriate and that does not affect the substance thereof; and any Warrant
certificate thereafter issued, whether upon registration of transfer of, or in
exchange or substitution for, an outstanding Warrant certificate, may be issued
in the form so changed.
-6-
<PAGE> 8
8.8 Duty to Make Fair Adjustments. If any event occurs
as to which the other provisions of this Section 8 are not strictly applicable
or, if strictly applicable, would not fairly protect the rights of the
Warrantholder hereunder in accordance with the essential intent and principles
of such provisions and this Warrant, then the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights, but in
no event shall any such adjustment have the effect of increasing the Warrant
Price or reducing the number of Warrant Shares except as specifically provided
herein.
9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional Warrant Shares upon the exercise of the
Warrants. If any fraction of a Warrant Share would, except for the provisions
of this Section 9, be issuable upon the exercise of the Warrants (or any
portion thereof), the Company shall pay an amount in cash equal to the then
Current Market Price (as that term is defined below) per share of Common Stock
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Stock is traded in the
over-the-counter market and not on the Nasdaq National Market System nor on any
national securities exchange, the average of the per share closing bid price on
the twenty (20) consecutive trading days immediately preceding the date in
question, as reported by the Nasdaq SmallCap Market (or an equivalent generally
accepted reporting service if quotations are not reported on the Nasdaq
SmallCap Market); or (ii) if the Common Stock is traded on the Nasdaq National
Market System or on a national securities exchange, the average for the twenty
(20) consecutive trading days immediately preceding the date in question of the
daily per share closing prices on the Nasdaq National Market System or on the
principal stock exchange on which the Common Stock is listed, as the case may
be. For purposes of clause (i) above, if trading in the Common Stock is not
reported by the Nasdaq SmallCap Market, the applicable bid price referred to in
said clause (i) shall be the lowest bid price as reported by the Nasdaq
Electronic Bulletin Board or, if not reported thereon, as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated, and, if such
securities are not so reported, shall be the price of a share of Common Stock
determined by the Company's Board of Directors in good faith. The closing price
referred to in clause (ii) above shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case on the Nasdaq National Market
System or on the national securities exchange on which the Common Stock is then
listed.
10. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends or other distributions,
consent or receive notices as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
10.1 any action that would require an adjustment pursuant
to Section 8 hereof; or
10.2 a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger or sale of its
property, assets and business as an entirety or substantially as an entirety)
shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least thirty (30) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholder entitled to any relevant
dividend, distribution, subscription rights or
-7-
<PAGE> 9
other rights or for the determination of shareholders entitled to vote on such
proposed dissolution, liquidation or winding up. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
The failure to give notice required by this Section 10 or any defect therein
shall not affect the legality or validity of any dividend, distribution, right,
dissolution, liquidation or winding up, or the vote upon any action.
11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
11.1 Written Notice. The Warrantholder agrees that prior
to making any disposition of the Warrants or the Warrant Shares, including
without limitation, to persons or entities identified in clauses (i) through
(iv), inclusive, of Section 1.3 hereof, other than pursuant to a registration
statement or other notification or post- effective amendment thereto (herein,
collectively, a "Registration Statement") filed by the Company with, and
declared effective by, the United States Securities and Exchange Commission
(the "Commission"), the Warrantholder shall give written notice to the Company
describing briefly the manner in which any such proposed disposition is to be
made and shall provide such other information as may reasonably be required by
the Company to conclude that no Registration Statement under the 1933 Act or
under applicable state "blue sky" laws, rules or regulations is required with
respect to such disposition, and no such disposition shall be made if the
Company has notified the Warrantholder in writing that in the opinion of
counsel satisfactory to the Warrantholder a Registration Statement under the
1933 Act is required with respect to such disposition and no such Registration
Statement has been filed by the Company with, and, to the extent required,
declared effective by, the Commission.
11.2 "Piggy Back" Registration Rights. Whenever during
the four (4) year period beginning on __________, 1999 and ending on _________,
2003, the Company proposes to file with the Commission a Registration Statement
(other than as to securities issued pursuant to an employee benefit plan or as
to a transaction subject to Rule 145 promulgated under the 1933 Act or for
which a Form S-4 Registration Statement could be used), it shall, at least
thirty (30) days prior to each such filing, give written notice of such
proposed filing to the Warrantholder and each holder of Warrant Shares, at
their respective addresses as they appear on the records of the Company, and
shall offer to include and shall, on two (2) occasions only, include in such
filing any proposed disposition of the Warrants and Warrant Shares upon receipt
by the Company, not less than ten (10) days prior to the proposed filing date,
of a request therefor setting forth the facts with respect to such proposed
disposition and all other information with respect to such person or entity
reasonably necessary to be included in such Registration Statement. In the
event that the managing underwriter for said offering advises the Company in
writing that the inclusion of such securities in the offering would be
detrimental to the offering, such securities shall nevertheless be included in
the Registration Statement as long as the Warrantholder and each holder of
Warrants and Warrant Shares desiring to have such securities included in the
Registration Statement agrees in writing, for a period of ninety (90) days
following such offering, not to sell or otherwise dispose of such securities
pursuant to such Registration Statement, which Registration Statement the
Company shall keep effective for a period of at least nine (9) months following
the expiration of such ninety (90) day period.
11.3 Demand Registration Rights. In addition to any
Registration Statement pursuant to Section 11.2 above, at any time during the
period the Warrants are exercisable, the Company will, as promptly as
practicable (but in any event within sixty (60) days), after written request
(the "Request") by Cruttenden Roth Incorporated, or by a person(s) or
entity(ies) holding (or having the right to acquire by virtue of holding the
Warrants) at least fifty percent (50%) of the Warrant Shares that have been (or
may be) issued upon exercise of the Warrants, prepare and file at its own cost
and expense a Registration Statement with the
-8-
<PAGE> 10
Commission and appropriate state "blue sky" authorities sufficient to permit
the public offering of the Warrants and Warrant Shares, and will use reasonable
efforts at its own cost and expense through its officers, directors, auditors
and counsel, in all matters necessary or advisable, to cause such Registration
Statement to become effective as promptly as practicable and to maintain such
effectiveness so as to permit resale of the Warrant Shares covered by the
Request until the earlier of the time that all such Warrant Shares have been
sold or the expiration of one hundred-twenty (120) days from the effective date
of the Registration Statement; provided, however, that the Company shall only
be obligated to file one (1) such Registration Statement under this Section
11.3.
11.4 Payment of Fees. All fees, disbursements and
out-of-pocket expenses (other than Warrantholders' and holders' of Warrant
Shares brokerage fees and commissions and legal fees of counsel to the
Warrantholders and holders of Warrant Shares, if any) in connection with the
filing of any Registration Statement under Section 11.2 or 11.3 hereof and in
complying with applicable securities and state "blue sky" laws, rules and
regulations shall be borne by the Company. The Company at its cost and expense
will supply any Warrantholder and any holder of Warrant Shares with copies of
such Registration Statement and the prospectus included therein and other
related documents in such quantities as may be reasonably requested by the
Warrantholder or holder of Warrant Shares.
11.5 No Obligation to File. The Company shall not be
required by this Section 11 to file such Registration Statement if, in the
opinion of counsel for the Warrantholder and holders of Warrant Shares and
counsel for the Company (or, should they not agree, in the opinion of another
counsel experienced in securities law matters acceptable to counsel for the
Warrantholder, holders of Warrant Shares and the Company), the proposed public
offering or other transfer as to which such Registration Statement is requested
is exempt from applicable federal and state securities laws, rules, regulations
and would result in unaffiliated purchasers or transferees obtaining securities
that are not "restricted securities," as that term is defined in Rule 144 under
the 1933 Act.
11.6 Regulation A Offerings. The provisions of this
Section 11 and Section 12 hereof shall apply to the extent as provided herein
if the Company chooses to file an Offering Statement under Regulation A
promulgated under the 1933 Act.
11.7 Obligation to Keep Current. The Company agrees that
until all Warrant Shares have been sold under a Registration Statement or
pursuant to Rule 144 under the 1933 Act, it will use reasonable efforts to
timely file all materials required to be filed with the Commission in order to
permit the holders of Warrant Shares to sell the same under Rule 144.
12. INDEMNIFICATION.
12.1 By the Company. In the event of the filing of any
Registration Statement with respect to the Warrant Shares pursuant to Section
11 hereof, the Company agrees to indemnify and hold harmless the Warrantholder
or any holder of such Warrant Shares and each person or entity, if any, who
controls the Warrantholder or any holder of such Warrant Shares within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Warrantholder or any holder of such Warrant
Shares or such controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
-9-
<PAGE> 11
in any such Registration Statement, or any related preliminary prospectus,
final prospectus, or amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Warrantholder or the holder of such Warrant Shares or any person or entity who
controls the Warrantholder or any holder of such Warrant Shares within the
meaning of the 1933 Act specifically for use in the preparation thereof. This
indemnity will be in addition to any liability that the Company may otherwise
have.
12.2 By the Warrantholder. The Warrantholder and the
holders of the Warrant Shares agree that they will indemnify and hold harmless
the Company, each other person or entity referred to in subparts (1), (2) and
(3) of Section 11(a) of the 1933 Act in respect of the Registration Statement
and each person or entity, if any, who controls the Company within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities (which
shall, for all purposes of this Agreement, include but not be limited to, all
costs of defense and investigation and all reasonable attorneys' fees), to
which the Company or any such director, officer or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in such Registration Statement, or any related preliminary
prospectus, final prospectus or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Warrantholder or such
holder of Warrant Shares specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability that the Warrantholder
or such holder of Warrant Shares may otherwise have.
12.3 Notice. Promptly after receipt by an indemnified
party under this Section 12 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section 12, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve him, her or it from any liability that he,
she or it may have to any indemnified party otherwise than under this Section
12. In case any such action is brought against any indemnified party, and he,
she or it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that he, she or it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to him, her or it and/or other indemnified parties that are
different from or in addition to those available to the indemnifying party that
poses a conflict of interest for such counsel, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party
-10-
<PAGE> 12
will not be liable to such indemnified party under this Section 12 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one (1) separate counsel (together with
appropriate local counsel) approved by the indemnifying party representing all
the indemnified parties under Sections 12.1 or 12.2 hereof who are parties to
such action); (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action; or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided, however, that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnification could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such indemnification.
13. CONTRIBUTION. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (i) the Warrantholder or
any holder of Warrant Shares or controlling person makes a claim for
indemnification pursuant to Section 12 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for indemnification in such case; or (ii) contribution under the 1933
Act may be required on the part of the Warrantholder or any holder of Warrant
Shares or controlling person, then the Company and the Warrantholder or any
such holder of the Warrant Shares or controlling person shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, on the
one hand, or the Warrantholder or a holder of Warrant Shares or a controlling
person, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro rata allocation or by any other
method that does not take account of the equitable considerations referred to
in this Section 13. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 13 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
14. NOTICES. Any notice pursuant to this Agreement by the Company
or by the Warrantholder or a holder of Warrant Shares shall be in writing and
shall be deemed to have been duly given if delivered or mailed by certified or
registered mail, return receipt requested:
-11-
<PAGE> 13
14.1 Warrantholder. If to the Warrantholder or a holder
of Warrant Shares, addressed to Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California, 92715, Attention: Corporate Finance Department.
14.2 The Company. If to the Company, addressed to it at
3516 Centre Circle Drive, Fort Mill, South Carolina 29715, Attention:
President.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholder, or the
holders of Warrant Shares shall bind and inure to the benefit of their
respective successors and permitted assigns hereunder.
16. MERGER OR CONSOLIDATION OF THE COMPANY. The Company may merge
or consolidate with or into any other corporation or company or sell all or
substantially all of its property or assets to another corporation; provided,
however, that the provisions of Section 8.4 hereof are complied with.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered
by or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive the execution hereof.
18. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be construed in accordance with the laws of said State.
19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or entity other than the Company, the
Warrantholder and the holders of Warrant Shares any legal or equitable right,
remedy or claim under this Agreement. This Agreement shall be for the sole and
exclusive benefit of the Company, the Warrantholder and the holders of Warrant
Shares.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute one and the
same instrument.
21. STOCK EXCHANGE LISTINGS. The Company will from time to time
take all action which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed and/or
included for trading on the principal securities exchanges and markets within
the United States of America, if any, on which other shares of Common Stock are
then listed or included for trading.
22. ATTORNEYS' FEES. In the event of any action, suit,
counterclaim, appeal, arbitration, mediation, or other proceeding (an "Action")
between any Warrantholder and the Company arising out of or in connection with
this Agreement or the Warrants, in addition to any damages and costs to which
the prevailing party would otherwise be entitled, the losing party in any such
Action shall pay to the prevailing party the attorneys' fees and costs incurred
by the prevailing party in connection with such Action and/or enforcing any
judgment, order,
-12-
<PAGE> 14
ruling, or award (collectively, a "Decision") granted therein, all of which
shall be paid whether or not such Action is prosecuted to a Decision. Any
Decision entered in an Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
Attorneys' fees shall include, but not be limited to, fees incurred in the
following (i) post judgment motions and collection actions; (ii) contempt
proceedings; (iii) garnishment, levy, and debtor and third party examinations;
(iv) discovery, and (v) bankruptcy. "Prevailing party" with the meaning of
this section includes, without limitation, a party who agrees to dismiss an
Action on the other party's payment of the sum allegedly due or performance of
the covenants allegedly breached, or who obtains substantially the relief
sought. If there are multiple claims, the prevailing party shall be determined
with respect to each claim separately. The prevailing party shall be the party
who has obtained the greater relief in connection with any particular claim,
although with respect to any claim, it may be determined by the court or
arbitrator before which the Action is brought that there is no prevailing
party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
AMERICAN AIRCARRIERS SUPPORT,
INCORPORATED
By:
---------------------------------
Name: Karl F. Brown
Title: President
CRUTTENDEN ROTH INCORPORATED
By:
---------------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE> 15
PURCHASE FORM FOR EXERCISE FOR
CASH, DEBT FORGIVENESS,
SAME DAY SALE, MARGINED SALE OR OTHERWISE(1)
TO: AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
The undersigned, _______________________________, pursuant to the provisions of
the foregoing Warrant, hereby agrees to subscribe for and purchase __________
shares of the Common Stock of American Aircarriers Support, Incorporated
covered by said Warrant, and makes payment therefor in full in the form of
________________________ at the price per share provided by said Warrant.
Dated:
-----------------------
Warrantholder:
--------------------
Signature:
--------------------
Its:
--------------------
Address:
---------------------
---------------------
PURCHASE FORM FOR
CASHLESS OR IMMACULATE EXERCISE(1)
TO: AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
The undersigned, ________________________________, pursuant to the provisions
of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares of the Common Stock of American Aircarriers
Support, Incorporated issuable in accordance with (circle one or both) (a) the
formula relating to exercises under clause (iv) of Section 3.2 of the Warrant,
or (b) with clause (iii) of Section 3.2 of the Warrant, upon tendering to
American Aircarriers Support, Incorporated ___________ shares of its Common
Stock owned by the Warrantholder and having a Current Market Price equal to the
Warrant Price for the Warrant Shares issuable upon this exercise, and makes
payment therefore in full by surrender and delivery of this Warrant or such
shares, as applicable.
Date:
--------------------
Warrantholder:
--------------------
Signature:
--------------------
Its:
--------------------
Address:
---------------------
---------------------
(1) If a combination of exercise methods and consideration is being used,
the Warrantholder may modify the Purchase Forms accordingly.
<PAGE> 16
ASSIGNMENT
FOR VALUE RECEIVED, _______________________________ hereby sells, assigns and
transfers unto ____________________________ _____________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint _______________________________________, attorney, to transfer said
Warrant on the books of American Aircarriers Support, Incorporated.
Date:
--------------------
Warrantholder:
--------------------
Signature:
--------------------
Its:
--------------------
Address:
---------------------
---------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________________________ hereby
assigns and transfers unto _______________ ___________ the right to purchase
______________ shares of the Common Stock of American Aircarriers Support,
Incorporated evidenced by the foregoing Warrant, and a proportionate part of
said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint _________________________, attorney, to transfer that part of said
Warrant on the books of American Aircarriers Support, Incorporated.
Date:
--------------------
Warrantholder:
--------------------
Signature:
--------------------
Its:
--------------------
Address:
---------------------
---------------------
<PAGE> 1
Exhibit 5
May 1, 1998
American Aircarriers Support, Incorporated
3516 Centre Circle Drive
Fort Mill, South Carolina 29715
Re: Registration Statement on Form SB-2 (S.E.C. File
No. 333-48497) Covering Public Offering of
2,300,000 Shares of Common Stock of
American Aircarriers Support, Incorporated
Gentlemen:
We have acted as counsel to American Aircarriers Support, Incorporated,
a Delaware corporation (the "Company"), in connection with the proposed offering
by the Company (i) to the public of 2,300,000 shares of Common Stock
(collectively, the "Shares"), (ii) to the representative of the several
underwriters, Representative's Warrants (collectively, the "Representative's
Warrants") to purchase 200,000 shares of Common Stock, and (iii) to registered
holders of the Representative's Warrants, the Common Stock underlying such
Representative's Warrants, all in accordance with the registration provisions of
the Securities Act of 1933, as amended.
In such capacity, we have examined, among other documents, the
Registration Statement on Form SB-2 (File No. 333-48497) filed by the Company
with the Securities and Exchange Commission (the "Commission") on March 24,
1998, as amended by Amendment No. 1 thereto which the Company is to file with
the Commission today or shortly hereafter (as the same may be further
<PAGE> 2
American Aircarriers Support, Incorporated
May 1, 1998
Page 2
amended from time to time, the "Registration Statement"), covering the public
offering of the above-described securities.
Based on the foregoing and on such further examination as we have
deemed relevant and necessary, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
2. The Shares, Representative's Warrants and the shares of Common Stock
underlying the Representative's Warrants have been legally and validly
authorized under the Certificate of Incorporation of the Company and on receipt
of the consideration required by, and when issued in accordance with the
description set forth in, the Registration Statement, the Shares,
Representative's Warrants and the shares of Common Stock underlying the
Representative's Warrants will constitute duly and validly issued, outstanding,
and fully paid and nonassessable securities of the Company.
We hereby consent to the use of our name and to the references to our
firm beneath the caption "LEGAL MATTERS" in the Prospectus forming a part of the
Registration Statement, and to the filing of a copy of this opinion as Exhibit
No. 5 thereto.
Very truly yours,
/s/ Berliner Zisser Walter & Gallegos, P.C.
<PAGE> 1
NationsBank, N.A.
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C>
Date April 9, 1998 (X) New (_) Renewal Amount $ 10,000,000.00 Maturity Date__________________________
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================
BANK: BORROWER:
<S> <C>
NationsBank, N.A.
Banking Center:
Metrolina Commercial Region American Aircarriers Support, Inc.
NationsBank Plaza 3516 Centre Circle Drive
NC1 002-05-10, Mecklenburg County Fort Mill, York County, SC 29715
Charlotte, NC 28255
===============================================================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank,
the principal amount of Ten Million Dollars ($10,000,000.00), or so much
thereof as may be advanced from time to time in immediately available funds,
together with interest computed daily on the outstanding principal balance
hereunder, at an annual interest rate, and in accordance with the payment
schedule, indicated below.
1. RATE. The Rate shall be the 90-day LIBOR (London Interbank Offering
Rate), plus 2 percent ("Applicable Margin"), per annum. The "Rate" is the
fluctuating rate of interest established by Bank from time to time, at its
discretion, whether or not such rate shall be otherwise published. The Rate is
established by Bank as an index and may or may not at any time be the best or
lowest rate charged by Bank on any loan.
The Rate of the Loan shall also be subject to adjustment based on the
Borrower's Leverage ratio as defined under the Financial Covenants in the Loan
Agreement. The calculation and any change in the Applicable Margin shall take
place on the first day of the month immediately following receipt of financial
information for the preceding fiscal quarter.
<TABLE>
<CAPTION>
Leverage Ratio Applicable Margin
-------------- -----------------
<S> <C>
> than 1.0 2.25 percent per annum
# to 1.0 but 2.00 percent per annum
# to 0.60
< than 0.60 1.75 percent per annum
</TABLE>
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges
in excess of the maximum permitted by the applicable law of the State of North
Carolina; if any higher rate ceiling is lawful, then that higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set
forth above will be calculated by the 365/360 day method (a daily amount of
interest is computed for a hypothetical year of 360 days; that amount is
multiplied by the actual number of days for which any principal is outstanding
hereunder).
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate
will change, unless otherwise provided, each time and as of the date that the
index or base rate changes.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied
first to the payment of any expense or charges
NationsBank Promissory Note
North Carolina [Commercial]-- 2/96
<PAGE> 2
NationsBank, N.A.
payable hereunder or under any other loan documents executed in connection with
this Note, then to interest due and payable, with the balance applied to
principal, or in such other order as Bank shall determine at its option.
SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on September 30, 1998. Interest thereon shall be paid monthly,
commencing on April 30, 1998, and continuing on the same day of each successive
month thereafter, with a final payment of all unpaid interest at the stated
maturity of this Note.
5. REVOLVING FEATURE. Borrower may borrow, repay and reborrow hereunder at
any time, up to a maximum aggregate amount outstanding at any one time equal to
the principal amount of this Note, provided that Borrower is not in default
under any provision of this Note, any other documents executed in connection
with this Note, or any other note or other loan documents now or hereafter
executed in connection with any other obligation of Borrower to Bank, and
provided that the borrowings hereunder do not exceed any borrowing base or
other limitation on borrowings by Borrower. Bank shall incur no liability for
its refusal to advance funds based upon its determination that any conditions
of such further advances have not been met. Bank records of the amounts
borrowed from time to time shall be conclusive proof thereof.
UNCOMMITTED FACILITY. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents executed in
connection with this Note, Bank has no obligation to make any advance, and that
all advances are at the sole discretion of Bank.
6. AUTOMATIC PAYMENT. Borrower has elected to authorize Bank to effect
payment of sums due under this Note by means of debiting Borrower's account
number _______________________________. This authorization shall not affect
the obligation of Borrower to pay such sums when due, without notice, if there
are insufficient funds in such account to make such payment in full on the due
date thereof, or if Bank fails to debit the account.
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note, any indorsement or guaranty of this Note, or any
other documents executed in connection with this Note or any other note or
other loan documents now or hereafter executed in connection with any
obligation of Borrower to Bank (the "Loan Documents"); (b) consent to all
delays, extensions, renewals or other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release
or discharge by Bank of any of Obligors, or release, substitution or exchange
of any security for the payment hereof, or the failure to act on the part of
Bank, or any indulgence shown by Bank (without notice to or further assent from
any of Obligors), and agree that no such action, failure to act or failure to
exercise any right or remedy by Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any indorsement
or guaranty of this Note or under any of the Loan Documents; and (c) agree to
pay, on demand, all costs and expenses of collection or defense of this Note or
of any indorsement or guaranty hereof and/or the enforcement or defense of
Bank's rights with respect to, or the administration, supervision,
preservation, or protection of, or realization upon, any property securing
payment hereof, including, without limitation, reasonable attorney's fees,
including fees related to any suit, mediation or arbitration proceeding, out of
court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency
charge may be imposed in an amount not to exceed four percent (4%) of the
unpaid portion of any payment that is more than fifteen days late. Unless the
terms of this Note call for repayment of the entire balance of this Note (both
principal and interest) in a single payment and not for installments of
interest or principal and interest, the 4% delinquency charge may be imposed
not only with respect to regular installments of principal or interest or
principal and interest, but also with respect to any other payment in default
under this Note (other than a previous delinquency charge), including without
limitation, a single payment of principal due at the maturity of this Note. In
the event any installment, or portion thereof, is not paid in a timely manner,
subsequent payments will be applied first to the past due balance (which shall
not include any previous delinquency charges), specifically to the oldest
maturing installment, and a separate delinquency charge will be imposed for
each payment that becomes due until the default is cured.
9. EVENTS OF DEFAULT. The following are events of default hereunder: (a)
the failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the death of any Obligor (if an
individual); (c) the resignation or withdrawal of any partner or a material
owner/guarantor of Borrower, as determined by Bank in its sole discretion; (d)
the commencement of a proceeding against any Obligor for dissolution or
NationsBank Promissory Note
North Carolina [Commercial]-- 2/96
<PAGE> 3
NationsBank, N.A.
liquidation, the voluntary or involuntary termination or dissolution of any
Obligor or the merger or consolidation of any Obligor with or into another
entity; (e) the insolvency of, the business failure of, the appointment of a
custodian, trustee, liquidator or receiver for or for any of the property of,
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against any
Obligor; (f) the determination by Bank that any representation or warranty made
to Bank by any Obligor in any Loan Documents or otherwise is or was, when it
was made, untrue or materially misleading; (g) the failure of any Obligor to
timely deliver such financial statements, including tax returns, other
statements of condition or other information, as Bank shall request from time
to time; (h) the entry of a judgment against any Obligor which Bank deems to be
of a material nature, in Bank's sole discretion; (i) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment, or
any turnover order for any property of any Obligor; (j) the determination by
Bank that a material adverse change has occurred in the financial condition of
any Obligor; or (k) the failure of Borrower's business to comply with any law
or regulation controlling its operation.
10. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a)
the entire balance outstanding hereunder and all other obligations of any
Obligor to Bank (however acquired or evidenced) shall, at the option of Bank,
become immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, Prime plus 3% per annum (the "Default Rate"). The provisions herein for
a Default Rate and a delinquency charge shall not be deemed to extend the time
for any payment hereunder or to constitute a "grace period" giving Obligors a
right to cure any default. At Bank's option, any accrued and unpaid interest,
fees or charges may, for purposes of computing and accruing interest on a daily
basis after the due date of this Note or any installment thereof, be deemed to
be a part of the principal balance, and interest shall accrue on a daily
compounded basis after such date at the Default Rate provided in this Note
until the entire outstanding balance of principal and interest is paid in full.
Upon a default under this Note, Bank is hereby authorized at any time, at its
option and without notice or demand, to set off and charge against any deposit
accounts of any Obligor (as well as any money, instruments, securities,
documents, chattel paper, credits, claims, demands, income and any other
property, rights and interests of any Obligor), which at any time shall come
into the possession or custody or under the control of Bank or any of its
agents, affiliates or correspondents, any and all obligations due hereunder.
Additionally, Bank shall have all rights and remedies available under each of
the Loan Documents, as well as all rights and remedies available at law or in
equity.
11. NON-WAIVER. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof,
nor shall it be a bar to the exercise of any of its options or rights at a
later date. All rights and remedies of Bank shall be cumulative and may be
pursued singly, successively or together, at the option of Bank. The
acceptance by Bank of any partial payment shall not constitute a waiver of any
default or of any of Bank's rights under this Note. No waiver of any of its
rights hereunder, and no modification or amendment of this Note, shall be
deemed to be made by Bank unless the same shall be in writing, duly signed on
behalf of Bank; each such waiver shall apply only with respect to the specific
instance involved, and shall in no way impair the rights of Bank or the
obligations of Obligors to Bank in any other respect at any other time.
12. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of North Carolina. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of North Carolina
or the United States located within the State of North Carolina and expressly
waive any objections as to venue in any such courts. Nothing contained herein
shall, however, prevent Bank from bringing any action or exercising any rights
within any other state or jurisdiction or from obtaining personal jurisdiction
by any other means available under applicable law.
13. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of
this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
14. BINDING EFFECT. This Note shall be binding upon and inure to the
benefit of Borrower, Obligors and Bank and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of Borrower or Obligors hereunder can be assigned without prior
written consent of Bank.
15. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is
in any way incompatible with any other document related specifically to the
loan evidenced by this Note, this Note shall control over any other such
document, and if
NationsBank Promissory Note
North Carolina [Commercial]-- 2/96
<PAGE> 4
NationsBank, N.A.
this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR
UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT
OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF
THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note and hereby executes this Note under seal as of the
date here above written.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES.
CORPORATE BORROWER
AMERICAN AIRCARRIERS SUPPORT, INC.
By: /s/ Karl F. Brown (Seal)
------------------------------------------
Name: Karl F. Brown
-----------------------------------------
Title: President
----------------------------------------
- -----------------------------------------------
Attest
(Corporate Seal)
NationsBank Promissory Note
North Carolina [Commercial]-- 2/96
<PAGE> 1
Exhibit 10.4.8
NATIONSBANK, N.A.
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of April 9, 1998,
by and between NationsBank, N.A., a national banking association ("Bank") and
the Borrower described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER: American Aircarriers Support, Inc.
a South Carolina corporation
B. BORROWER'S ADDRESS:
3516 Centre Circle Drive
Fort Mill, South Carolina 29715
C. CURRENT ASSETS. Current Assets means the aggregate amount of all of
Borrower's assets which would, in accordance with GAAP, properly be defined as
current assets.
D. CURRENT LIABILITIES. Current Liabilities means the aggregate amount
of all current liabilities as determined in accordance with GAAP, but in any
event shall include all liabilities except those having a maturity date which
is more than one year from the date as of which such computation is being made.
E. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
F. LOAN. Any loan described in Section 2 hereof and any subsequent loan
which states that it is subject to this Loan Agreement.
G. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any and
all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection with any
Loan.
H. TANGIBLE NET WORTH. Tangible Net Worth means the amount by which
total assets exceed total liabilities in accordance with GAAP, less leasehold
improvements, organizational expense, transfers to affiliates, employees,
shareholders and related parties, and all other intangible assets.
I. ACCOUNTING TERMS. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
<PAGE> 2
2. LOANS.
A. LOAN. Bank hereby agrees to make (or has made) one or more
loans to Borrower in the aggregate principal face amount of $10,000,000.00. The
obligation to repay the loans is evidenced by a promissory note or notes dated
___________________________________________________ (the promissory note or
notes together with any and all renewals, extensions or rearrangements thereof
being hereafter collectively referred to as the "Note") having a maturity date,
repayment terms and interest rate as set forth in the Note.
i. REVOLVING CREDIT FEATURE. The Loan provides for a revolving
line of credit (the "Line") under which Borrower may from time to time, borrow,
repay and re-borrow funds. The obligation of the Bank to make any advance or to
issue any Letter of Credit shall be subject to satisfaction by the Borrower that
the representations and warranties set forth in Section 3 hereof shall be true
and correct in all material respects on the Closing Date. Each advance made at
the request of the Borrowers hereunder shall be deemed to be a reaffirmation on
the date of such transaction as to the matters specified in the representations
and warranties in Section 3. Advances on this Loan will be requested by
telephonic or written communication from a person reasonably believed by the
Bank to be an authorized representative of the Borrower. Unless otherwise agreed
by the Bank, all advances will be made to a demand deposit account maintained at
the Bank in the name of the Borrower.
ii. BORROWING BASE. The Line is subject to the Borrowing Base
Agreement attached hereto as Exhibit "A" and by reference made a part hereof.
a. Advances. The Bank agrees, on the terms herein set forth,
to make advances to the Borrower from time to time during the period from the
date hereof to the Termination Date for purposes of financing working capital
(accounts receivable and inventory), aircraft engine leasing, issuance of
letters of credit and for general corporate purposes); provided that immediately
after giving effect to each advance, the Line plus the Letter of Credit
obligations shall not exceed the lesser of the amount of the Note or the
Borrowing Base. Each advance shall be in the aggregate amount of $1,000.00, or a
multiple thereof, and shall be debited by the Bank to the Note. Within the
limits herein set forth and as requested by the Borrower, the Bank shall make
advances, accept payments and prepayments pursuant to the terms hereof, and
re-advance any amount so paid or prepaid.
If on any date, the Note Balance plus the Letter of Credit
Obligations exceeds the Borrowing Base, the Borrowers shall immediately pay the
then outstanding Note Balance in an amount sufficient to reduce such excess to
zero (0). The Borrowers shall pay the outstanding balance on the Termination
Date.
iii. LETTER OF CREDIT SUBFEATURE. As a subfeature under the Line,
Bank may from time to time up to and including September 30, 1998, issue letters
of credit for the account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided, however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank in its
sole discretion; and provided further that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed $2,000,000.00. No
Letter of Credit shall have an expiration date subsequent to September 25, 1998.
The undrawn amount of all Letters of Credit plus any and all amounts paid by
Bank in connection with drawings under any Letter of Credit for which the Bank
has not
<PAGE> 3
been reimbursed shall be reserved under the Line and shall not be available for
advances thereunder. Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line and shall be repaid in accordance with the
terms of the Line; provided however, that if the Line is not available for any
reason whatsoever, at the time any draft is paid by Bank, or if advances are not
available under the Line in such amount due to any limitation of borrowing set
forth herein, then the full amount of such drafts shall be immediately due and
payable, together with interest thereon, from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at that rate of
interest applicable to advances under the Line. In such event, Borrower agrees
that Bank, at Bank's sole discretion may debit Borrower's deposit account with
Bank for the amount of such draft.
a. The request for the issuance of a Letter of Credit shall
be submitted to the Bank at least three business days prior to the requested
date of issuance.
b. In the event of any drawing under any Letter of Credit,
the Bank will promptly notify the Borrower. Unless the Borrower shall
immediately notify the Bank of its intent to otherwise reimburse the Bank, the
Borrower shall be deemed to have requested an advance in the amount of the
drawing, the proceeds of which will be used to satisfy the reimbursement
obligations. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances, irrespective of any rights
of set-off, counterclaim or defense to payment the Borrower may claim or have
against the Bank, the beneficiary of the Letter of Credit drawn upon or any
other Person, including without limitation any defense based on any failure of
the Borrower to receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The issuance of any supplement,
modification, amendment, renewal, or extension to any Letter of Credit shall,
for purposes hereof, be treated in all respects the same as the issuance of a
new Letter of Credit hereunder.
c. Indemnification; Nature of Bank's Duties.
(1) In addition to its other obligations under this
Section, the Borrower hereby agrees to protect, indemnify, pay and save the Bank
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorney fees) that
the Bank may incur or be subject to as a consequence, direct or indirect, of (a)
the issuance of any Letter of Credit, or (b) the failure of the Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein called "Governmental
Acts").
(a) As between the Borrower on the one hand and the
Bank on the other hand, the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary thereof. The Bank
shall not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any Letter of Credit, even if it
should, in fact, prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part,
<PAGE> 4
that may prove to be invalid or ineffective for any reason; (iii) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they may be in
cipher; (iv) for errors in interpretation of technical terms; (v) for any loss
or delay in the transmission or otherwise of any document required in order to
make a drawing under a Letter of Credit or of the proceeds thereof; and (vi) for
any consequences arising from causes beyond the control of the Bank, including,
without limitation, any Governmental Acts. None of the above shall affect,
impair, or prevent the vesting of the Bank's rights or powers hereunder.
(b) In furtherance and extension and not in limitation
of the specific provisions hereinabove set forth, any action taken or omitted by
the Bank, under or in connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put the Bank under
any resulting liability to the Borrowers. It is the intention of the parties
that this Loan Agreement shall be construed and applied to protect and indemnify
the Bank against any and all risks involved in the issuance of the Letters of
Credit, all of which risks are hereby assumed by the Borrower, including,
without limitation, any and all risks of the acts or omissions, whether rightful
or wrongful, of any present or future Government Acts. The Bank shall not, in
any way, be liable for any failure by the Bank or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or any other cause
beyond the control of the Bank.
(c) Nothing in this Subsection (c) is intended to
limit the reimbursement obligation of the Borrower contained in this Loan
Agreement. The obligations of the Borrower shall survive the termination of this
Loan Agreement. No act or omissions of any current or prior beneficiary of a
Letter of Credit shall in any way affect or impair the rights of the Bank to
enforce any right, power or benefit under this Loan Agreement.
(d) Notwithstanding anything to the contrary contained
in this Subsection (c), the Borrower shall have no obligation to indemnify the
Bank in respect of any liability incurred by the Bank arising solely out of the
gross negligence or willful misconduct of the Bank as determined by a court of
competent jurisdiction.
The Borrower shall pay the Bank its standard fees in
effect from time to time in connection with the issuance of each Letter of
Credit. Each such fee shall be payable in advance on the date of the issuance of
the applicable Letter of Credit.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of South Carolina and has
the power and authority to own its property and to carry on its business in each
jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority to
execute and deliver the Loan Documents and to incur and perform the obligations
provided for therein, all of which have been duly authorized by all proper and
necessary action of the appropriate governing body of Borrower. No consent or
approval of any public authority or other third party is required as a condition
to the validity of any Loan Document, and, to the best of Borrower's knowledge
after due inquiry, Borrower is in compliance with all laws and regulatory
requirements to which it is subject.
<PAGE> 5
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving Borrower pending or,
to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and its
assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. TAXES. All taxes and assessments due and payable by Borrower have
been paid or are being contested in good faith by appropriate proceedings and
the Borrower has filed all tax returns which it is required to file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since December 31, 1997. All factual information furnished by Borrower to Bank
in connection with this Agreement and the other Loan Documents is and will be
accurate and complete on the date as of which such information is delivered to
Bank and is not and will not be incomplete by the omission of any material fact
necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is located at
3516 Centre Circle Drive
Fort Mill, South Carolina 29715 .
J. ENVIRONMENTAL. The conduct of Borrower's business operations and
the condition of Borrower's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials.
K. STOCK. The outstanding stock of Borrower is owned as set forth in
Exhibit "3K".
L. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made under this Agreement shall be deemed to be made at and as of
the date hereof and at and as of the date of any advance under any Loan.
<PAGE> 6
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent basis
throughout the period involved except to the extent modified by the following
definitions:
i. Beginning December 31, 1997, maintain Tangible Net Worth of not
less than $4,250,000.00 plus 50 percent of all net profit after tax for the
fiscal year ending December 31, 1998, and plus 50 percent of all net profit
after tax for each fiscal year thereafter, measured annually. If Borrower issues
additional shares through an Initial Public Offering, Tangible Net Worth shall
be, as of December 31, 1997, not less than $4,250,000.00, plus the net sum
received from said issuance, plus 50 percent of all net profit after tax for the
fiscal year ending December 31, 1998, and plus 50 percent of all net profit
after tax for each fiscal year thereafter, measured annually.
ii. Maintain a ratio of total liabilities to Tangible Net Worth of
not more than 1.75 to 1.0 for each calendar quarter.
iii. Maintain a cash flow coverage ratio (defined as the aggregate
of net income after taxes plus depreciation, interest expense, amortization, and
other non-cash expenses, divided by the aggregate of the current portion of
long-term debt and capital lease obligations, interest expenses and dividends of
not less than 1.25 to 1.0 on the last day of each fiscal quarter for the period
of four consecutive quarters ending on such day beginning June 30, 1998.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved. All financial statements called
for below shall be prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank audited financial statements to include
statements of financial condition, income, cash flows, and changes in
shareholder equity of Borrower for each fiscal year of Borrower, within 90 days
after the close of each such fiscal year.
ii. Furnish to Bank internally prepared financial statements
(including a balance sheet and profit and loss statement) of Borrower for each
quarter of each fiscal year of Borrower, within 45 days after the close of each
such period.
iii. Furnish to Bank personal financial statement of guarantor for
each fiscal year, within 30 days after the close of each such fiscal year.
iv. Furnish to Bank a compliance certificate for (and executed by
an authorized representative of) Borrower concurrently with and dated as of the
date of delivery of each of the financial statements as required in paragraphs i
and ii above, containing (a) a certification that the financial statements of
<PAGE> 7
even date are true and correct and that the Borrower is not in default under the
terms of this Agreement, and (b) computations and conclusions, in such detail as
Bank may request, with respect to compliance with this Agreement, and the other
Loan Documents, including computations of all quantitative covenants.
v. Furnish to Bank promptly such additional information, reports
and statements respecting the business operations and financial condition of
Borrower and guarantor, respectively, from time to time, as Bank may reasonably
request.
C. INSURANCE. Maintain insurance with responsible insurance companies
on such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least 30 days prior notice to Bank of
any cancellation thereof. Satisfactory evidence of such insurance will be
supplied to Bank prior to funding under the Loan(s) and 30 days prior to each
policy renewal.
D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that would or might
materially adversely affect Borrower's financial condition or operations or
Bank's rights under the Loan Documents, (ii) any litigation filed by or against
Borrower, (iii) any event that has occurred that would constitute an event of
default under any Loan Documents and (iv) any uninsured or partially uninsured
loss through fire, theft, liability or property damage in excess of an aggregate
of $100,000.00.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable, except to
the extent the same are being contested in good faith by appropriate proceedings
in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. ENVIRONMENTAL . Immediately advise Bank in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or regulatory
actions instituted, completed or threatened pursuant to any applicable federal,
state, or local laws, ordinances or regulations relating to any Hazardous
Materials affecting Borrower's business operations; and (ii) all claims made or
threatened by any third party against Borrower relating to damages,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials. Borrower shall immediately notify Bank of any remedial
action taken by Borrower with respect to Borrower's business operations.
Borrower will not use or permit any other party to use any Hazardous Materials
at any of Borrower's places
<PAGE> 8
of business or at any other property owned by Borrower except such materials as
are incidental to Borrower's normal course of business, maintenance and repairs
and which are handled in compliance with all applicable environmental laws.
Borrower agrees to permit Bank, its agents, contractors and employees to enter
and inspect any of Borrower's places of business or any other property of
Borrower at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying with this covenant
and Borrower shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Borrower shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Borrower's business operations
within five (5) days of the request therefore.
I. ADDITIONAL COVENANTS. The Borrower shall comply with those
additional covenants set forth on Exhibit "4I" attached hereto and by reference
made a part hereof.
i. SECURITY AGREEMENT. The Borrower shall assign and grant Bank a
first security agreement in any and all of Borrower's accounts and other rights
of Borrower to the payment for goods sold or leased or for services rendered
whether or not earned by performance, contract rights, book debts, checks,
notes, drafts, instruments, chattel paper, acceptances, and any and all amounts
due to Debtor from a factor or other forms of obligations and receivables, now
existing or hereafter arising out of the business of Borrower; any and all of
Borrower's goods held as inventory.
ii. GUARANTY. The loan shall be unconditionally and fully
guaranteed by only Karl F. Brown. The Guaranty shall be released by Bank upon
successful completion of the Initial Public Offering by Borrower previously
submitted to Bank and the provisions of the Assignment of Insurance set forth in
paragraph 4I(iii) below. The Bank hereby acknowledges that all guarantors of
Borrower released by Bank are free and clear from all loans of Borrower
previously executed or executed heretofore between Borrower and Bank. iii.
Assignment of Insurance. The Borrower shall cause a first priority assignment of
the proceeds of a life insurance policy issued by an insurance company
satisfactory to the Bank on the life of Karl F. Brown in the amount of
$1,000,000.00.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business,
or enter into any merger or consolidation, or transfer control or ownership of
the Borrower or form or acquire any subsidiary. Bank hereby consents to Borrower
conducting an Initial Public Offering of 2,000,000+/- shares.
B. LEASE EXPENDITURES. Incur new obligations for the lease or purchase
of real or personal property requiring payments in any fiscal year in excess of
an aggregate of $250,000.00.
C. LIENS. Grant, suffer or permit any contractual or
<PAGE> 9
noncontractual lien on or security interest in its assets, except in favor of
Bank, without prior written consent of Bank, or fail to promptly pay when due
all lawful claims, whether for labor, materials or otherwise.
D. EXTENSIONS OF CREDIT. Make or permit any subsidiary to make, any
loan or advance to any person or entity, or purchase or otherwise acquire, or
permit any subsidiary to purchase or other wise acquire, any capital stock,
assets, obligations, or other securities of , make any capital contribution to,
or otherwise invest in or acquire any interest in any entity, or participate as
a partner or joint venturer with any person or entity, except for the purchase
of direct obligations of the United States or any agency thereof with maturities
of less than one year.
E. BORROWINGS. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, as surety or guarantor for the debt for another, or
otherwise) other than to Bank, except for normal trade debts incurred in the
ordinary course of Borrower's business, and except for existing indebtedness
disclosed to Bank in writing and acknowledged by Bank prior to the date of this
Agreement.
F. CHARACTER OF BUSINESS. Change the general character of business as
conducted at the date hereof, or engage in any type of business not reasonably
related to its business as presently conducted.
G. MANAGEMENT CHANGE. Make any substantial change in its present
executive or management personnel.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the other Loan Documents if it shall default in the payment of any
amounts due and owing under the Loan or should it fail to timely and properly
observe, keep or perform any term, covenant, agreement or condition in any Loan
Document or in any other loan agreement, promissory note, security agreement,
deed of trust, deed to secure debt, mortgage, assignment or other contract
securing or evidencing payment of any indebtedness of Borrower to Bank or any
affiliate or subsidiary of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower:
American Aircarriers Support, Inc.
3516 Centre Circle Drive
Fort Mill, York County, SC 29715
Fax. No.________________
with copy to:
David M. Furr
<PAGE> 10
Gray, Layton, Kersh, Solomon, Sigmon, Furr & Smith, P.A.
P.O. Box 2636
Gastonia, NC 28053-2636
Phone No. (704) 865-4400
Fax No. (704) 866-8010
Bank: NationsBank, N.A.
ATTENTION: PAUL REHKOW
Metrolina Commercial Region
NationsBank Plaza
NC1 002-03-10, Mecklenburg County
Charlotte, NC 28255
Fax No._________________
with copy to:
Allan W. Singer
Mitchell, Rallings, Singer, McGirt & Tissue, PLLC
1800 Carillon
227 West Trade Street
Charlotte, NC 28202
Phone No. (704) 376-6574
Fax No. (704) 342-1531
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) . all other costs and attorneys' fees
incurred by Bank for which Borrower is obligated to reimburse Bank in accordance
with the terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
<PAGE> 11
circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in accordance with
the laws of North Carolina and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. INDEMNIFICATION. Notwithstanding anything to the contrary contained
in Section 10(G), Borrower shall indemnify, defend and hold Bank and its
successors and assigns harmless from and against any and all claims, demands,
suits, losses, damages, assessments, fines, penalties, costs or other expenses
(including reasonable attorneys' fees and court costs) arising from or in any
way related to any of the transactions contemplated hereby, including but not
limited to actual or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a release or
alleged release of Hazardous Materials, arising from Borrower's business
operations, any other property owned by Borrower or in the surface or ground
water arising from Borrower's business operations, or gaseous emissions arising
from Borrower's business operations or any other condition existing or arising
from Borrower's business operations resulting from the use or existence of
Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen' s compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage to any
real or personal property of the Borrower, the Bank, and of any third parties.
The Borrower's obligations under this paragraph shall survive the repayment of
the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to
Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan.
G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of
<PAGE> 12
the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
H. FIELD EXAM. Bank will conduct a field exam, at the Borrower's
expense, to confirm the appropriateness of the above parameters and overall
advances of the Borrowing Base as collateral. The field exam shall occur between
July 1, 1998 and July 31, 1998 if the outstandings under the Loan are equal to
or less than $4,000,000.00. If the outstandings under the Loan exceed
$4,000,000.00, the Bank reserves the right to require the field exam prior to
July 1, 1998, and, if there are no outstandings under the Loan prior to July 31,
1998, no field exam will be conducted. The Bank will pay for any and all costs
associated with the field exam which exceed $2,000.00.
I. OPINION OF BORROWER'S COUNSEL. Prior to Closing, Borrower shall
provide Bank with an opinion of its counsel in form and substance satisfactory
to Bank and its counsel.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE
<PAGE> 13
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives as of the
date first above written. BORROWER: American Aircarriers Support, Inc. BANK:
NationsBank, N.A.
<TABLE>
<S> <C>
By: ________________________ (Seal) By: ______________________________ (Seal)
Name:______________________ Name: ___________________________
Title: ______________________ Title: ____________________________
[Corporate Seal]
</TABLE>
If the Borrower is a corporation, the signature should be attested by the
Secretary or Assistant Secretary of the corporation and the corporate seal
affixed.
Attest:______________________ (Seal)
Name:______________________
Title:_______________________
<PAGE> 14
EXHIBIT 2.A.ii.
BORROWING BASE AGREEMENT
Borrower will agree to maintain a borrowing base (hereinafter referred
as "Borrowing Base") satisfactory at all times to Bank with the following
parameters.
If outstandings under the Loan are $4,000,000.00 or less, a monthly
Borrowing Base certification will not be required. However, should outstandings
under the Loan exceed $4,000,000.00, the Bank will require at the time that a
draw causes the outstanding balance to exceed $4,000,000.00 and within 10 days
of each month and at which outstanding balance continues to exceed $4,000,000.00
Borrowing Base certificate with the following conditions:
Accounts Receivable. The Bank will lend an amount not to exceed 80
percent of Domestic Receivables less than 90 days from invoice. The
Bank will lend an amount not to exceed 80 percent of Foreign
Receivables less than 90 days from invoice. Eligible Foreign
Receivables shall not exceed $2,000,000.00 of receivable availability
under the Borrowing Base. In addition, ineligible accounts receivable
will also include an entire account should 50 percent of that account
balance be greater than 90 days from invoice.
Eligible Accounts Receivable shall also specifically exclude:
(a) any Account Receivable where an invoice has not been issued to the
Account Debtor (Unbilled);
(b) any account which represents and obligation of a Customer or
Borrower when 50 percent or more of a Borrower's accounts from such
customer are not eligible pursuant to the foregoing formula;
(c) any Account Receivable which represents an obligation of any local,
state or federal government agency or entity (Government);
(d) any Account Receivable which arises out of a contract or order
which, by its terms, forbids or makes void or unenforceable any
assignment by Borrower to Bank of the Account Receivable arising with
respect thereto (Unassignable);
(e) any Account Receivable arising from "sale on approval", "sale or
return", "consignment" or subject to any other repurchase, return or
guaranteed sales agreement (Consigned or Guaranteed);
(f) any Account Receivable where the underlying goods or services have
been rejected and/or returned (Rejected and Returned);
(g) any Account Receivable where delivery to the Account Debtor
pursuant to terms of sale has not been completed (Bill and Hold);
(h) any Account Receivable which arises from the sale or lease to or
performance of services for, or represents an obligation of, an
employee, affiliate, partner, parent or subsidiary of Borrower
(Insiders & Related Parties);
(i) that portion of aggregate Accounts Receivable due from a given
Account Debtor to the extent Borrower also owes amounts to that Account
Debtor
<PAGE> 15
(Contra);
Parts Inventory. The Bank will advance an amount not to exceed 60
percent of Borrower's total "parts inventory" (defined as inventory
ready for sale excluding whole aircraft engines or leased aircraft
engines).
Eligible Inventory shall also specifically exclude:
(a) The Bank reserves the right to restrict eligible inventory to
Inventory located at Fort Mill, South Carolina, and such other
locations as the Bank deems appropriate.
(b) Inventory either received or sold on consignment (Consigned In and
Consigned Out);
(c) Inventory that the Bank in its sole discretion determines to be
slow moving and/or obsolete (Slow Moving and Obsolete);
(d) Inventory that is not in good condition or that fails to meet any
applicable government standards (Defected and Rejected);
Whole Aircraft Engines (Domestic and Foreign Domiciled). The Bank will
advance 90 percent of the lower of cost or appraised value while the
aircraft engine is being overhauled (the "Overhaul Period"). The
Overhaul Period shall not exceed six (6) months. At the end of the
Overhaul Period, the Bank will then advance 90 percent of the lower of
total documented engine cost or re-appraised value for a period not to
exceed six (6) months (the "Inception Period"). At the end of the
Inception Period, the Bank will, for a period thereafter not to exceed
six (6) months, lend 75 percent against the lower of engine cost or
appraised value. During the following 12 months, the Bank would lend 50
percent against the lower of aircraft engine cost or appraised value.
If the aircraft engine has not sold during the preceding twelve-month
period, the engine would be deleted from the Borrowing Base unless the
aircraft engine is re-appraised by an appraiser acceptable to the Bank
and, at the Bank's sole option, the above percentages may be
re-applied.
As additional expenditures are made on the aircraft engine during the
Overhaul Period, Borrower shall periodically, but no more frequent than
monthly, submit a "report of expenditures" satisfactory to Bank
detailing the additional direct overhaul costs against which the Bank
may advance 90 percent of the invoiced amount.
Leased Aircraft Engines. Leased Aircraft Engines will be eligible for
advances under separate term notes, which will be withdrawn from the
Borrowing Base amount subject to review and assignment of perspective
leases. Said determination shall be at the sole discretion of the Bank.
These notes will be advanced at the lesser of 80 percent of the
aircraft engine's cost or appraised value. Amortization of term notes
will be related to the remaining life of the lease, but not to exceed
forty-eight (48) months. Borrower will agree to furnish quarterly
depreciation reports on each aircraft engine under lease, and a note's
balance may not exceed 80 percent of an engine's depreciated value.
Caps on Borrowing Base Components. Availability under the Borrowing
Base shall be capped at $5,000,000.00 for parts inventory,
$5,000,000.00 for leased aircraft engines, of which no more than
$2,500,000.00 may be leased
<PAGE> 16
to foreign lessees, and $2,000,000.00 for Foreign Receivables. There
will be no cap within the Loan on domestic receivables nor on aircraft
engines which have been overhauled and held for resale.
Total advances under the Loan cannot exceed 100 percent of the book
value of the Company's core assets (accounts receivable plus
inventory).
Should a whole aircraft engine or leased engine be dismantled into
parts inventory, the inventory will be required to be reclassified into
the appropriate category under the Borrowing Base.
In addition to any reporting requirements required under the Revolving
Loan and Security Agreement to which this Borrowing Base Agreement
Addendum is attached, the Borrower will submit the following in form
and substance satisfactory to Bank:
Aged Accounts Receivable Trial Balance. Not later than 20 business days
after and as of the end of each month, aged from date of invoice.
Aged Accounts Payable Trial Balance. No later than 20 days after and as
of the end of each month.
Inventory Control Report. In form and content acceptable to Bank and
including, but not limited to, an allocation of Finished Goods, Raw
Materials, Packaging Materials, Work-in-Process and all Other remaining
inventory not later than 20 days after and as of the end of each month.
Collection of Receivables.
(a) BY BORROWER. Until Borrower's authority to do so is terminated,
which Bank shall have the right to do at any time after occurrence and
continuation of a default, Borrower will at Borrower's own cost and
expense but on Bank's behalf and for Bank's account, collect and
otherwise enforce as Bank's property and in trust for Bank, all amounts
unpaid on Accounts Receivable. As to all money so collected, including
all prepayments by Account Debtors, Borrower shall receive in trust,
and deliver to Bank in original form and on the date of receipt
thereof, all checks, drafts, notes, money orders, acceptances, cash and
other evidence of indebtedness.
(b) BY BANK. At any such termination of Borrower's authority, which
Bank shall have the right to do at any time after occurrence and
continuation of a default, Bank shall have the right to send notice of
assignment and/or notice of Bank's security interest to any and all
Account Debtors or any third party holding or otherwise concerned with
any of the Accounts Receivable and Inventory and thereafter Bank shall
have the sole right to collect the Accounts Receivable and/or take
possession of Accounts Receivable and the books, records and systems
relating thereto. All of Bank's collection expenses shall be charged to
Borrower's account and added to the obligations.
Bank shall have the right to receive, endorse, and assign and/or
deliver in Bank's name or Borrower's any and all checks, drafts, and
other instruments for the payment of money relating to Accounts
Receivable, and Borrower hereby waives notice of presentment, protest
and non-payment of any instrument so endorsed. Borrower hereby
constitutes Bank or Bank's designee as Borrower's attorney-in-fact with
power to endorse Borrower's name upon any notes, acceptances, checks
drafts, money orders, or other evidences of
<PAGE> 17
payment or Accounts Receivable and Inventory that may come into Bank's
possession; to sign Borrower's name on any invoice or bill of lading
relating to any of the Accounts Receivable, drafts against customers,
assignments and verifications of Accounts Receivable and notices to
customers; to send verifications of Accounts Receivable to any Account
Debtor; to notify the Post Office authorities to change the address for
delivery of mail addressed to the undersigned to such address as Bank
may designate; to do all other acts and things necessary to carry out
this Borrowing Base Agreement. All acts of said attorney or designee
are hereby ratified and approved, and said attorney or designee shall
not be liable for any acts of omission or commission, nor for any error
of judgment or mistake of fact or law; this power being coupled with an
interest is irrevocable while advances made pursuant to this Borrowing
Base Agreement remain unpaid.
Bank may, without notice to or consent from Borrower, sue upon or
otherwise collect, extend the time of payment of, or compromise or
settle for cash, credit or otherwise upon any terms, any of the
Accounts Receivable or any securities, instruments or insurance
applicable thereto and/or release the obligor thereon. Bank is
authorized and empowered to accept the return of the goods represented
by any of the Accounts Receivable without notice to or consent by
Borrower's liability hereunder. Bank does not, by anything herein or in
any assignment or otherwise, assume any of Borrower's obligations under
any contract or agreement assigned to Bank, and Bank shall not be
responsible in any way for the performance by Borrower of any of the
terms and conditions thereof.
Collection Account and Lock Box Agreement. Bank and Borrower shall,
upon request of Bank, establish and maintain one or more special lock
box or blocked accounts for the collection of the Accounts Receivable.
Each such special account shall be with a bank satisfactory to the Bank
(which may be an affiliate of the Bank) and shall be subject to the
Bank's standard form agreement. Any checks or other remittances against
Accounts Receivables which are received by the Borrower shall be held
in trust for the Bank and turned over by the Borrower to the Bank or to
a person designated by the Bank in the identical form received (except
for any necessary endorsement) as soon as possible.
Mandatory Payment. In the event the aggregate principal outstanding
balance of advances under the Note exceed the Maximum Amount, Borrower
shall immediately and without notice or demand of any kind, make such
payments as shall be necessary to reduce the principal balance of the
Note below the Maximum Amount.
<PAGE> 1
Exhibit 10.4.9
SECURITY AGREEMENT
<TABLE>
<S> <C>
================================================================================
BANK/SECURED PARTY: DEBTOR:
NationsBank, N.A.
Banking Center:
Metrolina Commercial Region American Aircarriers Support, Inc.
NationsBank Plaza 3516 Centre Circle Drive
NC1 002-05-10, Mecklenburg County Fort Mill, York County, SC 29715
Charlotte, NC 28255
Debtor is a Corporation.
Address is Debtor's Place of Business.
Collateral (hereinafter defined) is located at Debtor's address shown above.
================================================================================
</TABLE>
1. SECURITY INTEREST. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred
to as "Debtor") assigns and grants to Bank (also known as "Secured Party"), a
security interest and lien in the Collateral (hereinafter defined) to secure the
payment and the performance of the Obligation (hereinafter defined).
2. COLLATERAL. A security interest is granted in the following collateral
described in this Item 2 (the "Collateral"):
A. TYPES OF COLLATERAL.
i. ACCOUNTS: Any and all accounts and other rights of Debtor
to the payment for goods sold or leased or for services rendered whether or not
earned by performance, contract rights, book debts, checks, notes, drafts,
instruments, chattel paper, acceptances, and any and all amounts due to Debtor
from a factor or other forms of obligations and receivables, now existing or
hereafter arising out of the business of Debtor.
ii. INVENTORY: Any and all of Debtor's goods held as inventory,
whether now owned or hereafter acquired, including without limitation, any and
all such goods held for sale or lease or being processed for sale or lease in
Debtor's business, as now or hereafter conducted, including all materials, goods
and work in process, finished goods and other tangible property held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business, along with all documents (including documents of
title) covering such inventory.
B. SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and all substitutes
and replacements for, accessions, attachments and other additions to, tools,
parts and equipment now or hereafter added to or used in connection with, and
all cash or non-cash proceeds and products of, the Collateral (including,
without limitation, all income, benefits and property receivable, received or
distributed which results from any of the Collateral, such as dividends payable
or distributable in cash, property or stock; insurance distributions of any kind
related to the Collateral, including, without limitation, returned premiums,
interest, premium and principal payments; redemption proceeds and subscription
rights; and shares or other proceeds of conversions or splits of any securities
in the Collateral) ; any and all choses in action and causes of action of
Debtor, whether now existing or hereafter arising, relating directly or
indirectly to the Collateral (whether arising in contract, tort or otherwise and
whether or not currently in litigation); all certificates of title,
manufacturer's statements of origin, other documents, accounts and chattel
paper, whether now existing or hereafter arising directly or indirectly from or
related to the Collateral; all warranties, wrapping, packaging, advertising and
shipping materials used or to be used in connection with or related to the
Collateral; all of Debtor's books, records, data, plans, manuals, computer
software, computer tapes, computer systems, computer disks, computer programs,
source codes and object codes containing any information, pertaining directly or
indirectly to the Collateral and all rights of Debtor to retrieve data and other
information pertaining directly or indirectly to the Collateral from third
parties, whether now existing or hereafter arising; and all returned, refused,
stopped in transit, or repossessed Collateral, any of which, if received by
Debtor, upon request shall be delivered immediately to Bank.
<PAGE> 2
C. BALANCES AND OTHER PROPERTY. The balance of every deposit account of
Debtor maintained with Bank and any other claim of Debtor against Bank, now or
hereafter existing, liquidated or unliquidated, and all money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Debtor which at any time shall come into
the possession or custody or under the control of Bank or any of its agents or
affiliates for any purpose, and the proceeds of any thereof. Bank shall be
deemed to have possession of any of the Collateral in transit to or set apart
for it or any of its agents or affiliates.
3. DESCRIPTION OF OBLIGATION(S). The following obligations ("Obligation" or
"Obligations") are secured by this Agreement: (a) All debts, obligations,
liabilities and agreements of Debtor to Bank, now or hereafter existing, arising
directly or indirectly between Debtor and Bank whether absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions or rearrangement of any of the above; (b) All costs
incurred by Bank to obtain, preserve, perfect and enforce this Agreement and
maintain, preserve, collect and realize upon the Collateral; (c) All debts,
obligations, liabilities and agreements of Debtor to Bank of the kinds described
in this Item 3., now existing or hereafter arising; (d) All other costs and
attorney's fees incurred by Bank, for which Debtor is obligated to reimburse
Bank in accordance with the terms of the Loan Documents (hereinafter defined),
together with interest at the maximum rate allowed by law, or if none, Prime
plus 3% per annum; and (e) All amounts which may be owed to Bank pursuant to all
other loan documents executed between Bank and Debtor. If Debtor is not the
obligor of the Obligation, and in the event any amount paid to Bank on any
Obligation is subsequently recovered from Bank in or as a result of any
bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor shall be
liable to Bank for the amounts so recovered up to the fair market value of the
Collateral whether or not the Collateral has been released or the security
interest terminated. In the event the Collateral has been released or the
security interest terminated, the fair market value of the Collateral shall be
determined, at Bank's option, as of the date the Collateral was released, the
security interest terminated, or said amounts were recovered.
4. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to Bank as
follows:
A. FINANCING STATEMENTS. Except as may be noted by schedule attached
hereto and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. OWNERSHIP. Debtor owns, or will use the proceeds of any loans by Bank
to become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder.
C. FIXTURES AND ACCESSIONS. None of the Collateral is affixed to real
estate or is an accession to any goods, or will become a fixture or accession,
except as expressly set out herein.
D. CLAIMS OF DEBTORS ON THE COLLATERAL. All account debtors and other
obligors whose debts or obligations are part of the Collateral have no right to
setoffs, counterclaims or adjustments, and no defenses in connection therewith.
E. ENVIRONMENTAL COMPLIANCE. The conduct of Debtor's business operations
and the condition of Debtor's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or any materials defined as hazardous
materials or substances under any local, state or federal environmental laws,
rules or regulations, and petroleum, petroleum products, oil and asbestos
("Hazardous Materials").
F. POWER AND AUTHORITY. Debtor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. DEBTOR'S COVENANTS. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of Bank
to make advances or loans to Debtor, unless Bank otherwise consents in writing:
A. OBLIGATION AND THIS AGREEMENT. Debtor shall perform all of its
agreements herein and in any other agreements between it and Bank.
B. OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor shall keep all
tangible Collateral in good condition. Debtor shall defend the Collateral
against all claims and demands of all persons at any time claiming any interest
therein adverse to Bank. Debtor shall keep the Collateral free from all liens
and security interests except those for taxes not yet due
<PAGE> 3
and the security interest hereby created.
C. INSURANCE. Debtor shall insure the Collateral with companies
acceptable to Bank. Such insurance shall be in an amount not less than the fair
market value of the Collateral and shall be against such casualties, with such
deductible amounts as Bank shall approve. All insurance policies shall be
written for the benefit of Debtor and Bank as their interests may appear,
payable to Bank as loss payee, or in other form satisfactory to Bank, and such
policies or certificates evidencing the same shall be furnished to Bank. All
policies of insurance shall provide for written notice to Bank at least thirty
(30) days prior to cancellation. Risk of loss or damage is Debtor's to the
extent of any deficiency in any effective insurance coverage.
D. BANK'S COSTS. Debtor shall pay all costs necessary to obtain,
preserve, perfect, defend and enforce the security interest created by this
Agreement, collect the Obligation, and preserve, defend, enforce and collect the
Collateral, including but not limited to taxes, assessments, insurance premiums,
repairs, rent, storage costs and expenses of sales, legal expenses, reasonable
attorney's fees and other fees or expenses for which Debtor is obligated to
reimburse Bank in accordance with the terms of the Loan Documents. Whether the
Collateral is or is not in Bank's possession, and without any obligation to do
so and without waiving Debtor's default for failure to make any such payment,
Bank at its option may pay any such costs and expenses, discharge encumbrances
on the Collateral, and pay for insurance of the Collateral, and such payments
shall be a part of the Obligation and bear interest at the rate set out in the
Obligation. Debtor agrees to reimburse Bank on demand for any costs so incurred.
E. INFORMATION AND INSPECTION. Debtor shall (i) promptly furnish Bank
any information with respect to the Collateral requested by Bank; (ii) allow
Bank or its representatives to inspect the Collateral, at any time and wherever
located, and to inspect and copy, or furnish Bank or its representatives with
copies of, all records relating to the Collateral and the Obligation; (iii)
promptly furnish Bank or its representatives such information as Bank may
request to identify the Collateral, at the time and in the form requested by
Bank; and (iv) deliver upon request to Bank shipping and delivery receipts
evidencing the shipment of goods and invoices evidencing the receipt of, and the
payment for, the Collateral.
F. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver any papers deemed
necessary or desirable in the judgment of Bank to obtain, maintain, and perfect
the security interest hereunder and to enable Bank to comply with any federal or
state law in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
G. PARTIES LIABLE ON THE COLLATERAL. Debtor shall preserve the liability
of all obligors on any Collateral, shall preserve the priority of all security
therefor, and shall deliver to Bank the original certificates of title on all
motor vehicles or other titled vehicles constituting the Collateral. Bank shall
have no duty to preserve such liability or security, but may do so at the
expense of Debtor, without waiving Debtor's default.
H. RECORDS OF THE COLLATERAL. Debtor at all times shall maintain
accurate books and records covering the Collateral. Debtor immediately will mark
all books and records with an entry showing the absolute assignment of all
Collateral to Bank, and Bank is hereby given the right to audit the books and
records of Debtor relating to the Collateral at any time and from time to time.
The amounts shown as owed to Debtor on Debtor's books and on any assignment
schedule will be the undisputed amounts owing and unpaid.
I. DISPOSITION OF THE COLLATERAL. If disposition of any Collateral gives
rise to an account, chattel paper or instrument, Debtor immediately shall notify
Bank, and upon request of Bank shall assign or indorse the same to Bank. No
Collateral may be sold, leased, manufactured, processed or otherwise disposed of
by Debtor in any manner without the prior written consent of Bank, except the
Collateral sold, leased, manufactured, processed or consumed in the ordinary
course of business.
J. ACCOUNTS. Each account held as Collateral will represent the valid
and legally enforceable obligation of third parties and shall not be evidenced
by any instrument or chattel paper.
K. NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give Bank written
notice of each office of Debtor in which records of Debtor pertaining to
accounts held as Collateral are kept, and each location at which the Collateral
is or will be kept, and of any change of any such location. If no such notice is
given, all records of Debtor pertaining to the Collateral and all Collateral of
Debtor are and shall be kept at the address marked by Debtor above.
L. CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without the written
consent of Bank, Debtor shall not change its name, change its corporate status,
use any trade name or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i) any
material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a change in any matter warranted or represented by Debtor in
this Agreement, or in any of the Loan Documents or furnished to Bank pursuant to
this Agreement, and (iv) the occurrence of an Event of Default (hereinafter
<PAGE> 4
defined).
M. USE AND REMOVAL OF THE COLLATERAL. Debtor shall not use the Collateral
illegally. Debtor shall not, unless previously indicated as a fixture, permit
the Collateral to be affixed to real or personal property without the prior
written consent of Bank. Debtor shall not permit any of the Collateral to be
removed from the locations specified herein without the prior written consent of
Bank, except for the sale of inventory in the ordinary course of business.
N. POSSESSION OF THE COLLATERAL. Debtor shall deliver all investment
securities and other instruments, documents and chattel paper which are part of
the Collateral and in Debtor's possession to Bank immediately, or if hereafter
acquired, immediately following acquisition, appropriately indorsed to Bank's
order, or with appropriate, duly executed powers. Debtor waives presentment,
notice of acceleration, demand, notice of dishonor, protest, and all other
notices with respect thereto.
O. CONSUMER CREDIT. If any Collateral or proceeds includes obligations
of third parties to Debtor, the transactions giving rise to the Collateral shall
conform in all respects to the applicable state or federal law including but not
limited to consumer credit law. Debtor shall hold harmless and indemnify Bank
against any cost, loss or expense arising from Debtor's breach of this covenant.
P. POWER OF ATTORNEY. Debtor appoints Bank and any officer thereof as
Debtor's attorney-in-fact with full power in Debtor's name and behalf to do
every act which Debtor is obligated to do or may be required to do hereunder;
however, nothing in this paragraph shall be construed to obligate Bank to take
any action hereunder nor shall Bank be liable to Debtor for failure to take any
action hereunder. This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor.
Q. WAIVERS BY DEBTOR. Debtor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Bank in its
discretion, without notice to Debtor. Debtor waives any right to require that
any action be brought against any other person or to require that resort be had
to any other security or to any balance of any deposit account. Debtor further
waives any right of subrogation or to enforce any right of action against any
other Debtor until the Obligation is paid in full.
R. OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or any
other indulgence with respect to the Obligation or any part thereof, no release
of any security, no release of any person (including any maker, indorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising any
right or power with respect to the Obligation or any security therefor or
guaranty thereof or under this Agreement shall in any manner impair or affect
the rights of Bank under the law, hereunder, or under any other agreement
pertaining to the Collateral. Bank need not file suit or assert a claim for
personal judgment against any person for any part of the Obligation or seek to
realize upon any other security for the Obligation, before foreclosing or
otherwise realizing upon the Collateral. Debtor waives any right to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that Bank shall have no duty or obligation to Debtor to
apply to the Obligation any such other security or proceeds thereof.
S. COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO NOTIFY. Bank
hereby authorizes Debtor to collect the Collateral, subject to the direction and
control of Bank, but Bank may, without cause or notice, curtail or terminate
said authority at any time. Upon notice by Bank, whether oral or in writing, to
Debtor, Debtor shall forthwith upon receipt of all checks, drafts, cash, and
other remittances in payment of or on account of the Collateral, deposit the
same in one or more special accounts maintained with Bank over which Bank alone
shall have the power of withdrawal. The remittance of the proceeds of such
Collateral shall not, however, constitute payment or liquidation of such
Collateral until Bank shall receive good funds for such proceeds. Funds placed
in such special accounts shall be held by Bank as security for all Obligations
secured hereunder. These proceeds shall be deposited in precisely the form
received, except for the indorsement of Debtor where necessary to permit
collection of items, which indorsement Debtor agrees to make, and which
indorsement Bank is also hereby authorized, as attorney-in-fact, to make on
behalf of Debtor. In the event Bank has notified Debtor to make deposits to a
special account, pending such deposit, Debtor agrees that it will not commingle
any such checks, drafts, cash or other remittances with any funds or other
property of Debtor, but will hold them separate and apart therefrom, and upon an
express trust for Bank until deposit thereof is made in the special account.
Bank will, from time to time, apply the whole or any part of the Collateral
funds on deposit in this special account against such Obligations as are secured
hereby as Bank may in its sole discretion elect. At the sole election of Bank,
any portion of said funds on deposit in the special account which Bank shall
elect not to apply to the Obligations, may be paid over by Bank to Debtor. At
any time, whether Debtor is or is not in default hereunder, Bank may notify
persons obligated on any Collateral to make payments directly to Bank and Bank
may take control of all proceeds of any Collateral. Until Bank elects to
exercise such rights, Debtor, as agent of Bank, shall collect
<PAGE> 5
and enforce all payments owed on the Collateral.
T. COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor will maintain its
existence, good standing and qualification to do business, where required, and
comply with all laws, regulations and governmental requirements, including
without limitation, environmental laws applicable to it or any of its property,
business operations and transactions.
U. ENVIRONMENTAL COVENANTS. Debtor shall immediately advise Bank in
writing of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Debtor's business operations; and
(ii) all claims made or threatened by any third party against Debtor relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Debtor shall immediately notify Bank of any
remedial action taken by Debtor with respect to Debtor's business operations.
Debtor will not use or permit any other party to use any Hazardous Materials at
any of Debtor's places of business or at any other property owned by Debtor
except such materials as are incidental to Debtor's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Debtor agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Debtor's places of business or any other
property of Debtor at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Debtor is complying with this covenant
and Debtor shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Debtor shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Debtor's business operations
within five (5) days of the request therefor.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, before or after default, without liability to Debtor
may: obtain from any person information regarding Debtor or Debtor's business,
which information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Bank; indorse
as Debtor's agent any instruments, documents or chattel paper in the Collateral
or representing proceeds of the Collateral; contact account debtors directly to
verify information furnished by Debtor; take control of proceeds, including
stock received as dividends or by reason of stock splits; release the Collateral
in its possession to any Debtor, temporarily or otherwise; require additional
Collateral; reject as unsatisfactory any property hereafter offered by Debtor as
Collateral; set standards from time to time to govern what may be used as after
acquired Collateral; designate, from time to time, a certain percent of the
Collateral as the loan value and require Debtor to maintain the Obligation at or
below such figure; take control of funds generated by the Collateral, such as
cash dividends, interest and proceeds or refunds from insurance, and use same to
reduce any part of the Obligation and exercise all other rights which an owner
of such Collateral may exercise, except the right to vote or dispose of the
Collateral before an Event of Default; at any time transfer any of the
Collateral or evidence thereof into its own name or that of its nominee; and
demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral, in its own name or in the name of
Debtor, as Bank may determine. Bank shall not be liable for failure to collect
any account or instruments, or for any act or omission on the part of Bank, its
officers, agents or employees, except for its or their own willful misconduct or
gross negligence. The foregoing rights and powers of Bank will be in addition
to, and not a limitation upon, any rights and powers of Bank given by law,
elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any
required insurance, to the extent permitted by applicable law Bank may (but is
not obligated to) purchase single interest insurance coverage for the Collateral
which insurance may at Bank's option (i) protect only Bank and not provide any
remuneration or protection for Debtor directly and (ii) provide coverage only
after the Obligation has been declared due as herein provided. The premiums for
any such insurance purchased by Bank shall be a part of the Obligation and shall
bear interest as provided in 3(d) hereof.
B. CONVERTIBLE COLLATERAL. Bank may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. An event of default ("Event of Default") shall
occur if: (i) there is a loss, theft, damage or destruction of any material
portion of the Collateral for which there is no insurance coverage or for which,
in the opinion of Bank, there is insufficient insurance coverage; (ii) Debtor or
any other obligor on all or part of the Obligation shall fail to timely and
properly pay or observe, keep or perform any term, covenant, agreement or
condition in this Agreement or in any other agreement between Debtor and Bank or
between Bank and any other obligor on the Obligation, including, but not limited
to, any other note or instrument, loan agreement, security agreement, deed of
trust, mortgage, promissory note, guaranty, certificate, assignment, instrument,
document or other agreement concerning or related to the Obligation
(collectively, the
<PAGE> 6
"Loan Documents"); (iii) Debtor or such other obligor shall fail to timely and
properly pay or observe, keep or perform any term, covenant, agreement or
condition in any agreement between such party and any affiliate or subsidiary of
NationsBank Corporation; (iv) Debtor or such other obligor shall fail to timely
and properly pay or observe, keep or perform any term, covenant, agreement or
condition in any lease agreement between such party and any lessor pertaining to
premises at which any Collateral is located or stored; or (v) Debtor or such
other obligor abandons any leased premises at which any Collateral is located or
stored and the Collateral is either moved without the prior written consent of
Bank or the Collateral remains at the abandoned premises.
B. RIGHTS AND REMEDIES. If any Event of Default shall occur, then, in
each and every such case, Bank may, without presentment, demand, or protest;
notice of default, dishonor, demand, non-payment, or protest; notice of intent
to accelerate all or any part of the Obligation; notice of acceleration of all
or any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this Agreement,
any other Loan Document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies at Bank's option:
i. ACCELERATION. The Obligation shall, at Bank's option, become
immediately due and payable, and the obligation, if any, of Bank to permit
further borrowings under the Obligation shall at Bank's option immediately cease
and terminate.
ii. POSSESSION AND COLLECTION OF THE COLLATERAL. At its option: (a)
take possession or control of, store, lease, operate, manage, sell, or instruct
any Agent or Broker to sell or otherwise dispose of, all or any part of the
Collateral; (b) notify all parties under any account or contract right forming
all or any part of the Collateral to make any payments otherwise due to Debtor
directly to Bank; (c) in Bank's own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the agent of
Debtor any check, note, chattel paper, documents, or instruments forming all or
any part of the Collateral; (e) make formal application for transfer to Bank (or
to any assignee of Bank or to any purchaser of any of the Collateral) of all of
Debtor's permits, licenses, approvals, agreements, and the like relating to the
Collateral or to Debtor's business; (f) take any other action which Bank deems
necessary or desirable to protect and realize upon its security interest in the
Collateral; and (g) in addition to the foregoing, and not in substitution
therefor, exercise any one or more of the rights and remedies exercisable by
Bank under any other provision of this Agreement, under any of the other Loan
Documents, or as provided by applicable law (including, without limitation, the
Uniform Commercial Code as in effect in North Carolina (hereinafter referred to
as the "UCC")). In taking possession of the Collateral Bank may enter Debtor's
premises and otherwise proceed without legal process, if this can be done
without breach of the peace. Debtor shall, upon Bank's demand, promptly make the
Collateral or other security available to Bank at a place designated by Bank,
which place shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful and malicious
act. Bank shall have no duty to take any action to preserve or collect the
Collateral.
iii. RECEIVER. Obtain the appointment of a receiver for all or any of
the Collateral, Debtor hereby consenting to the appointment of such a receiver
and agreeing not to oppose any such appointment.
iv. RIGHT OF SET OFF. Without notice or demand to Debtor, set off
and apply against any and all of the Obligation any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or any of Bank's agents or affiliates to or for
the credit of the account of Debtor or any guarantor or indorser of Debtor's
Obligation.
Bank shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Bank may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Bank for any deficiency.
The proceeds of any disposition after default available to satisfy the
Obligation shall be applied to the Obligation in such order and in such manner
as Bank in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner of
any such sale.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities law,
Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
<PAGE> 7
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to the benefit of
its successors and assigns. In the event of any assignment or transfer by Bank
of any of the Obligation or the Collateral, Bank thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
B. WAIVER. No delay of Bank in exercising any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof or the exercise of any
other power or right. No waiver by Bank of any right hereunder or of any default
by Debtor shall be binding upon Bank unless in writing, and no failure by Bank
to exercise any power or right hereunder or waiver of any default by Debtor
shall operate as a waiver of any other or further exercise of such right or
power or of any further default. Each right, power and remedy of Bank as
provided for herein or in any of the Loan Documents, or which shall now or
hereafter exist at law or in equity or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by Bank of any one or
more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by Bank of any or all other such rights, powers or remedies.
C. AGREEMENT CONTINUING. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Bank and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this Agreement.
D. DEFINITIONS. Unless the context indicates otherwise, definitions in
the UCC apply to words and phrases in this Agreement; if UCC definitions
conflict, Article 9 definitions apply.
E. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid
at least five (5) days before the related action (or if the UCC elsewhere
specifies a longer period, such longer period) to the address of Debtor given
above, or to such other address as any party may designate by written notice to
the other party. Each notice, request and demand shall be deemed given or made,
if sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.
F. MODIFICATIONs. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by Debtor and Bank. The provisions of this
Agreement shall not be modified or limited by course of conduct or usage of
trade.
G. APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement has been
delivered in the State of North Carolina and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement. The invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
H. FINANCING STATEMENT. To the extent permitted by applicable law, a
carbon, photographic or other reproduction of this Agreement or any financing
statement covering the Collateral shall be sufficient as a financing statement.
I. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE
<PAGE> 8
SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
ii. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO
IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
J. CONTROLLING DOCUMENT. To the extent that this Security Agreement
conflicts with or is in any way incompatible with any other Loan Document
concerning the Obligation, any promissory note shall control over any other
document, and if such note does not address an issue, then each other document
shall control to the extent that it deals most specifically with an issue.
K. EXECUTION UNDER SEAL. This Agreement is being executed under seal by
Debtor(s).
L. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
<TABLE>
<S> <C>
BANK/SECURED PARTY: Name:___________________________
NATIONSBANK, N.A.
Title:__________________________
By:______________________________
</TABLE>
<PAGE> 9
Corporate Debtor:
American Aircarriers Support, Inc.
- -----------------------------------------
Corporation or Partnership Name
By: /s/ Karl F. Brown (Seal)
- -----------------------------------------
Name: Karl F. Brown
- -----------------------------------------
Title: President
- -----------------------------------------
- -----------------------------------------
Attest
[Corporate Seal]
<PAGE> 1
Exhibit 10.4.10
NationsBank, N.A.
Date April 9, 1998
--------------------------------------
Continuing and Unconditional Guaranty
<TABLE>
<S> <C>
====================================================================================================
BANK: GUARANTOR:
NationsBank, N.A.
Banking Center:
Metrolina Commercial Region Karl F. Brown
NationsBank Plaza
NC1 002-05-10, Mecklenburg County
Charlotte, NC 28255
(Street address including county) (Name and street address, including county)
====================================================================================================
</TABLE>
"BORROWER": American Aircarriers Support, Inc.
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank, N.A. (Attn:
____________________________________________) ("Bank") to make loans or advances
or to extend credit or other financial accommodations or benefits, with or
without security, to or for the account of Borrower, the undersigned
"Guarantor", if more than one, then each of them jointly and severally, hereby
irrevocably and unconditionally guarantees to Bank the full and prompt payment
when due, whether by acceleration or otherwise, of any and all Liabilities (as
hereinafter defined) of Borrower to Bank. This Guaranty is continuing and
unlimited as to the amount, and is cumulative to and does not supersede any
other guaranties.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all Obligations (as hereinafter defined). The
undertakings of Guarantor hereunder are independent of the Liabilities and
Obligations of Borrower and a separate action or actions for payment, damages or
performance may be brought or prosecuted against Guarantor, whether or not an
action is brought against Borrower or to realize upon the security for the
Liabilities and/or Obligations, whether or not Borrower is joined in any such
action or actions, and whether or not notice is given or demand is made upon
Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of Borrower with respect to any Liabilities or Obligations.
2. PARAGRAPH HEADINGS, Governing Law and Binding Effect. Guarantor agrees that
the paragraph headings in this Guaranty are for convenience only and that they
will not limit any of the provisions of this Guaranty. Guarantor further agrees
that this Guaranty shall be governed by and construed in accordance with the
laws of the State of North Carolina and applicable United States federal law.
Guarantor further agrees that this Guaranty shall be deemed to have been made in
the State of North Carolina at Bank's address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of North
Carolina, or the United States courts located within the State of North
Carolina, and is performable in the State of North Carolina. This Guaranty is
binding upon Guarantor, his, their or its executors, administrators, successors
or assigns, and shall inure to the benefit of Bank, its successors, indorsees or
assigns. Anyone executing this Guaranty shall be bound by the terms hereof
without regard to execution by anyone else.
3. DEFINITIONS.
A. "Guarantor" shall mean Guarantor or any one or more of them.
B. "Liability" or "Liabilities" shall mean without limitation, all
liabilities, overdrafts, indebtedness, and obligations of Borrower and/or
Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 2
NationsBank, N.A.
or unsecured, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, now or hereafter
existing, or held or to be held by Bank for its own account or as agent for
another or others, whether created directly, indirectly, or acquired by
assignment or otherwise, including but not limited to all extensions or renewals
thereof, and all sums payable under or by virtue thereof, including without
limitation, all amounts of principal and interest, all expenses (including
reasonable attorney's fees and cost of collection) incurred in the collection
thereof or the enforcement of rights thereunder (including without limitation,
any liability arising from failure to comply with state or federal laws, rules
and regulations concerning the control of hazardous waste or substances at or
with respect to any real estate securing any loan guaranteed hereby), whether
arising in the ordinary course of business or otherwise. If Borrower is a
partnership, corporation or other entity the term "Liability" or "Liabilities"
as used herein shall include all Liabilities to Bank of any successor entity or
entities.
C. "Loan Documents" shall mean all deeds to secure debt, deeds of
trust, mortgages, security agreements and other documents securing payment of
the Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations.
D. "Obligation" or "Obligations" shall mean all terms, conditions,
covenants, agreements and undertakings of Borrower and/or Guarantor under all
notes and other documents evidencing the Liabilities, and under all deeds to
secure debt, deeds of trust, mortgages, security agreements and other
agreements, documents and instruments executed in connection with the
Liabilities or related thereto.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against Borrower that arises
hereunder and/or from the performance by any other Guarantor hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against Borrower or against any security
which Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise.
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of N.C. Gen. Stat. ss.26-7 through ss. 26-9, inclusive, as amended,
or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing or otherwise affecting the Obligations of Guarantor, in whole or in
part, and without the indorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a) change the manner, place or terms of payment,
or change or extend the time of or renew, or change any interest rate or alter
any Liability or Obligation or installment thereof, or any security therefor;
(b) loan additional monies or extend additional credit to Borrower, with or
without security, thereby creating new Liabilities or Obligations the payment or
performance of which shall be guaranteed hereunder, and the Guaranty herein made
shall apply to the Liabilities and Obligations as so changed, extended,
surrendered, realized upon or otherwise altered; (c) sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner and in any order
any property at any time pledged or mortgaged to secure the Liabilities or
Obligations and any offset there against; (d) exercise or refrain from
exercising any rights against Borrower or others (including Guarantor) or act or
refrain from acting in any other manner; (e) settle or compromise any Liability
or Obligation or any security therefor and subordinate the payment of all or any
part thereof to the payment of any Liability or Obligation of any other parties
primarily or secondarily liable on any of the Liabilities or Obligations; (f)
release or compromise any Liability of Guarantor hereunder or any Liability or
Obligation of any other parties primarily or secondarily liable on any of the
Liabilities or Obligations; or (g) apply any sums from any sources to any
Liability without regard to any Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from Borrower, by set-off or in any other manner,
payment of any debt, now and at any time or times hereafter owing by Borrower
to Guarantor unless and until all the Liabilities and Obligations shall have
been fully paid and performed, and any security interest, liens or encumbrances
which Guarantor now has and from time to time hereafter may have upon any of
the assets of Borrower shall be made subordinate,
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 3
NationsBank, N.A.
junior and inferior and postponed in priority, operation and effect to any
security interest of Bank in such assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall be binding on each Guarantor until written
notice of revocation signed by such Guarantor or written notice of the death of
such Guarantor shall have been received by Bank, notwithstanding change in name,
location, composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of Borrower, or
any one or more of Guarantors. No notice of revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Liabilities or Obligations that shall have been committed, created, contracted,
assumed or incurred prior to receipt of such written notice pursuant to any
agreement entered into by Bank prior to receipt of such notice. The sole effect
of such notice of revocation or termination hereof shall be to exclude from this
Guaranty, Liabilities or Obligations thereafter arising that are unconnected
with Liabilities or Obligations theretofore arising or transactions entered into
theretofore.
In the event of the death of a Guarantor, the liability of the estate of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of Borrower after
the date of death of the deceased Guarantor pursuant to a commitment made by
Bank to Borrower prior to the date of such death. As to all surviving
Guarantors, this Guaranty shall continue in full force and effect after the
death of a Guarantor, not only as to the Liabilities existing at that time, but
also as to Liabilities thereafter incurred by Borrower to Bank.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. CHANGE OF STATUS. Guarantor will not become a party to a merger or
consolidation with any other company, except where Guarantor is the surviving
corporation or entity, and all covenants under this Guaranty are assumed by the
surviving entity. Further, Guarantor may not change its legal structure, without
the written consent of Bank and all covenants under this Guaranty are assumed by
the new or surviving entity. Guarantor further agrees that this Guaranty shall
be binding, legal and enforceable against Guarantor in the event Borrower
changes its name, status or type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or collateral requested in writing by Bank within ten (10) days of the date
of the request. Guarantor has made an independent investigation of the
financial condition and affairs of Borrower prior to entering into this
Guaranty, and Guarantor will continue to make such investigation; and in
entering into this Guaranty Guarantor has not relied upon any representation of
Bank as to the financial condition, operation or creditworthiness of Borrower.
Guarantor further agrees that Bank shall have no duty or responsibility now or
hereafter to make any investigation or appraisal of Borrower on behalf of
Guarantor or to provide Guarantor with any credit or other information which
may come to its attention now or hereafter.
11. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action to the address of Guarantor or
Bank, at their respective addresses indicated at the beginning of this Guaranty,
or to such other address as any party may designate by written notice to the
other party. Each notice, request and demand shall be deemed given or made, if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.
12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by Bank promptly
and
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 4
NationsBank, N.A.
with due diligence pay all Liabilities and perform and satisfy all Obligations
for the benefit of Bank in the event of (a) the occurrence of any default under
any Loan Documents; (b) the failure of any Borrower or Guarantor to perform any
obligation or pay any liability or indebtedness of any Borrower or Guarantor to
Bank, or to any affiliate of Bank, whether under any Note, Guaranty, or any
other agreement, now or hereafter existing, as and when due (whether upon
demand, at maturity or by acceleration); (c) the failure of any Borrower or
Guarantor to pay or perform any other liability, obligation or indebtedness of
any Borrower or Guarantor to any other party; (d) the death of any Borrower or
Guarantor (if an individual); (e) the resignation or withdrawal of any partner
or a material owner/Guarantor of Borrower, as determined by Bank in its sole
discretion; (f) the commencement of a proceeding against any Borrower or
Guarantor for dissolution or liquidation, the voluntary or involuntary
termination or dissolution of any Borrower or Guarantor or the merger or
consolidation of any Borrower or Guarantor with or into another entity; (g) the
insolvency, or the business failure of, or the appointment of a custodian,
trustee, liquidator or receiver for or of any of the property of, or the
assignment for the benefit of creditors by, or the filing of a petition under
bankruptcy, insolvency or debtor's relief law or the filing of a petition for
any adjustment of indebtedness, composition or extension by or against any
Borrower or Guarantor; (h) the sole determination by Bank that any
representation or warranty to Bank in any Loan Document or otherwise to Bank was
untrue or materially misleading when made; (i) the failure of Guarantor or
Borrower to timely deliver such financial statements including tax returns and
all schedules, or other statements of condition or other information, as Bank
shall request from time to time; (j) the entry of a judgment against Borrower or
Guarantor which Bank deems to be of a material nature in the sole discretion of
Bank; (k) the seizure or forfeiture of any of Borrower or Guarantor's property,
or the issuance of any writ of possession, garnishment or attachment, or any
turnover order; (l) the sole determination by Bank that Guarantor or Borrower
jointly or severally, has suffered a material adverse change in its financial
condition; (m) the determination by Bank that for any reason it is insecure; (n)
any lien or additional security interest being placed upon any collateral which
is security for any Loan Document; or (o) the failure of Borrower's business to
comply with any law or regulation controlling the operation of Borrower's
business.
13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to pay all
Liabilities and perform and satisfy all Obligations as required hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality of
the foregoing, Bank may, at its option and without notice or demand: (a) declare
any Liability due and payable at once; (b) take possession of any collateral
pledged by Borrower or Guarantor wherever located, and sell, resell, assign,
transfer and deliver all or any part of said collateral of Borrower or Guarantor
at any public or private sale or otherwise dispose of any or all of the
collateral in its then condition, for cash or on credit or for future delivery,
and in connection therewith Bank may impose reasonable conditions upon any such
sale, and Bank, unless prohibited by law the provisions of which cannot be
waived, may purchase all or any part of said collateral to be sold, free from
and discharged of all trusts, claims, rights or redemption and equities of
Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the
sale of any collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall be
deemed a commercially reasonable sale under the Uniform Commercial Code or any
other equivalent statute or federal law, and expressly waives notice thereof
except as provided herein; and (c) set-off against any or all liabilities of
Guarantor all money owed by Bank or any of its agents or affiliates in any
capacity to Guarantor whether or not due, and also set-off against all other
Liabilities of Guarantor to Bank all money owed by Bank in any capacity to
Guarantor, and if exercised by Bank, Bank shall be deemed to have exercised such
right of set-off and to have made a charge against any such money immediately
upon the occurrence of such default although made or entered on the books
subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's fees
in connection with any suit, mediation or arbitration proceeding, out of Court
payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred
or paid by Bank in enforcing the payment of any Liability or defending this
agreement.
15. COLLATERAL. Bank at all times and from time to time shall have the right to
require Guarantor to deliver to Bank collateral satisfactory to Bank to secure
Guarantor's undertakings hereunder and/or the Liabilities of Guarantor
hereunder.
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 5
NationsBank, N.A.
16. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure Borrower and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and Borrower and
Guarantor hereby agree to take any such steps. Bank, nevertheless, at any time,
may (a) take any action it deems appropriate for the care or preservation of
such property or of any rights of Borrower and/or Guarantor or Bank therein; (b)
demand, sue for, collect or receive any money or property at any time due,
payable or receivable on account of or in exchange for any property pledged as
collateral, to Bank to secure Borrower and/or Guarantor's Liabilities to Bank;
(c) compromise and settle with any person liable on such property; or (d) extend
the time of payment or otherwise change the terms of the Loan Documents as to
any party liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the Obligations or Liabilities
of Guarantor.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
18. CONTROLLING DOCUMENT. To the extent that this Continuing and Unconditional
Guaranty conflicts with or is in any way incompatible with any other Loan
Document concerning this Obligation, any promissory note shall control over any
other document, and if such promissory note does not address an issue, then each
other document shall control to the extent that it deals most specifically with
an issue.
19. EXECUTION UNDER SEAL. This Guaranty is being executed under seal by
Guarantor.
20. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL
GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
under seal on this ______ day of ______________________, 19_____.
<TABLE>
<S> <C>
WITNESSED BY: GUARANTOR:
- ---------------------------------- ----------------------------
</TABLE>
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 6
NationsBank, N.A.
<TABLE>
<S> <C>
(Seal)
Karl F. Brown
- ---------------------------------- ------------------------
Print Name and Title Print Individual's Name
State of ______________________ )
)
County of _____________________ )
This instrument was acknowledged before me on ______, 19_, by _______________.
(Guarantor)
(Seal) -----------------------------------
Notary Public
in and for the State of
-----------
- ------------------------------------- -----------------------------------
My Commission Expires Print Name of Notary
</TABLE>
NationsBank Continuing and Unconditional Guaranty
North Carolina [Commercial]-- 2/96
<PAGE> 1
EXHIBIT 10.7.1
STATE OF SOUTH CAROLINA
COUNTY OF YORK JOINT VENTURE AGREEMENT
THIS AGREEMENT, made and entered into as of the 26th day of January,
1998 by and among AMERICAN AIRCARRIERS SUPPORT, INC., and GLOBAL TURBINE
SERVICES, INC. (all of whom together are hereinafter collectively sometimes
referred to as "Venturers").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form a Joint Venture
(hereinafter referred to as the "Venture") for the term and upon the conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is agreed by and among the parties hereto as follows:
ARTICLE I
BASIC STRUCTURE
1.1 Form and Purpose. The parties hereby form a Venture and agree
to be governed by the laws of the State of South Carolina. The purpose for
which the Venture is organized is to complete the conversion contracts known as
the ABXJT III Project. Completing the contracts includes the conversion from
short to long duct configuration.
1.2 Term. The Venture shall commence on the date first signed and
shall continue until it is dissolved, its affairs are wound up and final
liquidating distributions are made pursuant to this Agreement.
ARTICLE II
FINANCIAL ARRANGEMENTS
2.1 Initial Contributions. Each Venturer has made available to
the initial capital of the Venture property in the amount of $235,000 in cash
or cash equivalent.
2.2. Share of Profits and Losses. The Venture's profits and losses
shall be allocated to the Venturers equally.
<PAGE> 2
2
2.3 Distributions. Distributions to the Venturers of net
operating profits of the Venture, as hereinafter defined, shall be made at such
time as the Majority of the Venturers shall reasonably agree. Such
distributions shall be made to the Venturers simultaneously. For the purpose
of this Agreement, net operating profit for any accounting period shall mean
the gross receipts of the Venturer for such period, less the sum of all cash
expenses of operation of the Venture, and such sums as may be necessary to
establish a reserve for operating expenses.
2.4 Compensation. No Venturer shall be entitled to receive any
compensation from the Venture, nor shall any Venturer receive any drawing
account from the Venture.
ARTICLE III
DISSOLUTION
3.1 Dissolution. In the event that the Venture shall hereafter be
dissolved for any reason whatsoever, a full and general account of its assets,
liabilities and transactions shall at once be taken. Such assets may be sold
and turned into cash as soon as possible and all debts and other amounts due
the Venture collected. The proceeds thereof shall thereupon be applied as
follows:
(a) To discharge the debts and liabilities of the Venture and the
expenses of liquidation.
(b) To pay each Venturer or his legal representative any unpaid
salary, drawing account, interest or profits to which he shall then be
entitled.
(c) To repay to any Venturer the capital he made available.
(d) To divide the surplus, if any, among the Venturers or their
representatives according to each Venturer's then Percentage Share of Profits.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement. This Agreement sets forth the entire
Agreement and understanding among the parties. This Agreement
<PAGE> 3
3
shall be effective only when signed by all of the parties on the signature
pages hereto.
4.2 Binding Effect - Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and nothing in this Agreement is intended to confer on any person
other than the parties any rights, remedies, obligations or liabilities
whatsoever.
4.3 Applicable Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws
of the State of South Carolina applicable to contracts made and performed
therein.
4.4 Executing Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in one original and in one or more
counterparts, all of which together shall constitute one and the same document.
4.5 Notices. All notices which are required to be given or may be
given pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if delivered or mailed by registered mail, postage
prepaid as follows:
If to American Aircarriers Support, Inc.:
American Aircarriers Support, Inc.
P. O. Box 7566
Charlotte, NC 28241
If to Global Turbine Services, Inc.:
Global Turbine Services, Inc.
8693 N.W. 66th Street
Miami, FL 33166
4.6 Headings. The headings in the sections of this Agreement are
inserted for convenience only.
4.7 Pronouns. All pronouns used in this Agreement shall be deemed to
include the singular and the plural whenever necessary or appropriate to effect
the intent of this Agreement.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties have executed this Agreement pursuant
to authority duly given.
AMERICAN AIRCARRIERS SUPPORT, INC.
By /s/ Karl F. Brown
---------------------------------
President
GLOBAL TURBINE SERVICES, INC.
By /s/ Mike Evans
---------------------------------
President
<PAGE> 1
EXHIBIT 10.9
LOCK-UP AGREEMENT
May __, 1998
Cruttenden Roth Incorporated
Laidlaw Global Securities, Inc.
As the Representative of the Several Underwriters
c/o Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, CA 92715
Ladies and Gentlemen:
The undersigned understands that you, as the Representative of the
several underwriters (the "Underwriters"), propose to enter into an
Underwriting Agreement with American Aircarriers Support, Inc., a Delaware
corporation (the "Company"), providing for the public offering of 2,000,000
shares (excluding the 300,000 over-allotment shares) of Common Stock of the
Company (the "Common Shares") pursuant to a Registration Statement on Form SB-2
(the "Registration Statement") to be filed by the Company with the Securities
and Exchange Commission.
In consideration of the agreement by the Underwriters to purchase,
offer and sell the Common Shares pursuant to the public offering, and of other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees that he, she or it will not,
directly or indirectly, for a period of three hundred sixty-five (365) days
following the date of the Prospectus relating to the public offering of the
Common Shares, sell, offer to sell, contract to sell, grant any option for the
sale of, grant any security interest in, pledge, hypothecate, or otherwise sell
or dispose of any of the Common Shares, or any options or warrants to purchase
any of the Common Shares, or any securities convertible into or exchangeable
for any of the Common Shares, or any economic or other interest in such
securities or rights, owned directly by the undersigned or with respect to
which the undersigned has the power of disposition, in any such case whether
now owned or hereafter acquired, other than (i) pursuant to the Underwriting
Agreement, (ii) as a bona fide gift or gifts, provided that the undersigned
provides prior written notice of such gift or gifts to Cruttenden Roth
Incorporated and the donee or donees thereof agree to be bound by the
restrictions set forth herein or (iii) with the prior written consent of
Cruttenden Roth Incorporated. The undersigned also agrees and consents to the
entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of any of the Common Shares held by the
undersigned except in compliance with the foregoing restrictions. Cruttenden
Roth Incorporated may in its sole discretion without notice, release all or any
portion of the securities subject to this Lock-Up Agreement or any similar
agreement executed by any other security holder, and if Cruttenden Roth
Incorporated releases any securities of any other security holder, securities
of the undersigned shall not be entitled to release from this Lock-Up
Agreement.
The undersigned understands that the Company and the Underwriters are
undertaking the public offering of the Common Shares in reliance upon this
Lock-Up Agreement.
Very truly yours,
By:
------------------------------
Name:
-----------------------------
Date:
-----------------------------
<PAGE> 1
Exhibit 10.10
SALE AND PURCHASE
AGREEMENT
TWO BOEING 737-200 SERIES
AIRCRAFT
---------
BETWEEN
EUROPEAN AVIATION LIMITED
AND
AMERICAN AIRCARRIERS SUPPORT
<PAGE> 2
THIS AGREEMENT IS MADE THIS 26th DAY OF MARCH 1998
BETWEEN
EUROPEAN AVIATION LIMITED, whose headquarters are based at European Hall,
Bromyard Road, Ledbury, Herefordshire, HR8 1LG, UK (company registration number
2496662)(Tel.No. 00 44(0)1531 633000/Fax No. 00 44(0)1531 634497) hereinafter
referred to as "The Seller"
AND
AMERICAN AIRCARRIERS SUPPORT INCORPORATED, whose headquarters are
based at 3516 Centre Circle Drive, Fort Mill, South Carolina 29715, USA
(company registration number )(Tel.No. 001 803 548 2160/Fax No. 001 803 548
2207) hereinafter referred to as 'The Buyer'
WHEREBY IT IS AGREED as follows:
In this agreement the following expression shall have the following meanings:
1.1 "Aircraft" means the two Boeing 737-200 Series aircraft bearing
Manufacturer's Serial Numbers 19934 and 19953 as described in Exhibit A
and equipped with four JT8D-7B Series engines bearing Manufacturer's
Serial Numbers 653545, 655977, 653333 and 656097 as described in
Exhibit B and together with the logbooks, maintenance records,
manuals, handbooks and other documents in respect of the Aircraft and
engines.
1.2 "Delivery" means the tender of the Aircraft by the Seller to the Buyer
and the acceptance of the Aircraft in accordance with the terms of this
agreement.
1.3 'Delivery Date' means the actual date on which Delivery was effected.
1.4 'Purchase Price' means the sum of 1.1 million US Dollars(one million,
one hundred thousand United States Dollars) per aircraft.
2. SALES OF THE AIRCRAFT.
2.1 Subject to the terms and conditions of this agreement the Seller will
sell the Aircraft to the Buyer and the Buyer will purchase the Aircraft
from the Seller for the Purchase Price.
(1)
<PAGE> 3
2.2 The payment of the Purchase Price shall be made in full by means of
telegraphic transfer of immediate available funds to the Seller's
account maintained with National Westminster Bank, Bournemouth Branch,
The Square, 5 Old Christchurch Road, Bournemouth, BH1 1DU, UK, (US
Dollar Account No.06236820).
3. TAXATION:
3.1 To the best of the Sellers knowledge no Import or export duties are
currently outstanding for the Aircraft and the Seller shall be liable
for any and all Import and Export duties or levies that may have
occurred or been accessed prior to the Delivery of the Aircraft to the
Buyer. The Buyer shall pay all duties and levies that are incurred or
accessed after the Buyer takes delivery of the Aircraft as per the
Delivery Date as set forth in Section 4.
4. DELIVERY:
4.1 Delivery shall take place on or before 27th March 1998.
4.2 Upon request the Seller shall complete and the Buyer shall sign a
Delivery Certificate in duplicate in the form set out in the second
schedule and each party shall retain one copy of it.
4.3 Immediately following Delivery the Seller shall take all necessary
steps to enable the Buyer to be registered as owner.
4.4 Unless otherwise agreed in writing between the parties delivery shall
take place at Bournemouth International Airport, Bournemouth, before
which the Buyer has inspected all technical documentation and agreed
that it is to his satisfaction.
4.5 Delivery of the Aircraft shall Include the original historical records
pertaining Aircraft and Engines. Only after the Seller has delivered
the original and complete historical records, and the Buyer has
inspected and accepted the original and complete historical records,
including current AD/SB status of the Aircraft and Engines, as well as
documents showing complete traceability to zero of the Life Limited
Parts of the Aircraft and Engines and all records are accepted by the
Buyer, then the Seller's responsibility for delivery of the Aircraft
will have been completed. The Buyer shall acknowledge such delivery
and acceptance by the execution of Exhibit C.
(2)
<PAGE> 4
4.6 The Buyer agrees after accepting delivery of the aircraft to remove the
aircraft from the Sellers premises within seven working days, unless
agreed otherwise in writing between the parties. All costs associated
with the removal of the aircraft from the Sellers premises will be to
the cost of the Buyer. In the event that the Buyer is unable to remove
the aircraft after seven days, then the Seller will at its discretion
be able to invoice the Seller parking charges on a per day basis.
5. TITLE AND RISK:
5.1 The Seller warrants that on Delivery of the Aircraft as is it is the
owner of such Aircraft free and clear of all liens charges and
incumbrances, with the exception of a mortgage of 50,000 US Dollars
(fifty thousand United States Dollars) held in favour of United
Airlines in relation to Exhibit G, to enable them to enforce the
conditions of Exhibit G and for this use only.
5.2 Title to the Aircraft and Engines shall be conveyed to the Buyer by the
execution and delivery of a Bill of Sale in the form attached as
Exhibit E.
5.3 Possession, property and risk in the Aircraft will pass from the Seller
to the Buyer on Delivery.
6. REPRESENTATIONS AND WARRANTIES:
6.1 The Seller warrants that on Delivery the Aircraft complies with
description.
6.2 Save as expressly provided in this agreement the Aircraft is sold in an
'as is where is' condition.
6.3 To the best of the Sellers knowledge, the Aircraft and engines have not
been subjected to severe stress or heat (as in a major engine failure,
accident or fire) as detailed in Exhibit D.
6.4 The Buyer acknowledges that it has placed no reliance on any statement
or representation whether oral or written made by the Seller or on its
behalf during the negotiations prior to the signing of this agreement,
however, the Buyer has relied throughout this agreement on any
representations and warranties made herein.
(3)
<PAGE> 5
6.5 The Seller shall assign to the Buyer any and all existing assignable
warranties of manufacturers or overhaul agencies for the Aircraft, the
installed engines and components if any now available to the Seller and
upon request of the Buyer the Seller shall allow the Buyer to enforce
the rights of the Buyer arising under such warranties in the name of
the Seller provided that the Buyer shall indemnify the Seller for any
costs and expense incurred by the Seller as a result. The Seller shall
give notice to any such manufacturer or overhaul agency of the
assignment of such warranties to the Buyer upon reasonable request and
at the cost of the Buyer.
6.6 The Seller represents and warrants
(i) that it is a limited company duly organized and validly formed
and in good standing under the laws of the UK,
(ii) that it has full power and authority to enter into this
Agreement and to carry out the transactions contemplated by this
Agreement, and
(iii) that this Agreement, when executed by the Seller, will be
binding on the Seller and enforceable against the Seller In accordance
with its terms.
6.7 The Seller represents and warrants that at the time of transfer of the
title to the Aircraft to the Buyer, the Seller
(i) will have good and sufficient legal and beneficial tide to the
Equipment free and clear of all mortgages, liens, charges,
incumbencies, subject to Clause 5.1, security interests and other
rights of others, except those incurred by the Buyer or securing claims
of third parties against the Buyer,
(ii) and will have full power and lawful authority to transfer
such title to the Buyer.
7. INDEMNITY, WAIVER AND INSURANCE.
7.1 The Buyer shall indemnify the Seller, its servants or agents and any
third party who has had an interest in the Aircraft prior to Delivery
at all times after Delivery on a full indemnity basis from and against
any liabilities, claims, proceedings, judgements, damages,
obligations, costs and expenses of any nature which may at any time be
incurred by or be imposed on the Seller its servants agents or such
third party arising after Delivery directly or indirectly in any manner
out of the ownership management, control, use or operation of the
Aircraft (either in the air or on the ground) or which may arise after
Delivery on account of any defect or alleged defect in the Aircraft.
7.2 Save the representations and warranties expressly made by the Seller
herein, the Buyer waives any claim which it may have against the
Seller.
(4)
<PAGE> 6
7.3 The Buyer hereby acknowledges and agrees to comply with the
restrictions to the use of the aircraft as set out in Exhibit G of the
United Airlines' Transfer Restriction Document, and the Buyer further
agrees to indemnify the Seller, or any of its officers from any legal
proceedings, costs, damages, or claims of whatever nature in the event
that the Buyer does not comply with the conditions as contained in
Exhibit G.
8. NOTICES:
8.1 Every notice required to be given under this agreement shall be in
writing and delivered by hand or transmitted by fax to the addresses
and fax numbers as set out at the head of this agreement or to such
other address or fax number as may be notified from time to time by one
party to this agreement to the other.
8.2 Any notice under this agreement shall be deemed to have been received
in the case of a fax transmission at the time of its despatch and in
the case of by hand delivery when so delivered provided that if such
time is not within the addressee's normal business hours in the country
of the addressee it shall be deemed to have been received at the
opening of business on the next business day in such country.
9. MISCELLANEOUS PROVISIONS:
9.1 The Seller's failure at any time to require strict performance by the
Buyer or any provision of this agreement shall not waive or diminish
the Seller's rights subsequently to demand strict performance of that
provision or of any other provision.
9.2 This agreement constitutes the entire agreement between the parties in
relation to the sale of the Aircraft and there have been no
representations, warranties, promises, guarantees or agreements, oral
or written, express or implied, except as set out in this agreement.
9.3 This agreement and its terms and provisions shall be binding on the
successors and assigns of the respective parties to this agreement
except that neither the rights nor the duties of either party to this
agreement may be voluntarily assigned without the prior consent in
writing of the other party.
9.4 If at any time any term or provision of this agreement or the
application of this agreement to any person or circumstances shall to
any extent be invalid or unenforceable under law of jurisdiction the
remainder of this agreement or application of such term or provision to
persons or circumstances other than those to which it is already
invalid or unenforceable and each term and provision of this agreement
shall be valid and enforceable to the fullest extent permitted by law.
(5)
<PAGE> 7
9.5 The headings to the Clauses of this agreement are for reference only
and do not form part of this agreement.
10. INSPECTION:
10.1 The Buyer has the right to inspect and either accept or reject the
Aircraft or Engines prior the transfer of funds. Such inspection must
take place prior to the delivery date as set forth in Section 4.1. If
the Buyer rejects the Aircraft or Engines for any reason and the Seller
is unwilling or unable to satisfy the Buyer, then the Buyer shall have
the right to cancel this agreement in full with no further obligation
of the Buyer to the Seller and the Seller to the Buyer.
11. INTERPRETATION, APPLICABLE LAW AND JURISDICTION:
11.1 This agreement shall take effect under and be governed by and construed
in accordance with the laws of England and both parties irrevocably
submit to the non-exclusive jurisdiction of the High Court of England.
11.2 Nothing in this agreement shall prevent either party from causing any
action or proceedings In connection with this agreement to be brought
in any other appropriate jurisdiction.
SIGNED ON BEHALF OF EUROPEAN AVIATION LIMITED
/s/ [ILLEGIBLE]
- ------------------------------------
Managing Director
SIGNED ON BEHALF OF AMERICAN AIRCARRIERS SUPPORT
/s/ [ILLEGIBLE]
- ------------------------------------
President
(6)
<PAGE> 8
EXHIBIT D
(REF: 6.3)
REPRESENTATIONS AND WARRANTIES
EUROPEAN AVIATION HEREBY confirm that to the best of our knowledge the two
Boeing 737-200 Series Aircraft, Serial Numbers 19934 and 19953, equipped with
four JT8D-7B Series engines bearing manufacturer's Serial Numbers 653333,
656097, 653545 and 655977, sold to AMERICAN AIRCARRIERS SUPPORT INCORPORATED,
have not been subjected to severe stress or heat (as in a major engine failure,
accident or fire).
ON BEHALF OF EUROPEAN AVIATION LIMITED
SIGNED /s/ [ILLEGIBLE]
------------------------------
TITLE MANAGING DIRECTOR
------------------------------
DATE 26/3/98
-------------------------------
<PAGE> 9
EXHIBIT E
(REF: 5.2)
AIRCRAFT SALE AGREEMENT
BETWEEN
EUROPEAN AVIATION LIMITED
("SELLER")
AND
AMERICAN AIRCARRIERS SUPPORT INCORPORATED
("BUYER")
FORM OF EQUIPMENT BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENT:
The Seller is the owner of the full and legal and beneficial title to
two(2) 737-200 Aircraft, serial numbers 19934 and 19953, equipped with four
JT8D-7B Series engines bearing manufacturer's serial numbers 653333, 656097,
653545 and 655977, plus basic accessories and applicable records (the
"Equipment").
THAT for and in consideration of $2,200,000.00 US Dollars the Seller
does this 27th day of March, 1998, grant, convey, transfer, bargain and sell,
deliver and set over, all of its right, title and interest in and to the
Equipment to the Buyer.
THAT the Seller hereby warrants to the Buyer, its successors and
assigns, that there is hereby conveyed to the Buyer title to the Equipment free
and clear of all liens, encumbrances, and rights of others and that the Seller
will warrant and defend such title forever against all claims and demands
whatsoever.
THAT this Equipment Bill of Sale is made and delivered pursuant to the
provisions of the Aircraft Sale Agreement between the Buyer and the Seller
dated 27th March 1998.
IN WITNESS HEREOF, the Seller has caused this Equipment Bill of Sale to
be executed by its duly authorized officer this 27th day of March, 1998.
ON BEHALF OF EUROPEAN AVIATION LIMITED
SIGNED /s/ [ILLEGIBLE]
----------------------------
TITLE MANAGING DIRECTOR
------------------------------
<PAGE> 10
United Air Lines, Inc./ European Aviation Ltd. 737 Aircraft
Purchase and Sale Agreement Page 12
EXHIBIT G
FORM OF ACKNOWLEDGEMENT OF TRANSFER RESTRICTIONS
ACKNOWLEDGEMENT OF TRANSFER RESTRICTIONS
To: United Air Lines, Inc.
1200 E. Algonquin Road
Elk Grove Township, IL 60007
Reference is hereby made to Article XI of that certain Aircraft Purchase and
Sale Agreement dated as of August ____, 1997 (the "PURCHASE AGREEMENT") between
United Air Lines, Inc. ("UNITED") and European Aviation Ltd. ("EUROPEAN
AVIATION") regarding, among other things, one Boeing 737-222 aircraft bearing
Manufacturer's Serial Number 19934, together with two Pratt & Whitney Model
JT8D-7B engines installed therein (the "AIRCRAFT"), [European Aviation Ltd.]
[__________, A UNITED KINGDOM corporation (the "TRANSFEROR")] hereby gives
United notice that it proposes to transfer its interest in the Aircraft to
American Aircarriers Support, a ____________ (the "TRANSFEREE") pursuant to that
certain _____________ dated ______________.
Transferee hereby agrees as follows:
1. Transferee represents and warrants that (a) it is either (i) a broker,
lessor or agent or (ii) an entity which provides passenger air transportation
but will not operate the Aircraft as a provider of air transportation within
the United States and (b) it is not a U.S. Air Carrier (as defined below).
2. Transferee covenants that, for the period from the date of this Agreement to
November 11, 2000 (the "RESTRICTED PERIOD"): (a) the Aircraft will not be
operated in passenger service in the United States, (b) no Aircraft will be
sold, leased or otherwise transferred by Transferee to a United States air
carrier (or its corporate parent or affiliate) which operates passenger service
(a) "U.S. AIR CARRIER") and (c) any Aircraft that is sold, leased or otherwise
transferred by Transferee to either (i) a broker, lessor or agent or (ii) an
entity which provides passenger air transportation but will not operate the
aircraft as a provider of air transportation within the United States (the
"OTHER OWNER") shall be transferred to the Other Owner subject to the
restrictions of this Agreement applicable to such Other Owner as if it were
"Transferee" hereunder.
3. Transferee agrees not convey any Aircraft to such Other Owner unless and
until such Other Owner executes and delivers to United an Acknowledgment of
Transfer Restrictions substantially in the form of this Agreement (the
"ACKNOWLEDGEMENT"), pursuant to which such Other Owner shall agree to abide by
the restrictions set forth in this Agreement as if it were "Transferee"
hereunder and the restrictions set forth in Section 11.1 of the Purchase
Agreement
<PAGE> 11
United Air Lines, Inc./ European Aviation Ltd. 737 Aircraft Page 13
Purchase and Sale Agreement
as if it were "Buyer" thereunder, which restrictions shall be applicable
through the Restricted Period.
4. Should any owner, operator or other transferee subsequent to the
Transferee (the "SUBSEQUENT OPERATOR")operate the Aircraft in violation of the
restrictions of this Agreement and Section 11.1 of the Purchase Agreement,
United's recourse shall be to the Subsequent Operator; provided Transferee has
complied with the requirements of this Agreement and Section 11.1 of the
Purchase Agreement. Transferee agrees to assist United, at United's expense, in
legally pursuing its rights with respect to the Subsequent Operator.
5. Transferee acknowledges and agrees and, by its execution and delivery
of an Acknowledgement, each Subsequent Owner shall acknowledge and agree, that
the restrictions on use and transfer of the Aircraft, as set forth in this
Agreement and Article XI of the Purchase Agreement (the "RESTRICTIONS"), are
reasonable and are required for the reasonable protection of United. Transferee
further acknowledges and agrees that the sale and transfer of the Aircraft as
contemplated by the Purchase Agreement is special, unique and of an
extraordinary character in the aviation industry and that in the event of any
breach or violation of any Restriction, United will be irreparably harmed and
monetary damages would be inadequate to compensate United for such harm.
Accordingly, any breach or violation of any of the Restrictions by either
Transferee or any Subsequent Owner shall result in irreparable injury to
United and United shall be entitled to equitable relief, including without
limitation specific performance of the Restrictions, to enjoin any person or
entity from performing any act prohibited by the Restrictions; provided however
that such remedy shall not be deemed to be the exclusive remedy for any breach
or violation of the Restrictions, but shall be in addition to all other
remedies available at law or equity to United.
6. Transferee acknowledges, and by its execution and delivery of an
Acknowledgement, each Subsequent Owner shall acknowledge, that United may incur
substantial costs and expenses (including, without limitation, legal fees and
expenses) in enforcing the Restrictions. Transferee hereby agrees, and, by its
execution and delivery of an Acknowledgment, each Subsequent Owner shall agree,
that it shall reimburse United for all such costs and expenses.
* * *
<PAGE> 12
United Air Lines, Inc./ European Aviation Ltd. 737 Aircraft Page 14
Purchase and Sale Agreement
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Agreement to be duly executed this 26 day of March, 1998
EUROPEAN AVIATION LTD.
[TRANSFEROR]
By: /s/[ILLEGIBLE]
-----------------------
Its: MANAGING DIRECTOR
----------------------
[TRANSFEREE]
By: /s/ [ILLEGIBLE]
-----------------------
Its: PRESIDENT
----------------------
<PAGE> 13
United Air Lines, Inc./ European Aviation Ltd.737 Aircraft
Purchase and Sale Agreement Page 12
EXHIBIT G
FORM OF ACKNOWLEDGEMENT OF TRANSFER RESTRICTIONS
ACKNOWLEDGEMENT OF TRANSFER RESTRICTIONS
To: United Air Lines, Inc.
1200 E. Algonquin Road
Elk Grove Township, IL 60007
Reference is hereby made to Article XI of that certain Aircraft Purchase and
Sale Agreement dated as of August __, 1997 (the "PURCHASE AGREEMENT") between
United Air Lines, Inc. ("UNITED") and European Aviation Ltd. ("EUROPEAN
AVIATION") regarding, among other things, one Boeing 737-222 aircraft bearing
Manufacturer's Serial Number 19953, together with two Pratt & Whitney Model
JT8D-7B engines installed therein (the "AIRCRAFT"). [European Aviation Ltd.]
[____________, a United Kingdom corporation (the "TRANSFEROR")] hereby gives
United notice that it proposes to transfer its interest in the Aircraft to
American Aircarriers Support, a USA Corporation (the "TRANSFEREE") pursuant to
that certain _____________ dated 27/3/98.
Transferee hereby agrees as follows:
1. Transferee represents and warrants that (a) it is either (i) a broker,
lessor or agent or (ii) an entity which provides passenger air transportation
but will not operate the Aircraft as a provider of air transportation within
the United States and (b) it is not a U.S. Air Carrier (as defined below).
2. Transferee covenants that, for the period from the date of this
Agreement to November 11, 2000 (the "RESTRICTED PERIOD"): (a) the Aircraft will
not be operated in passenger service in the United States, (b) no Aircraft will
be sold, leased or otherwise transferred by Transferee to a United States air
carrier (or its corporate parent or affiliate) which operates passenger service
(a "U.S. AIR CARRIER") and (c) any Aircraft that is sold, leased or otherwise
transferred by Transferee to either (i) a broker, lessor or agent or (ii) an
entity which provides passenger air transportation but will not operate the
aircraft as a provider of air transportation within the United States (the
"OTHER OWNER") shall be transferred to the Other Owner subject to the
restrictions of this Agreement applicable to such Other Owner as if it were
"Transferee" hereunder.
3. Transferee agrees not convey any Aircraft to such Other Owner unless
and until such Other Owner executes and delivers to United an Acknowledgment of
Transfer Restrictions substantially in the form of this Agreement (the
"ACKNOWLEDGEMENT"), pursuant to which such Other Owner shall agree to abide by
the restrictions set forth in this Agreement as if it were "Transferee"
hereunder and the restrictions set forth in Section 11.1 of the Purchase
Agreement
<PAGE> 14
United Air Lines, Inc./ European Aviation Ltd. 737 Aircraft
Purchase and Sale Agreement Page 13
as if it were "Buyer" thereunder, which restrictions shall be applicable
through the Restricted Period.
4. Should any owner, operator or other transferee subsequent to the
Transferee (the "SUBSEQUENT OPERATOR") operate the Aircraft in violation of the
restrictions of this Agreement and Section 11.1 of the Purchase Agreement,
United's recourse shall be to the Subsequent Operator; provided Transferee has
complied with the requirements of this Agreement and Section 11.1 of the
Purchase Agreement. Transferee agrees to assist United, at United's expense, in
legally pursuing its rights with respect to the Subsequent Operator.
5. Transferee acknowledges and agrees and, by its execution and delivery
of an Acknowledgement, each Subsequent Owner shall acknowledge and agree, that
the restrictions on use and transfer of the Aircraft, as set forth in this
Agreement and Article XI of the Purchase Agreement (the "RESTRICTIONS"), are
reasonable and are required for the reasonable protection of United. Transferee
further acknowledges and agrees that the sale and transfer of the Aircraft as
contemplated by the Purchase Agreement is special, unique and of an
extraordinary character in the aviation industry and that in the event of any
breach or violation of any Restriction, United will be irreparably
harmed and monetary damages would be inadequate to compensate United for such
harm. Accordingly, any breach or violation of any of the Restrictions by either
Transferee or any Subsequent Owner shall result in irreparable injury to
United and United shall be entitled to equitable relief, including without
limitation specific performance of the Restrictions, to enjoin any person or
entity from performing any act prohibited by the Restrictions; provided however
that such remedy shall not be deemed to be the exclusive remedy for any breach
or violation of the Restrictions, but shall be in addition to all other
remedies available at law or equity to United.
6. Transferee acknowledges, and by its execution and delivery of an
Acknowledgement, each Subsequent Owner shall acknowledge, that United may
incur substantial costs and expenses (including, without limitation, legal fees
and expenses) in enforcing the Restrictions. Transferee hereby agrees, and, by
its execution and delivery of an Acknowledgement, each Subsequent Owner shall
agree, that it shall reimburse United for all such costs and expenses.
* * *
<PAGE> 15
United Air Lines, Inc./ European Aviation Ltd. 737 Aircraft
Purchase and Sale Agreement Page 14
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Agreement to be duly executed this 26 day of March 1998.
EUROPEAN AVIATION LTD.
[TRANSFEROR]
By: /s/ [ILLEGIBLE]
----------------------
Its: MANAGING DIRECTOR
---------------------
[TRANSFEREE]
By: /s/ [ILLEGIBLE]
----------------------
Its: PRESIDENT
---------------------
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
American Aircarriers Support, Inc.
We consent to the use in this amendment to the registration statement on
Form SB-2 of our report dated February 18, 1998 with respect to the financial
statements of American Aircarriers Support, Inc. as of December 31, 1996 and
1997 and for the years then ended included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
CHERRY, BEKAERT & HOLLAND, L.L.P.
CHARLOTTE, NORTH CAROLINA
APRIL 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEETS AND STATEMENTS OF OPERATIONS OF AMERICAN AIRCARRIERS
SUPPORT, INC AS OF AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 0 1,031,209
<SECURITIES> 0 0
<RECEIVABLES> 0 1,383,619
<ALLOWANCES> 0 100,000
<INVENTORY> 0 9,204,762
<CURRENT-ASSETS> 0 11,583,709
<PP&E> 0 532,501
<DEPRECIATION> 0 150,264
<TOTAL-ASSETS> 0 12,703,642
<CURRENT-LIABILITIES> 0 6,719,673
<BONDS> 0 0
0 0
0 0
<COMMON> 0 4,100
<OTHER-SE> 0 5,979,868
<TOTAL-LIABILITY-AND-EQUITY> 0 12,703,642
<SALES> 2,336,538 3,677,341
<TOTAL-REVENUES> 2,336,538 3,677,341
<CGS> 1,401,900 2,108,912
<TOTAL-COSTS> 259,077 393,606
<OTHER-EXPENSES> (23,311) (7,723)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,859 66,785
<INCOME-PRETAX> 879,013 1,114,761
<INCOME-TAX> 271,600 445,900
<INCOME-CONTINUING> 407,413 668,861
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 407,413 668,681
<EPS-PRIMARY> 0.10 0.16
<EPS-DILUTED> 0.10 0.16
</TABLE>
