<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1997
REGISTRATION NO. 333-22727
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AVIATION GROUP, INC.
(Name of small business issuer in its charter)
TEXAS 4581 75-2631373
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
LEE SANDERS, PRESIDENT
700 NORTH PEARL STREET AVIATION GROUP, INC.
SUITE 2170 700 NORTH PEARL STREET, SUITE 2170
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 922-8100 (214) 922-8100
(Address and telephone number of (Name, address and telephone number
principal executive offices) of agent for service)
Copies to:
DARYL B. ROBERTSON, ESQ. RICHARD F. DAHLSON, ESQ.
BRACEWELL & PATTERSON, L.L.P. JACKSON & WALKER, L.L.P.
500 NORTH AKARD ST., SUITE 4000 6000 NATIONSBANK PLAZA
DALLAS, TEXAS 75201 901 MAIN STREET, SUITE 6000
(214) 740-4000 DALLAS, TEXAS 75202
(214) 953-5800
Approximate date of commencement of proposed sale to the public:
IMMEDIATELY FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
__________
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
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______________, 1997)
SUBJECT TO COMPLETION, DATED MAY 22, 1997
AVIATION GROUP, INC.
1,304,195 SHARES OF COMMON STOCK
This Prospectus Supplement relates to the offer and sale by certain
selling securityholders ("Selling Shareholders") named herein under "Selling
Shareholders" of up to (i) 600,250 shares of common stock, $.01 par value per
share ("Common Stock") of Aviation Group, Inc. (the "Company"), (ii) a maximum
of 280,000 shares of Common Stock that may be issued upon exercise of
outstanding warrants, (iii) a maximum of 283,100 shares of Common Stock that
may be issued upon conversion or exchange of outstanding convertible or
exchangeable notes, (iv) a maximum of 31,250 shares of Common Stock that may be
issued upon repayment of outstanding notes, and (v) a maximum of 109,595 shares
of Common Stock that may be issued upon consummation of the Company's
acquisition of Casper Air Service (the "Casper Acquisition").
The Company will receive no part of the proceeds of any sales by the
Selling Shareholders. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all selling and other
expenses incurred by Selling Shareholders will be borne by the Selling
Shareholders. None of the shares of Common Stock have been registered prior to
the filing of the Registration Statement of which this Prospectus is a part.
The outstanding shares of Common Stock were originally issued by the Company in
private transactions. See "Selling Shareholders."
The Selling Shareholders may from time to time sell all or a portion of
their shares of Common Stock in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock may hereafter be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. One Selling Shareholder, the
Casper Air Service Employee Stock Ownership Plan and Trust (the "ESOP"), may
distribute its shares of Common Stock to its participants. See "Plan of
Distribution." Each Selling Shareholder and any agent or broker-dealer
participating in the distribution of the Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Any commissions received by and any profit on the resale of
the shares of Common Stock may be deemed to be underwriting commissions or
discounts under the Securities Act.
Brokers or dealers effecting transactions in the shares of Common Stock
on behalf of the Selling Shareholders should confirm the registration thereof
under the securities laws of the states in which such transactions occur or the
existence of an exemption from registration.
The Company has filed applications for listing of trades of the Common
Stock through the Nasdaq Small Cap Market System ("NASDAQ") and the Boston
Stock Exchange. No assurance can be given that the applications will be
approved. There is no current established trading market for the Common Stock.
SEE "RISK FACTORS" ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS. _______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ______________, 1997.
<PAGE> 3
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of any of
the shares of Common Stock by the Selling Shareholders.
SELLING SHAREHOLDERS
This Prospectus Supplement relates to the offer and sale from time to
time (i) by stockholders of the Company of up to 600,250 outstanding shares of
Common Stock, (ii) by the holders of outstanding warrants of a maximum of
280,000 shares of Common Stock that may be issued upon the exercise of the
warrants owned by them, (iii) by the holders of outstanding convertible or
exchangeable notes of a maximum of 283,100 shares of Common Stock that may be
issued upon conversion or exchange of the notes owned by them, (iv) by the
holders of certain notes of a maximum of 31,250 shares of Common Stock that may
be issued to them upon the repayment of the notes, and (v) by the owners of
Casper Air Service, a Wyoming corporation ("CAS"), of a maximum of 109,595
shares of Common Stock that may be issued to them upon the consummation of the
Casper Acquisition.
TRANSFER RESTRICTIONS
The Sanders Companies, Inc. and Paul Lubomirski, who collectively own a
total of 1,044,250 shares of Common Stock, will sign lock-up agreements with
First London Securities Corporation, acting as representative of the
Underwriters for the Company's initial public offering of Common Stock (the
"Representative"), as described in the accompanying Prospectus. See
"Description of Securities--Shares Eligible for Future Sale." Under these
lock-up agreements, these shareholders will agree not to offer, sell, or
otherwise dispose of 90% of their shares of Common Stock (939,825 shares) that
might otherwise be eligible for sale for a period of 24 months after the date
of this Prospectus without the prior written consent of the Representative.
These shareholders, with respect to the remaining 10% of their shares of Common
Stock (104,425 shares), and all remaining holders of the Company's securities
(owning 556,000 shares of Common Stock and outstanding warrants, options or
convertible or exchangeable notes exercisable for 590,710 shares of Common
Stock) will agree to lock-up periods of six months for all, and 12 months for
50%, of the shares of Common Stock that they own or may acquire after the date
of this Prospectus. The terms of the Bridge Notes specify that the holders of
the Bridge Notes may not sell the 35,704 shares of Common Stock that they will
receive upon payment in full of the Bridge Notes for a period of one year
following the completion of the initial public offering, unless the
Representative consents to the sale. Upon the expiration of the lock-up
agreements, these shares will become eligible for sale pursuant to this
offering. The recipients of shares of Common Stock in the Casper Acquisition
will not be required to execute any lock-up agreement. The Representative has
no current plans or understandings to waive, shorten or modify the foregoing
lock-up arrangements. The Company will (i) amend this Prospectus Supplement if
these arrangements are waived for 10% or more of the shares of the Selling
Shareholders, and (ii) sticker this Prospectus Supplement if these arrangements
are waived for between 5% and 10% of the shares of the Selling Shareholders.
IDENTITY AND OWNERSHIP OF SELLING SHAREHOLDERS
The following table provides certain information with respect to the
Selling Shareholders, and the number of shares of Common Stock owned, offered
and to be owned after the offering by each Selling Stockholder, subject to
certain transfer restrictions. See "--Transfer Restrictions."
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Paul Lubomirski 44,250(2) 44,250 0
James J. McNamara and
Margarita McNamara 10,000 10,000 0
Anthony DeCaprio 5,000 5,000 0
American & International
Investment, Ltd. 35,000 35,000 0
Charles R. Kemp 20,000 20,000 0
Kelly Kemp 15,000 15,000 0
George L. Riggs IRA 10,000 10,000 0
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
John L. Caldwell 20,000 20,000 0
Andrew J. Corbett 5,000 5,000 0
Harold W. Fullen 10,000 10,000 0
Conrad H. C. Everhard 5,000 5,000 0
Edward Gray 5,000 5,000 0
Alfons Murk 40,000 40,000 0
Samuel M. Sorkin 5,000 5,000 0
Eugene L. Crance 10,000 10,000 0
Jarred W. Stiemke 10,000 10,000 0
Jackson Chang 10,000 10,000 0
Chung-Ming Lin and
Li-Shiang Lin 10,000 10,000 0
Gerald D. Wollert
Revocable Living Trust dated 4/4/90 10,000 10,000 0
Patricia Ewing Hendrick 15,571 15,571 0
Gregory A. Despot 8,730 8,730 0
Charles E. Weed 44,455(3) 44,455 0
Judy L. Chidlow 6,661 6,661 0
John L. Chidlow 5,995 5,995 0
Jesswalt, Inc. 3,330 3,330 0
Frank Scott Moran 2,664 2,664 0
Anne S. Couch 2,664 2,664 0
3650 Investment Corporation, L.C. 1,332 1,332 0
May H. Chidlow 699 699 0
Richard L. Morgan 100,000(4) 100,000 0
Steven A. Soares 5,000 5,000 0
Mark Osgood 20,000 20,000 0
James P. Leaderer 50,000 50,000 0
Theodore C. Aalbersberg 10,000 10,000 0
Bertram S. Mullan 10,000 10,000 0
Thomas and Mary Ruthven 5,000 5,000 0
Robert Pierot 10,000 10,000 0
</TABLE>
-3-
<PAGE> 5
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Abraham Garfinkel 5,000 5,000 0
Delaware Charter Guarantee &
Trust Company TTEE FBO:
Chester S. Kucinski IRA 30,000 30,000 0
Michael Abdenour 10,000 10,000 0
Grigori Tsoukanov 5,000 5,000 0
Douglas F. Johnston 30,000 30,000 0
Michael and Gail Goldey 5,000 5,000 0
George L. Riggs, III 5,000 5,000 0
Delaware Charter Guarantee &
Trust Company TTEE FBO:
Douglas F. Johnston IRA 10,000 10,000 0
Carl Eric Mayer 5,000 5,000 0
Raymond J. Wiacek 10,000 10,000 0
John B. Mauro 5,000 5,000 0
Paine Webber Incorporated, solely
as custodian of William E. Cassidy IRA 5,000 5,000 0
Paine Webber Incorporated, solely
as custodian of Reata L. Cassidy IRA 5,000 5,000 0
Eugene L. Crance 5,000 5,000 0
Paul Taboada 24,750(5) 24,750 0
Steven Taub 10,000(5) 10,000 0
Kurt Gray 4,000(5) 4,000 0
Howard Vo 1,000(5) 1,000 0
Thomas K. Lin 2,000(5) 2,000 0
Eric Rainer Bashford Charitable Remainder
Unitrust dated August 3, 1996
EIN 13-7096965 42,490(5) 42,490 0
Robert A. Schneider 43,245(5) 43,245 0
Lois Schulman 33,240(5) 33,240 0
Shai Sasson 10,000(5) 10,000 0
Sid Borenstein 27,275(5) 27,275 0
Martha Plaza 2,000(5) 2,000 0
Patricia Ewing Hendrick 21,625(6) 21,625 0
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Gregory A. Despot 67,681(6) 67,681 0
Judy L. Chidlow 9,251(6) 9,251 0
John H. Chidlow 36,103(6) 36,103 0
Jesswalt, Inc. 4,625(6) 4,625 0
Frank Scott Moran 3,700(6) 3,700 0
Anne S. Couch 3,700(6) 3,700 0
3650 Investment Corporation, L.C. 1,850(6) 1,850 0
May H. Chidlow 971(6) 971 0
Judd H. Chidlow 13,888(6) 13,888 0
Louisiana Economic Development Corp. 83,658(7) 83,658 0
Betsy B. Rouse 1,562(8) 1,562 0
Patrick H. & Lee M. Miller 3,125(8) 3,125 0
Edward J. Anderson 1,562(8) 1,562 0
J. Robert Wyatt 3,125(8) 3,125 0
Priscilla Goodwyn 1,562(8) 1,562 0
Sagax Fund II, Ltd. 6,250(8) 6,250 0
John H. & Maria Sultenfuss 1,562(8) 1,562 0
John S. Lemak 1,562(8) 1,562 0
Dorothy D. & Rush B. Winchester 1,562(8) 1,562 0
Robert C. Kohler, III 1,562(8) 1,562 0
Gary L. Covelli 1,562(8) 1,562 0
Isabel Maxwell 1,562(8) 1,562 0
Digital Data Networks, Inc. 1,562(8) 1,562 0
J. R. Sheldon & Co., Inc. 1,562(8) 1,562 0
Anthony DeCaprio 1,562(8) 1,562 0
Fred Werner 80,846(9) 80,846 0
Casper Air Service Employee Stock
Ownership Plan and Trust 28,749(9) 28,749 0
</TABLE>
- ---------------------
(1) Includes shares that may be purchased under outstanding warrants or
convertible or exchangeable notes.
(2) Paul Lubomirski serves as President of the Company's subsidiary, Pride
Aviation, Inc.
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<PAGE> 7
(3) Charles Weed has served as a consultant to the Company since March 1996
and receives a consulting fee of $4,100 per month through February
1998. Mr. Weed is also a director of the Company. His shares include
(i) 9,000 shares purchasable, at $3.00 per share, pursuant to a
Convertible Note (as defined below) and (ii) 27,101 shares purchasable,
at $4.50 per share, pursuant to two Convertible Notes.
(4) Includes 80,000 shares purchasable, at $2.50 per share, upon the
exercise of the Morgan Warrants (as defined below). Mr. Morgan serves
as a director and consultant to the Company and receives a consulting
fee of $4,000 per month.
(5) Represents shares purchasable, at $1.00 per share, pursuant to the
Placement Warrants (as defined below).
(6) Represents shares purchasable, at $4.50 per share, pursuant to the
Convertible Notes.
(7) Represents shares purchasable, at $4.50 per share, pursuant to the
Exchangeable Note (as defined below).
(8) Represents shares issuable to the former holders of the Bridge Notes
(as defined below) upon payoff of the Bridge Notes, based on an assumed
initial public offering price for the Company's Common Stock of $8.00
per share.
(9) Represents shares issuable to the owners of CAS upon consummation of
the Casper Acquisition, based on an assumed initial public offering
price for the Company's Common Stock of $8.00 per share.
(10) Assumes all shares are sold by each Selling Shareholder. The
referenced offering is not the underwritten public offering covered by
the accompanying Prospectus.
DESCRIPTION OF TRANSACTIONS
Outstanding Common Stock. As of the date of this Prospectus
Supplement, the Company had issued and outstanding 1,600,250 shares of Common
Stock. In connection with the Company's organization, on December 20, 1995,
the Company issued 1,000,000 shares of Common Stock to The Sanders Companies,
Inc. in exchange for the transfer to the Company of all of the outstanding
capital stock of TriStar Airline Services, Inc. and TriStar Aircraft Services,
Inc.
In a Regulation D offering completed in June 1996, the Company sold
500,000 shares of Common Stock, at $3.00 per share, to a total of 41
accredited and non-accredited investors.
In connection with the Company's acquisition of Pride Aviation Group,
Inc. ("Pride") on March 1, 1996, the Company issued 100,250 shares of Common
Stock to certain of the former beneficial owners of Pride, including Paul
Lubomirski, who remained an executive officer of Pride and is considered one of
the key employees of the Company, and Charles Weed, who became a director of
and consultant to the Company.
Convertible Notes. In connection with its acquisition of Pride, the
Company issued $857,000 in aggregate principal amount of its five-year, 10%
Convertible Notes ("Convertible Notes") to certain of the former beneficial
owners of Pride, including Charles Weed. The Convertible Notes require the
Company to pay quarterly payments of interest at a rate of ten percent (10%)
per annum. Commencing April 1, 1998, the Convertible Notes also require equal
quarterly installments of principal in an amount necessary to fully amortize
the notes by March 1, 2001, when all remaining principal and accrued interest
will be due. Each of the Convertible Notes is convertible at the option of the
holder into shares of Common Stock at a price of $4.50 per share. In addition,
the Company issued to Charles Weed, in consideration for cancellation of
accrued, unpaid consulting fees owed by Pride, a Convertible Note in the amount
of $27,000 that is convertible at $3.00 per share. The conversion rates are
subject to adjustment in the event of any stock dividend, split, combination or
reclassification of the outstanding Common Stock of the Company. The
Convertible Notes require the Company to treat all holders of the Convertible
Notes as pari passu members of the same class. Each of the Convertible Notes
(other than the $27,000 note held by Mr. Weed) is secured by a pledge of the
pro rata portion of outstanding stock of Pride that was owned directly or
beneficially by the holder of the Convertible Note immediately prior to the
Company's acquisition of Pride. Approximately 90% of the outstanding stock in
Pride is pledged by the Company to secure the Convertible Notes, subject to the
Company's prior pledge of approximately 50% of the Pride stock to secure the
Exchangeable Note. If the Company fails to make a required payment of
principal and interest after notice of default, the holder of the Convertible
Note may exercise any of its remedies with respect to the pledged stock. As of
the date of this Prospectus Supplement, none of the Convertible Notes have been
converted.
Exchangeable Note. At the time of its acquisition by the Company,
Pride owed certain debt to the Louisiana Economic Development Corporation (the
"LEDC"). To obtain the LEDC's consent to the Company's acquisition of Pride,
the Company granted to the LEDC the right to exchange the debt owed by Pride to
the LEDC. Pride issued a new promissory note (the "Exchangeable Note") in the
original principal amount of $408,000 that is exchangeable by the LEDC for
newly issued shares of the Company's Common Stock at a rate of $4.50 per share.
The Company also pledged
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<PAGE> 8
approximately 50% of the outstanding stock in Pride to secure the debt. As of
April 1, 1997, the Exchangeable Note had a principal balance of approximately
$376,000 and was exchangeable for 83,600 shares of Common Stock. The
Exchangeable Note requires the payment by Pride of equal monthly installments
of principal and interest of $3,800. The LEDC has not exercised its exchange
right as of the date of this Prospectus Supplement.
Placement Warrants. On March 1, 1996 and June 24, 1996, the Company
issued warrants to purchase an aggregate of 200,000 shares of Common Stock (the
"Placement Warrants") to RAS Securities Corp. ("RAS") upon the closings of the
private placement of 500,000 shares of Common Stock by the Company. RAS has
subsequently transferred these Placement Warrants to certain of its employees.
Each Placement Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.00 per share, exercisable on or before February 28,
1999. As of the date of this Prospectus Supplement, none of the holders of the
Placement Warrants has exercised his or her Placement Warrants. The Placement
Warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Placement Warrants in certain events, such as stock dividends
and distributions, stock splits, recapitalizations, mergers, or consolidations.
Holders of Placement Warrants do not possess any rights as stockholders of the
Company prior to exercise. Holders of Placement Warrants have been granted
certain registration rights.
Morgan Warrant. Effective June 30, 1996, the Company and Richard L.
Morgan, then a consultant to the Company, entered into a Warrant Agreement (the
"Morgan Warrant") pursuant to which Mr. Morgan has the right to purchase 80,000
shares of Common Stock at a price of $2.50 per share. The Warrant Agreement
expires February 28, 1999. Mr. Morgan has not exercised any of his rights
under the Morgan Warrant as of the date of this Prospectus Supplement. Mr.
Morgan was appointed a director of the Company in February 1997. The Morgan
Warrant contains provisions that protect Mr. Morgan against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Morgan Warrant in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations. The
Morgan Warrant does not grant any stockholder rights to the holder thereof
prior to exercise. The Morgan Warrant grants to Mr. Morgan certain
registration rights.
Bridge Notes Shares. In February 1997, the Company completed a
private offering of $500,000 in aggregate principal amount of its 10% Bridge
Notes (the "Bridge Notes"). The Bridge Notes are due in full on June 30, 1998
or within five days following the funding of the initial public offering by the
Company of its Common Stock. If the Company successfully completes an initial
public offering of its Common Stock by September 30, 1997, the terms of the
Bridge Notes require the Company to issue, as additional compensation to the
holders of the Bridge Notes, that number of shares of Common Stock which equals
$250,000 divided by the initial public offering price per share for the Common
Stock, at the time of repayment in full of the Bridge Notes. Assuming an
initial public offering price of $7.00 per share, the holders of the Bridge
Notes will be issued an aggregate of 35,704 shares of Common Stock.
Casper Acquisition. On April 18, 1997, the Company entered into an
agreement to purchase all of the outstanding stock of CAS, which is held by
four shareholders. One of the shareholders is the Casper Air Service Employee
Stock Ownership Plan and Trust (the "ESOP"). The closing of this transaction
is expected to occur concurrently with the closing of the initial public
offering. The Company has agreed to pay or issue to CAS's shareholders
approximately $1,173,000 in cash and approximately $877,000 in value of Common
Stock, based on the initial public offering price. The ESOP and CAS's
controlling shareholder, Fred Werner, will receive their portions of the
purchase price 56% in cash and 44% in Common Stock. The other two shareholders
will receive only cash.
SALES BY AFFILIATES
Certain of the shares of Common Stock to be sold by the Selling
Shareholders are owned, or may be acquired, by executive officers or directors
of the Company. Paul Lubomirski, President of the Company's largest
subsidiary, Pride Aviation, Inc., owns 44,250 shares, or 3.4% of the shares
covered by this Prospectus Supplement. Charles Weed, a director of the
Company, owns or may acquire up to 44,455 shares, or 3.4% of the shares covered
by this Prospectus Supplement. Richard Morgan, a director of the Company, owns
or may acquire up to 100,000 shares, or 7.7% of the shares covered by this
Prospectus Supplement.
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time sell all or a portion
of their shares of Common Stock in the over-the-counter market or on any
national securities exchange or automated interdealer quotation system on which
the Common Stock may hereafter be listed or traded, in negotiated transactions
or otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. The methods by which the shares of
Common Stock may be sold include (i) a block trade (which may involve crosses)
in which the broker or dealer engaged will attempt to sell the shares of Common
Stock as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resales by such broker or dealer for its account pursuant to this
Prospectus Supplement and the accompanying Prospectus, (iii) ordinary brokerage
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<PAGE> 9
transactions and transactions in which the broker solicits purchasers or to or
through marketmakers, (iv) transactions in put or call options or other rights
(whether exchange-listed or otherwise) established after the effectiveness of
the Registration Statement of which this Prospectus is a part and (v) privately
negotiated transactions. In addition, any of the shares of Common Stock that
qualify for sale pursuant to Rule 144 under the Securities Act may be sold in
transactions complying with such Rule, rather than pursuant to this Prospectus
Supplement and the accompanying Prospectus. The ESOP may distribute its shares
to the ESOP's participants, based on the number of shares previously allocated
under the terms of the ESOP to the respective accounts of the participants.
In the case of sales of the shares of Common Stock effected to or
through broker-dealers, such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders or
the purchasers of the shares of Common Stock sold by or through such broker-
dealers, or both. The Company has advised the Selling Shareholders that the
anti-manipulative Regulation M under the Exchange Act may apply to their sales
in the market and has informed them of the need for delivery of copies of this
Prospectus Supplement and the accompanying Prospectus. The Company is not
aware as of the date of this Prospectus Supplement of any agreements between
any of the Selling Shareholders and any broker-dealers with respect to the sale
of the shares of Common Stock. The Selling Shareholders and any broker-dealers
or agents participating in the distribution of the Securities may be deemed to
be "underwriters" within the meaning of the Securities Act and any commissions
received by any such broker-dealers or agents and profit on any resale of
shares of Common Stock may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company will receive no part of the
proceeds from the sale of any of the shares of Common Stock by the Selling
Shareholders.
The Company will pay all costs and expenses incurred in connection
with the registration under the Securities Act of the shares of Common Stock
offered by the Selling Shareholders, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company. Each Selling
Shareholder will pay all brokerage fees and commissions, if any, incurred in
connection with the sale of the shares of Common Stock owned by the Selling
Shareholder. In addition, the Company has agreed to indemnify the Selling
Shareholders, other than the Trust, against certain liabilities, including
liabilities under the Securities Act.
There is no assurance that any of the Selling Shareholders will sell
any or all of the shares of Common Stock offered by them.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Bracewell & Patterson, L.L.P., Dallas, Texas.
-8-
<PAGE> 10
SUBJECT TO COMPLETION, DATED MAY 22, 1997
AVIATION GROUP, INC.
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Aviation Group, Inc. (the "Company") is hereby offering 1,000,000
shares of its common stock, par value $0.01 per share (the "Common Stock") and
redeemable warrants to purchase an additional 1,000,000 shares of Common Stock
(the "Warrants"). The Common Stock and the Warrants (collectively, the
"Securities") are being offered separately and not as units, and each are
separately transferable. It is currently estimated that the initial public
offering price will be between $7.00 and $9.00 per share of Common Stock and
$0.10 per Warrant. Each Warrant is immediately exercisable and entitles the
registered holder to purchase one share of Common Stock at an exercise price
equal to 120% of the initial public offering price and expires five years
following the date of this Prospectus. The outstanding Warrants may be redeemed
by the Company upon 30 days' written notice at $0.05 per Warrant, provided that
the closing bid quotations or sales prices of the Common Stock have averaged at
least 165% of the initial public offering price for a period of any 15
consecutive trading days ending on the tenth day prior to the day on which the
Company gives notice. See "Description of Securities."
Prior to this offering (the "Offering"), there has not been any public
market for the Securities, and there can be no assurance that any such market
will develop or, if developed, that it will be sustained. The initial public
offering prices of the Securities shall be determined by negotiations between
the Company and First London Securities Corporation, as the representative (the
"Representative") of the participating underwriters (the "Underwriters"). See
"Underwriting." Application has been made for approval of the Common Stock and
Warrants for quotation on the Nasdaq Stock Market's SmallCap Market ("Nasdaq")
and for listing on the Boston Stock Exchange (the "BSE"). The Securities will
not be listed for trading as units. In the event that the Common Stock or
Warrants are not accepted for quotation on Nasdaq or listing on the BSE, an
investor would likely find it difficult to dispose of the Common Stock or
Warrants or to obtain current quotations as to their value.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AS
WELL AS IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION,"
COMMENCING ON PAGES 6 AND 15, RESPECTIVELY.
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>
=====================================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Per Warrant . . . . . . . . . . . . . . . . $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3) . . . . . . . . . . . . . . . . . . $ $ $
=====================================================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance to the Representative
equal to 3% of the offering proceeds, including proceeds from
over-allotments, and 100,000 warrants (the "Representative's
Warrants") to purchase up to 100,000 shares of Common Stock and
100,000 Warrants (the "Underlying Warrants"). The Underlying Warrants
will be identical to the Warrants offered to the public except that
the exercise price of the Underlying Warrants will be 165% of the
exercise price of the Warrants. The Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 as amended, (the "Securities Act").
See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company
estimated at $540,000 including a non-accountable expense allowance of
$243,000.
(3) The Company has granted to the Underwriters the right to purchase,
within 45 days from the date of this Prospectus, up to 150,000
additional shares of Common Stock and 150,000 additional Warrants on
the terms set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public will be
$___________, the total Underwriting Discounts and Commissions will be
$__________, the total Proceeds to Company, before the expenses of
this offering, will be $__________. See "Underwriting."
The Common Stock and Warrants are being sold by the Underwriters
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right to reject any order, in whole or in
part, and subject to certain other conditions. It is expected that delivery of
the Common Stock and Warrants will be made against payment therefor at the
offices of First London Securities Corporation, Dallas, Texas, on or about ___,
1997.
FIRST LONDON SECURITIES CORPORATION
The date of this Prospectus is __________________, 1997.
<PAGE> 11
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 12
[Inside Front Cover]
AVIATION GROUP, INC.
Paint & Overhaul Services
[Color picture of two men in
protective clothing spray
painting underside of jet
aircraft wing] Professional aircraft painting
services performed by trained
personnel.
[Color picture of two Pride Aviation
plane hangars and two United Airlines
jet aircraft, one newly painted and
one surrounded by scaffolding with
old paint scheme, on ramp in front of
hangars]
The Company's FAA-certified
aircraft paint facility in
New Iberia, Louisiana [Color picture inside hanger
showing United Airlines jet
aircraft in process of being
painted]
The Company performs aircraft paint
services under a long-term contract
with United Airlines.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE> 13
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. Except as otherwise indicated, the information
contained in this Prospectus does not assume the exercise of the Warrants, the
Underwriters' over-allotment option, the Representative's Warrants or currently
outstanding options or warrants. This Prospectus assumes an initial price to
public of $8.00 per share. In addition to the other information in this
Prospectus, prospective investors should carefully consider the information set
forth under the heading "Risk Factors."
THE COMPANY
Aviation Group, Inc., a Texas corporation (the "Company"), is a
provider of services and products to airline companies and other aviation
firms. Although its primary market is the United States, the Company ultimately
aspires to compete in the global marketplace. In addition to growth of its
existing businesses, the Company seeks to grow via the acquisition of other
aviation service businesses that complement and strengthen the Company's
existing operations.
The Company was organized to consolidate the ownership of Tri-Star
Aircraft Services, Inc. ("TriStar Paint"), Tri-Star Airline Services, Inc.
("Airline Services") and Pride Aviation, Inc. ("Pride"). On December 20, 1995,
the Company acquired all the outstanding shares in TriStar Paint and Airline
Services in exchange for the issuance of 1,000,000 shares of Common Stock. On
March 1, 1996, in connection with the Company's acquisition of Pride, the
Company paid $486,000 cash and issued 10%, five-year Convertible Notes in the
aggregate principal amount of $857,000, and 100,250 shares of Common Stock.
The Company is currently organized into three divisions devoted to
Aviation Group's primary lines of business. These business segments are as
follows:
o Painting & Paint Stripping Services: The Overhaul & Service Division,
through TriStar Paint and Pride, provides painting and paint stripping
services for commercial and freight aircraft at their facilities
located in Dallas, Texas and New Iberia, Louisiana. Pride's primary
customer is United Airlines, Inc. TriStar Paint provides paint
services on a plane-by-plane bid basis to a variety of customers.
o Ground Handling & Services: Through Airline Services, the Ground
Handling & Services Division provides aircraft ground handling and
light catering services to a variety of passenger and freight airlines
at various airports, including DFW International, Los Angeles
International and San Francisco International, for customers such as
United Parcel Service, Southwest Airlines, United Airlines, Federal
Express and Northwest Airlines, among others.
o FBO Operations & Airport Management: In July 1996, the Company began
to operate its FBO Division. The Company's first fixed base operation,
located at Redbird Airport in Dallas, Texas provides fuel and light
maintenance services to general aviation, corporate and light freight
aircraft customers. There are presently over 1,700 operators of fixed
base operating stations ("FBO's") serving the United States. The
Company believes that acquiring or otherwise operating such businesses
in smaller, second-tier airports located near major urban areas across
the United States provides a significant opportunity.
The Company believes that airlines will increase the outsourcing of
their maintenance and service requirements to third party vendors in the
future. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budgets with outsourcing
vendors in 1994. There are over 10,000 aviation maintenance and service vendors
worldwide. The Company believes that the aviation service industry is highly
fragmented. It also believes that its existing operations, enhanced by
additional growth and acquisitions of complementary businesses, will enable it
to provide quality customer service with financial, insurance, and other
operating economies-of-scale that major customers increasingly require. The
Company does not presently intend to operate as a commercial airline or as a
provider of commercial jet engine or airframe overhaul services.
Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Company expects to consummate this transaction
concurrently with the closing of this offering. CAS is a full-service FBO
located in Casper, Wyoming and has been in business continuously since 1946.
For the nine months ended January 31, 1997, CAS had net sales of approximately
$6,570,000 and net income of $271,000.
The principal executive offices of the Company are located at 700
North Pearl Street, Suite 2170, Dallas, Texas 75201, telephone number (214)
922-8100.
3
<PAGE> 14
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered . . . . . 1,000,000 shares
Warrants Offered . . . . . . . 1,000,000 Warrants
Common Stock Outstanding:
Before Offering (1) . . . . 1,600,250 shares
After Offering (1) . . . . 2,600,250 shares
Warrants Offered . . . . . . . 1,000,000 Warrants
Exercise Terms . . . . . . . Each Warrant entitles the holder to purchase
one share of Common Stock for 120% of the
initial public offering price.
Expiration Date . . . . . . Five years from the date of this Prospectus.
Redemption . . . . . . . . . Subject to redemption at a price of $0.05 per
Warrant upon 30 days written notice, provided
that the average closing bid quotations or
sales prices of the Common Stock equal or
exceed 165% of the initial public offering
price for 15 consecutive trading days ending
on the tenth day prior to the date on which
the Company gives notice of redemption. See
"Description of Securities - Warrants."
Estimated Net Proceeds (2) . . $6,750,000
Use of Proceeds . . . . . . . . Repayment of indebtedness, the cash portion
of the CAS acquisition, capital expenditures
for existing operations, acquisition of other
aviation service companies, facilities
improvements, working capital and other
corporate purposes.
Risk Factors . . . . . . . . . The Securities involve a high degree of risk
and immediate substantial dilution. See "Risk
Factors" and "Dilution."
Proposed Nasdaq Symbols:
Common Stock . . . . . . . . AVGP
Warrants . . . . . . . . . . AVGPW
Proposed Boston Stock
Exchange Symbols:
Common Stock . . . . . . . . AVGP
Warrants . . . . . . . . . . AVGPW
</TABLE>
- --------------
(1) Excludes approximately 140,850 shares to be issued upon payoff of the
Bridge Notes and consummation of the CAS acquisition, 150,000 shares
of Common Stock reserved for the Company's 1997 Stock Option Plan and
shares of Common Stock issuable upon the exercise of (i) the Warrants
offered hereby; (ii) the Representative's Warrants and the Underlying
Warrants; (iii) outstanding warrants to purchase up to 280,000 shares
of Common Stock; (iv) the Underwriters' over-allotment option; and (v)
outstanding promissory notes totaling $1,260,000, as of March 31,
1997, that are convertible or exchangeable for up to 283,100 shares of
Common Stock.
(2) After deducting underwriting discounts and other expenses of this
Offering, including the Representative's non-accountable expense
allowance, but excluding any exercise of the Underwriters'
over-allotment option.
4
<PAGE> 15
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from (i)
the combining financial statements of TriStar Paint and Airline Services for
the fiscal years ended September 30, 1994 and 1995 and the notes thereto and
(ii) the consolidated financial statements for the Company as of and for the
nine months ended June 30, 1996, and the notes thereto, and the nine months
ended March 31, 1997 and 1996, contained elsewhere in the Prospectus. This
information should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
financial information included herein is presented for informational purposes
only and may not reflect the Company's future results of operations and
financial position or what the results of operations and financial position of
the Company would have been had the Pride and CAS acquisitions actually
occurred as of October 1, 1995.
<TABLE>
<CAPTION>
Actual Nine Pro Forma Pro Forma
Year Ended Year Ended Months Ended Nine Months Nine Months Nine Months Ended
September 30 September 30, June 30, Ended June 30 Ended March 31, March 31,
1994(1) 1995(1) 1996 1996(2) 1997(2) 1997 1996
----------- ------------ ------------ ------------- --------------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue . . . . . . . . . . . . $1,770,000 $2,533,000 $3,881,000 $11,290,000 $12,224,000 $6,664,000 $2,123,000
Gross profit . . . . . . . . . 678,000 1,116,000 1,043,000 2,289,000 2,753,000 2,067,000 683,000
General and administrative
and depreciation and
amortization expenses . . . . 466,000 569,000 906,000 1,824,000 2,733,000 2,411,000 644,000
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) from
operations . . . . . . . . . . 212,000 547,000 137,000 465,000 20,000 (344,000) 39,000
Interest expense and other,
net . . . . . . . . . . . . . 13,000 17,000 69,000 249,000 186,000 153,000 29,000
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) before income
taxes . . . . . . . . . . . . 199,000 530,000 68,000 216,000 (166,000) (497,000) 10,000
Provision (benefit) for
income taxes . . . . . . . . . 61,000 188,000 34,000 84,000 (35,000) (164,000) 6,000
---------- ---------- ---------- ----------- ----------- ---------- -------
Net income (loss) . . . . . . . $ 138,000 $ 342,000 $ 34,000 $ 132,000 $ (131,000) $ (333,000) $ 4,000
========== ========== ========== =========== =========== ========== =======
Pro forma net income (loss)
per common and common
equivalent share
(unaudited) (3) . . . . . . . $ 0.02 $ 0.08 $ (0.08) $ $(0.21)
========= =========== =========== ==========
Pro forma weighted average
common and common
equivalent shares
outstanding
(unaudited) (3) . . . . . . . $1,605,156 $1,714,781 $1,714,781 $1,605,156
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
------------------------------
June 30, Pro Forma
1996 Actual As Adjusted(4)
--------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) . . . . . . . . . . . $ (126,000) $ (729,000) $ 6,079,000
Total assets . . . . . . . . . . . . . . . . . 4,524,000 4,919,000 14,738,000
Long-term debt, net of current portion . . . . 1,350,000 1,303,000 2,286,000
Total liabilities . . . . . . . . . . . . . . . 3,069,000 3,547,000 5,949,000
Shareholders' equity . . . . . . . . . . . . . $1,455,000 $1,372,000 $ 8,789,000
</TABLE>
- ----------------------------
(1) Represents combined statements of operations for the Company's
predecessors, TriStar Paint and Airline Services.
(2) Represents the historical statement of operations for the nine month
periods ended June 30, 1996 and March 31, 1997, as adjusted on a pro
forma basis to give effect to the acquisitions of Pride and CAS as if
they had occurred at the beginning of those respective fiscal periods.
With respect to the CAS acquisition, the earnings per share
computation assumes 109,625 shares (i.e., an initial public offering
price of $8.00) are issued. See "Unaudited Pro Forma Combined
Financial Information."
(3) See Note B "Summary of Significant Accounting Policies--Unaudited Pro
Forma Net Income (Loss) Per Common Share" in the Notes to Consolidated
Financial Statements for the Company for the period ended June 30,
1996.
(4) Adjusted to give effect to the CAS acquisition and the sale by the
Company of the 1,000,000 shares of Common Stock and the 1,000,000
Warrants offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
5
<PAGE> 16
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating
the Company and its business before purchasing the Securities offered hereby.
DEPENDENCE ON ONE CUSTOMER
Pride's contract with United Airlines, Inc. ("United") to provide
aircraft stripping and painting services accounted for approximately 73% of the
Company's revenues for the nine months ended March 31, 1997. On a pro forma
basis including CAS, the contract with United would have accounted for 43% of
the Company's revenues for the nine months ended March 31, 1997. The contract
with United expires in 1999, but is cancelable prior to that date by United
upon 90 days prior written notice. The Company is negotiating with United to
extend the contract for an additional five years, but there can be no assurance
that such extension can be obtained on reasonable terms. During the high travel
seasons of the summer months and the Thanksgiving and Christmas holiday
seasons, United curtails its aircraft deliveries to Pride. Although Pride
reduces its overhead to some extent during these periods, it experiences losses
during these periods. If United expands these curtailments, the Company's
results of operations may be materially adversely affected. Although Pride is
attempting to locate additional customers for these slack periods, there can be
no assurance that Pride will be able to obtain these customers. While the
Company's business strategy calls for it to broaden its customer base so that
it can become less dependent on United, any termination of the contract or
material curtailment of plane deliveries by United, including reductions as a
result of economic or competitive pressures on United, would adversely affect
the Company's business, financial conditions and results of operation. There
can be no assurance that United will continue to use Pride's stripping and
painting services.
GENERAL CUSTOMER RISKS RELATED TO THE AIRLINE INDUSTRY
The airline industry is significantly affected by general economic
conditions. Because a substantial portion of business and personal airline
travel is discretionary, the industry tends to experience adverse financial
results during general economic downturns. Economic and competitive conditions
since deregulation of the airline industry in 1978 have contributed to a number
of bankruptcies and liquidations among airlines. A worsening of current
economic conditions, or an extended period of recession nationally or
regionally, could have a material adverse effect on the Company's operations.
The Company will not have any control over these general economic conditions.
SEASONALITY
The Company's painting business is seasonal, which can adversely
affect the Company's results of operations from quarter to quarter. Typically,
customers will have fewer aircraft painted during the summer months and the
holiday season from approximately November 15 through January 1 of each year.
RISK OF FUTURE LOSSES FROM OPERATIONS
TriStar Paint and Airline Services, the Company's predecessors,
together earned net income of $138,000 and $342,000 for the fiscal years ended
September 30, 1994 and 1995, respectively. Pride experienced a net loss of
$81,000 in its fiscal year ended September 30, 1995. Although the Company
earned net income of $34,000 for the nine months ended June 30, 1996, the
Company experienced a net loss of $333,000 for the nine months ended March 31,
1997. This loss was primarily due to increases in goodwill and amortization
from the Pride acquisition, start up costs in the Company's FBO division, and
increased corporate overhead incurred to support anticipated future growth. As
of March 31, 1997, the Company had a negative working capital of $729,000 and
an accumulated earnings deficit of $595,000. There can be no assurance that the
Company will be profitable or that the Company's businesses will be successful
in the future.
NO ASSURANCE OF SUCCESSFUL ACQUISITIONS; UNSPECIFIED ACQUISITIONS
The Company intends to consider acquisitions of other companies that
could complement the Company's existing business, including acquisitions of
complementary service and product lines. The Company intends to employ up to
$2,750,000, or 40.8%, of the estimated net proceeds of this Offering for
acquisitions that have not yet been identified. There can be no assurance that
suitable acquisition candidates can be identified, or that, if identified,
adequate and acceptable financing sources will be available to the Company that
would enable it to consummate these transactions. The Company is currently
evaluating a number of acquisition opportunities. Other than the agreement to
acquire CAS, no commitments
6
<PAGE> 17
or binding agreements have been entered into to date and accordingly no
assurance can be given that any of the acquisitions currently being considered
will be consummated. There can be no assurance that the Company will be able to
integrate successfully any acquired companies or service or product lines into
its existing operations, which could increase the Company's operating expenses
in the short-term and materially and adversely affect the Company's results of
operations. Moreover, any acquisition by the Company may result in potentially
dilutive issuances of equity securities, the incurrence of additional debt, and
amortization of expenses related to goodwill and intangible assets, all of
which could adversely affect the Company's profitability. Acquisitions involve
numerous risks, such as the diversion of the attention of the Company's
management from other business concerns, the entrance of the Company into
markets in which it has had no or only limited experience, and the potential
loss of key employees of the acquired company, all of which could have a
material adverse effect on the Company's business, financial condition, and
results of operations. See "Business--Acquisitions of Complimentary
Businesses."
RISKS OF CAS'S BUSINESS
CAS's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
propellers, avionics systems, accessories and engines serviced by CAS, aircraft
chartered by CAS or aircraft parts sold by CAS. CAS currently has in force
aviation products, premises and hangarkeepers insurance which the Company
believes provides coverage in amounts and on terms that are generally
consistent with industry practice. During the last five years, CAS has not
experienced any material product liability claims related to its products.
Between December 1992 and April 1994, CAS experienced three crashes of
its charter aircraft, two of which involved fatalities. In each case, the
National Transportation Safety Board, in its inspections, found no fault with
CAS. Since April 1994, CAS has had no crashes. The Company has determined that
it will discontinue CAS's charter operations after the acquisition of CAS, and
redirect the net proceeds from the sale of the charter aircraft to other
operations of CAS and the Company. Nevertheless, in the future, CAS may be
subject to material loss to the extent that a claim is made against CAS which
is not covered in whole or in part by insurance and for which any third party
indemnification is not possible. In addition, there can be no assurance that
insurance coverages will be maintained in the future at an acceptable cost.
CAS's inventory consists principally of new and remanufactured
aircraft parts held for sale to domestic and international customers. Before
any part may be installed in an aircraft, the part must meet certain standards
of condition established by the FAA or the equivalent regulatory agencies in
other countries. Parts must also be traceable to sources deemed acceptable by
such agencies. While the Company believes that all such regulations have been
met in the past, parts owned or acquired by CAS may not meet standards as they
change in the future, causing parts in CAS's inventory to be scrapped or
modified. Aircraft manufacturers may also develop new parts to be used in lieu
of parts already contained in CAS's inventory. As a consequence of these
factors, parts in CAS's inventory may fall in value.
DEPENDENCE ON ABILITY TO MANAGE GROWTH
The Company's ability to produce and market its services competitively
to the airline industry depends on its ability to implement and continually
expand its operational and financial systems, recruit sufficient qualified
employees and train, manage and motivate both current and new employees.
Failure to effectively manage the growth of the Company would have a material
adverse effect on the business of the Company.
ADDITIONAL FINANCING OR OFFERINGS
There can be no assurance that the proceeds from this offering and
cash flow from operations will be sufficient to enable the Company to implement
fully its business strategies. As a result, the Company may need to raise
additional funds through equity or debt financings. No assurance can be given
that such additional financings will be available on terms acceptable to the
Company, if at all. Further, any such financings may result in further dilution
to the Company's stock and higher interest expense and may not be on terms that
are favorable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
7
<PAGE> 18
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in large part, on the efforts
and abilities of its management team, including Lee Sanders, Paul Lubomirski
and Tony Ramsaroop. The loss of the services of any of these managers could
have a material adverse affect on the business of the Company. The Company has
employment agreements with Messrs. Sanders, Lubomirski and Ramsaroop. Mr.
Sanders is currently the beneficial owner of 62.5% of the Company's outstanding
Common Stock and will beneficially own 38.5% of the Company's outstanding
Common Stock immediately following the Offering. See "Principal Shareholders."
The successful implementation of the Company's business strategies depends on
the hiring and retention of additional management and other personnel. There
can be no assurance that the Company will be able to identify and attract
additional qualified management and other personnel when needed or that the
Company will be successful in retaining such additional management and
personnel if added. Moreover, there can be no assurance that the additional
costs associated with the hiring of additional personnel will not adversely
affect the Company's results of operations. See "Management." The Company is
the beneficiary of a $1,000,000 key man life insurance policy on Mr. Sanders.
EMPLOYEE COSTS
Although the Company believes that it will operate with lower
personnel costs than many established airline service providers, principally
due to lower base salaries and greater flexibility in the utilization of
personnel, there can be no assurance that the Company will continue to realize
these advantages for any extended period of time. None of the Company's
employees are represented by a labor union. If unionization of the Company's
employees occurs, the Company's costs could materially increase.
CONTROL BY EXISTING SHAREHOLDERS AND CERTAIN TRANSACTIONS
Upon the completion of this offering, the directors, officers, and
principal shareholders of the Company will beneficially own approximately 44.0%
of the Company's outstanding Common Stock. As a result, these persons will have
a significant influence on the affairs and management of the Company, as well
as on all matters requiring shareholder approval, including electing and
removing members of the Company's Board of Directors, causing the Company to
engage in transactions with affiliated entities, causing or restricting the
sale or merger of the Company, and changing the Company's dividend policy. Such
concentration of ownership and control could have the effect of delaying,
deferring, or preventing a change in control of the Company, even when such a
change of control would be in the best interest of the Company's other
shareholders. See "Management," "Principal Shareholders" and "Description of
Securities."
The Company currently has an employment agreement with Lee Sanders,
the Company's President and Chief Executive Officer, and consulting
arrangements with two of its directors, Richard Morgan and Charles Weed, . See
"Management-- Employment and Consulting Agreements." These arrangements with
the directors were entered into through arms-length negotiations prior to their
appointment as directors. The employment agreement with Mr. Sanders was not
negotiated on an arms-length basis but was entered into by the Company when he
was the sole beneficial owner of the Company. The Company believes that the
terms of each of the foregoing agreements are no less favorable to the Company
than those available from unaffiliated third parties. Although any future
amendments to these employment or consulting arrangements may involve conflicts
of interest, the Company intends to minimize them through requiring the
approval of the disinterested directors for any amendment. See
"Management--Executive Officers and Directors."
FUTURE PARTNERSHIP OR JOINT VENTURE LIABILITIES
In the future, the Company or a subsidiary may form partnerships or
joint ventures as a financing vehicle or to develop and/or manage new business
opportunities, including the raising of funds for such businesses. As a general
partner or joint venturer, the Company may be exposed to liability with respect
to claims asserted against such partnerships or ventures against which
liability the partnership or venture may have insufficient assets or insurance.
This liability could have a materially adverse effect on the Company.
COMPETITION
The airline services industry is highly competitive. Each of the
Company's subsidiaries is in direct competition with other companies. Although
TriStar Paint also serves as a subcontractor to several heavy maintenance
facilities for aircraft, most of these heavy maintenance facilities perform
aircraft stripping and painting services as an adjunct to their maintenance
8
<PAGE> 19
operations and, consequently, directly compete with the Company. In ground
handling and light catering services, the Company has numerous competitors. At
each major airport at which Airline Services provides such services, there are
numerous other companies providing similar services to other airlines and
competing directly with the Company. Because many of the Company's competitors
have greater resources than the Company, no guarantee or assurance can be given
that the Company will be able to compete successfully in providing its services
at a competitive but profitable price. See "Business--Competition."
ENVIRONMENTAL REGULATION; HAZARDOUS MATERIALS
The Company's operations are subject to a substantial amount of
government regulation. In particular, the Environmental Protection Agency
("EPA") and state and local regulatory authorities regulate, among other
things, emissions to air, discharges to water and the generation, use, storage,
transportation, treatment and disposal of the substances employed by the
Company in its aircraft stripping and painting operations. The Company's
facilities may require operating permits that are subject to revocation,
modification and renewal, violations of which may provide for substantial fines
and civil or criminal sanctions. The operation of any facility that handles
chemical substances entails risk of adverse environmental impact, including
exposure to such substances, and there can be no assurance that material costs
or liabilities will not be incurred to rectify any such damage. In addition,
potentially significant expenditures could be required in order to comply with
environmental, health and safety laws and regulations that may be adopted or
imposed in the future. See "Business--Regulation."
FAA REGULATIONS
The Federal Aviation Administration (the "FAA") regulates most of the
Company's business operations. The Company's stripping and painting business is
dependent upon continued compliance with the requirements of the FAA and
maintenance of the FAA's certifications of the Company's subsidiaries. These
certifications allow the Company's subsidiaries to perform their aircraft
stripping and painting services as well as other repair and maintenance
services at their facilities. CAS's operation, including charter aircraft,
parts sales and repair and maintenance operations, are subject to regulation by
the FAA and requires FAA's certificates. Loss of any necessary FAA
certifications could have a material adverse effect on the Company's operations
and financial condition. See "Business--Regulation."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
after completion of this offering or, if developed, that it will be sustained.
There can be no assurance that the market price of the Common Stock will not
decline below the initial offering price. The securities of many emerging
companies have experienced significant price and volume fluctuations that are,
at times, unrelated or disproportionate to the operating performance of such
companies. Such fluctuations may be the result of changes in conditions
affecting the economy in general, analysts' reports, general trends in the
industry, and other events or factors beyond the company's control. These
conditions may have a material adverse effect on the market price of the Common
Stock.
ARBITRARY OFFERING PRICE
The public offering price of the Common Stock and Warrants has been
determined by negotiation between the Company and the Representative. Among the
factors considered in such negotiations were prevailing market conditions, the
history and prospects of the Company, the present state of the Company's
development, the industry in which it competes, an assessment of the Company's
management, the market price for securities of comparable companies at the time
of the offering, and other factors deemed relevant. See "Underwriting."
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Articles of Incorporation authorize the Board of
Directors of the Company to issue "blank check" Preferred Stock, the relative
rights, powers, preferences, limitations, and restrictions of which may be
fixed or altered from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting, or other rights
that could adversely affect the voting power and other rights of the holders of
Common Stock. The Preferred Stock could be utilized, under certain
circumstances,
9
<PAGE> 20
as a method of discouraging, delaying, or preventing a change in control of the
Company that shareholders might consider to be in the Company's best interests.
Although the Company has no present intention of issuing any shares of
Preferred Stock, there can be no assurance that the Company will not do so in
the future. See "Description of Capital Stock-- Preferred Stock."
NO DIVIDENDS
Since its capitalization, the Company has paid no dividends on its
Common Stock. The Company does not presently intend to pay any dividends on its
Common Stock. Dividend payments in the future may only be made out of legally
available funds, and, if the Company experiences substantial losses, such funds
may not be available. See "Dividend Policy."
EFFECT OF REPRESENTATIVE'S WARRANTS
The Company has agreed to sell for nominal consideration to the
Representative or its designee warrants (the "Representative's Warrants") to
purchase (i) 10% of the number of shares of Common Stock sold in this offering
and (ii) warrants to purchase 10% of the number of shares of Common Stock sold
in this offering (the "Underlying Warrants"). The terms and conditions of the
Underlying Warrants are identical to those of the Warrants offered hereby,
except that the exercise price of the Underlying Warrants is 165% of the
exercise price of the Warrants. The Representative's Warrants will be
exercisable for a period of four years commencing one year after the date of
this Prospectus at an exercise price of 165% of the initial public offering
price. The Representative and its designees will have the opportunity to profit
from an increase in the price of the Company's Common Stock during the term of
the Representative's Warrants and are likely to exercise them at a time when
the Company, in all likelihood, would be able to obtain additional capital by
offering shares of its Common Stock on terms more favorable to the Company than
those provided by the exercise of such warrants. In addition, the existence of
such warrants may adversely affect the terms on which the Company can obtain
additional financing. See "Description of Securities" and "Underwriting."
LISTING AND MAINTENANCE CRITERIA FOR SECURITIES; PENNY STOCK RULES
Application has been made for quotation of the Common Stock and
Warrants on the Nasdaq Stock Market's SmallCap Market ("Nasdaq") and for
listing on the Boston Stock Exchange (the "BSE"). In the event that the Common
Stock or Warrants are not accepted for quotation on Nasdaq or for listing on
the BSE, an investor would likely find it difficult to dispose of the Common
Stock or Warrants or to obtain current quotations as to their value. There can
be no assurance that the Company in the future will meet the requirements for
continued listing on the Nasdaq or the BSE with respect to the Common Stock or
Warrants. If the Common Stock or the Warrants fail to maintain such listings,
the market value of the Common Stock and Warrant likely would decline and
purchasers in this offering likely would find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of, the Common Stock
and Warrants.
In addition, if the Company fails to maintain a Nasdaq listing for its
securities, and no other exclusion from the definition of a "penny stock" under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") is
available, then any broker engaging in a transaction in the Company's
securities would be required to provide any customer with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market values of the Company's
securities held in the customer's accounts. The bid and offer quotation and
compensation information must be provided prior to effecting the transaction
and must be contained on the customer's confirmation. If brokers become subject
to the "penny stock" rules when engaging in transactions in the Securities,
they would become less willing to engage in such transactions, thereby making
it more difficult for purchasers in this offering to dispose of the Securities.
See "Financial Statements."
DILUTION
Purchasers of the Securities will suffer immediate and significant
dilution in net tangible value of the Common Stock. Based on the net tangible
book value of the Company's Common Stock at March 31, 1997, purchasers of the
Securities would have suffered, on a pro forma basis, a per share dilution of
66.9% per share. The exercise of outstanding warrants, options and convertible
or exchangeable notes will also have an additional dilutive effect on the
interests of the purchasers of the Securities. See "Dilution."
10
<PAGE> 21
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this offering or the prospect of such sales could adversely
affect the market price of the Common Stock. Upon completion of this offering,
the CAS acquisition and the payoff of the Bridge Notes, the Company will have
outstanding approximately 2,741,095 shares of Common Stock. Of these shares,
the 1,000,000 shares of Common Stock being offered hereby are immediately
eligible for sale in the public market without restriction, except for shares
purchased at any time by any "affiliate" of the Company, as such term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the approximate 109,595 shares of Common Stock
to be issued to the former stockholders of CAS in the CAS acquisition have been
registered for resale and will not be restricted.
Two officers of the Company beneficially owning a total of 1,044,250
shares of Common Stock will sign lock-up agreements under which such holders
will agree not to offer, sell, or otherwise dispose of 90% of their shares of
Common Stock (939,825 shares) that might otherwise be eligible for sale for a
period of 24 months after the date of this Prospectus without the prior written
consent of the Representative. These officers, with respect to the remaining
10% of their shares of Common Stock (104,425 shares), and all remaining holders
of the Company's securities other than the Bridge Noteholders and the CAS
shareholders (owning 556,000 shares of Common Stock and outstanding warrants,
options or convertible or exchangeable notes exercisable for 612,658 shares of
Common Stock) will agree with the Representative to lock-up periods of six
months for all, and 12 months for 50%, of the shares of Common Stock that they
own or may acquire after the date of this Prospectus. The terms of the Bridge
Notes provide that the approximate 31,250 shares of Common Stock to be issued
upon full payment of the Bridge Notes may not be sold by the holder for one
year after the closing of this Offering, unless the consent of the
Representative is obtained. Upon the expiration of the lock-up agreements,
these shares will become eligible for sale in the public market assuming the
shares continue to be registered for sale by the selling securityholders or, if
not registered, subject to the provisions of Rule 144.
NECESSITY TO MAINTAIN CURRENT PROSPECTUS
The shares of Common Stock issuable upon exercise of the Warrants and
the securities issuable upon exercise of the Representative's Warrants have
been registered with the Commission. The Company will be required, from time to
time, to file post-effective amendments to its registration statement in order
to maintain a current prospectus covering the issuance of such shares upon
exercise of the Warrants. The Company has undertaken to make such filings and
to use its best efforts to cause such post-effective amendments to become
effective. If for any reason a required post-effective amendment is not filed
or does not become effective or is not maintained, the holders of the Warrants
may be prevented from exercising their Warrants. See "Description of
Securities--Warrants."
STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants have the right to exercise the Warrants only
if the underlying shares of Common Stock are qualified, registered or exempt
from registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. The Company has undertaken, however, (i) to
obtain a listing for the shares of Common Stock on the Boston Stock Exchange
which provides an exemption from state securities law registration in many
states and (ii) to register the shares of Common Stock in certain states where
this exemption is not available. See "Description of Securities--Warrants."
CALLABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the
then current market price when the holder might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants in the event of a call for redemption. Holders who do not exercise
their Warrants prior to redemption by the Company will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, the Company may not call the Warrants at any time that a
current registration statement under the Securities Act of 1933, as amended, is
not then in effect. Any redemption of the Warrants
11
<PAGE> 22
during the one-year period commencing on the date of this Prospectus shall
require the written consent of the Representative. See "Description of
Securities--Warrants."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus contains forward-looking statements including
statements regarding, among other items, the Company's business strategies,
continued growth in the Company's markets, and anticipated trends in the
Company's business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. Such forward-looking
statements are based upon the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control. Actual results could differ materially from such forward-looking
statements, as a result of the factors described under this "Risk Factors"
section and elsewhere herein, including among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no
assurance that any forward-looking information contained in this Prospectus
will in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares
of Common Stock and the 1,000,000 Warrants offered hereby are estimated to be
$6,750,000, after deducting underwriting discounts and commissions and
estimated offering expenses. The Company anticipates that the net proceeds of
this offering will be used substantially as follows:
<TABLE>
<CAPTION>
Percent of
Application of Net Proceeds Dollar Amount Net Proceeds
--------------------------- ------------- ------------
<S> <C> <C>
Repay indebtedness (1) $ 750,000 11.1%
Purchase of CAS and Related Costs (2) 1,350,000 20.0
Future acquisitions (3) 2,750,000 40.8
Enhance existing products and services (4) 750,000 11.1
Improve existing facilities (5) 250,000 3.7
Purchase of capital equipment (6) 250,000 3.7
General corporate purposes 650,000 9.6
---------- -----
Total $6,750,000 100.0%
========== =====
- -----------------------------
</TABLE>
(1) The Company intends to use approximately $500,000 of the net proceeds
to repay certain subordinated promissory notes privately issued by the
Company in February 1997 (the "Bridge Notes") and approximately
$250,000 of the net proceeds to repay certain bank indebtedness. The
Bridge Notes are due in full on June 30, 1998 or earlier in certain
circumstances, including within five days following the closing of
this Offering. Subject to successful completion of this Offering, in
connection with the full payment of the Bridge Notes, the Company has
agreed to issue to the holders of the Bridge Notes that number of
shares of Common Stock equal to the quotient of $250,000 divided by
the initial public offering price. The Company used the proceeds from
the issuance of the Bridge Notes for general corporate purposes and to
fund the costs of this Offering. The bank indebtedness is principally
composed of a revolving line of credit maturing in September 1997
having a principal balance of $243,000 as of March 31, 1997 and
bearing interest at prime plus 2%. This bank debt is secured by the
personal guaranty of Lee Sanders, the Company's Chief Executive
Officer, and a pledge of all of the stock, accounts receivable,
equipment and fixtures of TriStar Paint and Airline Services.
(2) These funds represent the cash portion of the purchase price of CAS,
and approximately $300,000 in legal, accounting, and other purchase
expenses. See "Acquisition of Casper Air Service."
(3) A key element of the Company's strategy involves growth through
acquisitions of other companies, assets or product lines that would
complement or expand the Company's existing business similar to the
CAS acquisition. The Company believes that acquisitions will enable
it to leverage its fixed costs of operations and further expand the
products and services which it can offer to its customers. No
commitments or binding agreements have been entered into as of the
date of this Prospectus and accordingly no assurance can be given that
any of the acquisitions currently being considered will be
consummated.
12
<PAGE> 23
(4) The Company intends to utilize approximately $750,000 of the proceeds
of this offering to fund anticipated internal growth in its
businesses, particularly the Ground Handling & Services Division. Such
funds will facilitate the entry into additional airports, the hiring
and training of additional support and operating personnel, and the
creation and implementation of formal national marketing and customer
service programs.
(5) These funds will be used primarily to improve and update existing
hangar facilities where the Company's Overhaul & Service Division
performs its paint services. Additionally, leasehold improvements
associated with expanded office and managerial space for the Ground
Handling & Services Division will also be funded with these proceeds.
(6) These funds will be utilized to purchase ground handling and other
support equipment for the Ground Handling & Services Division, along
with additional paint, scaffolding, environmental, and other support
equipment for the Overhaul & Services Division. Ongoing improvements
and additions to the Company's computerized accounting and management
systems will also be funded with these proceeds.
Pending the uses described herein, the foregoing represent the
Company's present intentions with respect to the allocation of the proceeds of
this offering based upon its present plans and business conditions. However,
changed business conditions and various other factors could result in the
application of the proceeds of this offering in a manner other than as
described in this Prospectus. In this regard, although the Company is not
currently a party to any binding agreement or commitment with respect to any
prospective acquisition, other than the CAS acquisition, the Company intends to
use portions of the net proceeds to finance acquisitions of complementary
businesses, products or technologies, or other assets, if attractive
opportunities arise. See "Risk Factors." Pending such uses, the Company intends
to invest the net proceeds of the offering in short-term bank deposits or
investment-grade securities.
13
<PAGE> 24
ACQUISITION OF CASPER AIR SERVICE, INC.
Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Company expects to consummate this transaction
concurrently with the closing of this offering. The Company has agreed to pay
or issue to CAS's four shareholders approximately $1,173,000 in cash and
approximately $877,000 in value of Common Stock, based on the initial public
offering price. The recipients of shares of the Common Stock may receive
additional cash consideration to the extent the fair market value of their
shares declines prior to the date their shares are free of transfer
restrictions or, for one shareholder that is CAS's` Employee Stock Ownership
Plan and Trust (the "ESOP"), the date the ESOP receives a qualifying letter
from the Internal Revenue Service, if later. In connection with this offering,
the Company has registered these shares for resale by the recipients, and no
transfer restrictions will be imposed through any lock-up agreement with the
Representative. The controlling stockholder of CAS, Fred Werner, will agree to
serve as a consultant for 12 months for a fee of $6,000 per month for the first
six months and $4,000 per month for the last six months.
CAS is a full service FBO located at Natrona County International
Airport in Casper, Wyoming and has been in business continuously since 1946.
CAS offers aircraft line services, aircraft repair and maintenance, parts
distribution, aircraft charter flights and aircraft sales. CAS has been a
Cessna dealer since 1969. Far fewer new aircraft are being manufactured in the
1990's than in prior decades. Consequently, new aircraft sales in general and
by CAS have been depressed.
The aircraft line services offered by CAS include aircraft refueling,
de-icing, cleaning and heating, and weather information, refreshments, lounge
areas and ground transportation for pilots and passengers. CAS's FAA certified
service department provides maintenance and overhaul services for (i) both
piston and turbo-charged aircraft engines, including Pratt & Whitney,
Gulfstream Aerospace Commander, Bell Helicopter 206 Series, Garrett AiResearch,
Piper and Cessna engines, (ii) propellers, including those made by McCauley,
Hartzell, Dowdy, Sensanich and Kelvan, (iii) accessories, including aircraft
alternators, starters, turbo controllers, waste gates and magnetos, and (iv)
avionics systems. The engine maintenance operation began in 1965, while the
propeller, accessory and avionics overhaul operations were commenced in 1980,
1988 and 1993, respectively.
The parts department of CAS sells to customers located outside the
United States and outside the Rocky Mountain region as well as in connection
with its service operations. CAS is the fourth largest wholesaler of Cessna
parts in the United States. CAS tracks all orders, parts, inventory and
shipments through its automated inventory management system. Manufacturers of
the parts sold by the Company include Cessna, Gulfstream, Piper and Garrett
AiResearch, and these manufacturers regularly audit CAS's inventory to make
sure it has the parts needed to be designated as a service center for the
manufacturer's products.
CAS has offered charter flights since its inception in 1946. After not
having a fatal air crash between 1952 and 1992, CAS had two fatal crashes, and
a third non-fatal crash, between December 1992 and April 1994 of its chartered
aircraft. The National Transportation Safety Board, in its inspections, found
no fault with CAS. The Company has determined to discontinue the charter
operations of CAS following the acquisition. Charter revenues declined from
$2,714,000 in the fiscal year ended April 30, 1992 to $983,000 for the fiscal
year ended April 30, 1996.
At and for the fiscal year ended April 30, 1996, CAS had total assets
of $4,650,000, total liabilities of $4,092,000, net sales of $6,915,000 and net
loss of $226,000. At and for the nine months ended January 31, 1997, CAS had
total assets of $3,620,000, total liabilities of $2,788,000, net sales of
$6,570,000 and net income of $271,000. See "Unaudited Pro Forma Combined
Financial Information" for the revenue and income impact of the elimination of
CAS's aircraft charter operations for the twelve months and nine months ended
April 30, 1996 and January 31, 1997, respectively.
14
<PAGE> 25
DILUTION
Dilution is determined by subtracting net tangible book value per
share after the offering from the amount of cash paid by investors for the
shares of Common Stock. Net tangible book value per share represents the book
value of the Company's total tangible assets less total liabilities, divided by
the number of outstanding shares of Common Stock.
The net tangible book value of the Common Stock at March 31, 1997, was
approximately $169,000, or $0.11 per share. After giving effect to the sale of
the 1,000,000 shares of Common Stock offered hereby (at the assumed initial
public offering price of $8.00 per share, and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the application of the net proceeds therefrom, and assuming no
other changes in the net tangible book value after March 31, 1997, the
Company's pro forma net tangible book value at March 31, 1997 would have been
approximately $6,975,000, or $2.65 per share. This represents an immediate
increase in pro forma net tangible book value of $2.54 per share to existing
shareholders and an immediate decrease in pro forma net tangible book value to
new investors of $5.35 per share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share . . . . . . . . . . . . . $8.00
Net tangible book value per share at March 31, 1997 . . . . . . . . . $0.11
Increase per share attributable to new investors . . . . . . . . . . . 2.54
Pro forma net tangible book value per share after this offering . . . . . 2.65
-----
Dilution per share to new investors . . . . . . . . . . . . . . . . . . . $5.35
=====
Percentage dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.9%
=====
</TABLE>
The following table sets forth, as of March 31, 1997, the differences
between the existing shareholders, the investors in this offering, holders of
outstanding warrants or convertible or exchangeable notes and the recipients of
shares in the CAS acquisition with respect to the total consideration paid or
payable and the average price per share paid or payable:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration (6) Average
---------------------- ------------------------ Price
Number Percent Amount Percent Per Share
---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders (1) . . . . . . . . . 1,631,500 49.4% $2,052,000 16.3% $1.26
New investors (2) . . . . . . . . . . . . . 1,000,000 30.3 8,000,000 63.5 8.00
Exercise of outstanding
warrants (3) . . . . . . . . . . . . . . 280,000 8.5 400,000 3.2 1.43
Exercise of outstanding convertible . . .
or exchangeable notes (4) . . . . . . . . 283,100 8.5 1,260,000 10.0 4.45
Issuable in CAS acquisition (5) . . . . . 109,600 3.3 877,000 7.0 8.00
--------- ----- ----------- ----- ------
Total 3,304,200 100.0% $12,589,000 100.0% $ 3.81
========= ===== =========== ===== ======
- -------------------------
</TABLE>
(1) Includes 31,250 shares to be issued to holders of the Bridge Notes,
assuming an initial public offering price of $8.00 per share.
(2) Assumes that the Warrants offered hereby, the Representative's
Warrants and the Underlying Warrants are not exercised.
(3) Includes (i) 200,000 shares of Common Stock issuable upon exercise of
warrants at an exercise price of $1.00 per share and (ii) 80,000
shares of Common Stock issuable upon exercise of warrants at an
exercise price of $2.50 per share.
(4) Includes (i) 190,500 shares of Common Stock issuable upon conversion
of convertible notes having an aggregate principal balance of $857,000
at a conversion rate of $4.50 per share, (ii) 83,600 shares of Common
Stock issuable upon exchange of an exchangeable note having an
aggregate principal balance of approximately $376,000 at
15
<PAGE> 26
March 31, 1997 at an exchange rate of $4.50 per share and (iii)
9,000 shares of Common Stock issuable upon conversion of a convertible
note having an aggregate principal balance of $27,000 at a conversion
rate of $3.00 per share.
(5) Represents the portion of the CAS purchase price to be delivered in
the form of the Company's Common Stock, assuming an initial public
offering price of $8.00 per share. See "Acquisition of Casper Air
Service."
(6) These amounts reflect total consideration paid by securityholders and
do not reflect net amounts received by the Company.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on the
Common Stock and does not intend to pay cash dividends in the foreseeable
future. It is the current policy of the Company's Board of Directors to retain
any earnings to finance the operations of the Company's business.
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the
Company at March 31, 1997, and (ii) the pro forma capitalization of the Company
as adjusted to give effect to the CAS acquisition and the sale of the 1,000,000
shares of Common Stock and 1,000,000 Warrants offered hereby (assuming no
exercise of the Underwriter's over-allotment option) based on an assumed
initial public offering price of $8.00 per share and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with information contained under the caption "Unaudited Pro Forma
Combined Financial Information" and the financial statements and notes thereto
of each of the Company and CAS included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997 (Unaudited)
----------------------------------
Pro Forma
Actual as Adjusted
------ -----------
<S> <C> <C>
Short-term debt (line of credit and current portion of
long-term debt) . . . . . . . . . . . . . . . . . . . . . . $ 747,000 $ 538,000
========== ===========
Long-term debt, net of current portion . . . . . . . . . . . . . $1,303,000 $ 2,286,000
---------- -----------
Shareholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . -- --
Common Stock, $0.01 par value; 10,000,000 shares authorized;
1,600,250 issued and outstanding, actual; 2,741,125 issued
and outstanding, pro forma, as adjusted (1) . . . . . . . . 16,000 27,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 1,951,000 9,567,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (595,000) (805,000)
---------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 1,372,000 8,789,000
---------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $2,675,000 $11,075,000
========== ===========
</TABLE>
- -------------------------
(1) Excludes 150,000 shares reserved for issuance under the Company's 1997
Stock Option Plan and shares of Common Stock issuable upon the exercise
of (i) the 1,000,000 Warrants offered hereby; (ii) the Representative's
Warrants and Underlying Warrants; (iii) outstanding warrants to
purchase up to 280,000 shares of Common Stock; (iv) the Underwriters'
over-allotment option; and (v) outstanding promissory notes that are
convertible or exchangeable for up to 283,100 shares of Common Stock,
as of March 31, 1997. See "Description of Securities" and
"Underwriting."
16
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its three operating divisions, offers a broad
range of services to the aviation industry. The Company ultimately plans to
capture a larger market share of the services being outsourced by the airline
and corporate aircraft industry, including but not limited to, painting airline
and corporate aircraft, corrosion cleaning, ground handling services, light
catering, fueling, airport security and passenger service. The Company plans to
grow through mergers, acquisitions and internal growth.
On March 1, 1996, in connection with the Company's acquisition of
Pride, the Company paid $486,000 in cash and issued $857,000 in 10% five-year
Convertible Notes and 100,250 shares of Common Stock. Because the transaction
was accounted for as a purchase, the results of operations of Pride are
included in the accompanying financial statements beginning on the March 1,
1996 acquisition date. (See "Unaudited Pro Forma Combined Financial
Information" for summary pro forma financial results assuming Pride and CAS
were part of the Company's operations beginning October 1, 1995.)
SEASONALITY AND VARIABILITY OF RESULTS
The Company's Overhaul and Service Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues in the Company's third and fourth fiscal quarters and slower
sales in the Company's first and second fiscal quarters. The Company's painting
revenues are adversely affected during the airlines' peak traffic seasons of
the summer months and the November and December holidays. Currently, a
significant percentage of the Company's revenue is generated by the Overhaul
and Service Division. Management, therefore, is required to plan cash flow
accordingly.
RESULTS OF OPERATIONS
The following table sets forth a summary of changes in the major
categories, presented by division, of revenues, costs of goods sold and
operating expenses from each of the previous period's results. These historical
results are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
Nine Months Ended
Nine Months Year March 31,
Ended Ended --------------------------
June 30, 1996 September 30, 1995 1997 1996
------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
OVERHAUL & SERVICE DIVISION(1):
Net revenues $ 3,395,000 $ 1,766,000 $5,576,000 $ 1,671,000
Cost of revenue (2,479,000) (1,061,000) (3,870,000) (1,140,000)
Operating and other expenses, net(4) (622,000) (211,000) (1,759,000) (380,000)
Interest income 2,000 0 0 2,000
Interest expense (39,000) (20,000) (50,000) (24,000)
----------- ----------- ----------- -----------
$ 257,000 $ 474,000 $ (103,000) $ 129,000
=========== =========== =========== ===========
Pre-tax income (loss)
GROUND HANDLING & SERVICES
DIVISION(2):
Net revenues $ 486,000 $ 767,000 $ 726,000 $ 452,000
Cost of revenue (359,000) (356,000) (379,000) (300,000)
Operating and other expenses, net (141,000) (152,000) (213,000) (102,000)
Interest income 0 0 0 0
Interest expense (1,000) 0 0 (1,000)
------------ ----------- ----------- -----------
Pre-tax income (loss) $ (15,000) $ 259,000 $ 134,000 $ 49,000
============ =========== =========== ===========
</TABLE>
17
<PAGE> 28
<TABLE>
<CAPTION>
Nine Months Ended
Nine Months Year March 31,
Ended Ended ----------------------------
June 30, 1996 September 30, 1995 1997 1996
------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
FBO OPERATIONS & AIRPORT
MANAGEMENT(3):
Net revenues See (3) below See (3) below $ 362,000 See (3) below
Cost of revenue (348,000)
Operating and other expenses, net (118,000)
Interest income 0
Interest expense (loss) 0
-----------
Pre-tax income (loss) $ (104,000)
===========
AVIATION GROUP - CORPORATE
OVERHEAD(5):
Operating and other expenses, net $ (143,000) $ (203,000) $ (321,000) $ (160,000)
Interest expense (31,000) 0 (103,000) (8,000)
----------- ----------- ----------- ------------
Pre-tax income (loss) $ (174,000) $ (203,000) $ (424,000) $ (168,000)
=========== =========== =========== ============
TOTAL COMPANY:
Net revenues $ 3,881,000 $ 2,533,000 $ 6,664,000 $ 2,123,000
Cost of revenue (2,838,000) (1,417,000) (4,597,000) (1,440,000)
Operating and other expenses, net (906,000) (566,000) (2,411,000) (642,000)
Interest income 2,000 0 0 2,000
Interest expense (71,000) (20,000) (153,000) (33,000)
----------- ----------- ----------- ------------
Pre-tax income (loss) $ 68,000 $ 530,000 $ (497,000) $ 10,000
=========== =========== =========== ============
</TABLE>
- -----------------------
(1) Overhaul & Service Division includes the operating results of TriStar
Paint only for the year ended September 30, 1995. The Company's
acquisition of Pride occured on March 1, 1996. Accordingly, both
TriStar Paint and Pride operating results are included for the nine
months ended June 30, 1996 (including Pride operating results from
March 1, 1996 through June 30, 1996), and the nine months ended March
31, 1997.
(2) Ground Handling & Services Division represent the operating results
for all periods summarized of Airline Services, the Company's sole
existing subsidiary in this division.
(3) The Company's FBO Operations & Airport Management division was started
and began operations in July 1996. Accordingly, operating results for
this division are included herein for the nine months ended March 31,
1997 only.
(4) Includes goodwill and other related amortization expenses of $85,000
and $184,000 associated with the acquisition of Pride for the nine
months ended June 30, 1996 and the nine months ended March 31, 1997,
respectively.
(5) Includes operating expenses of the executive officers of the Company
and other indirect expenses not directly attributable to the
operations of the divisions.
Overhaul & Service Division
Net revenues consist primarily of gross revenues from stripping and
painting and other aircraft coating services to major passenger and freight
airlines and corporate aircraft. The Company also contracts with various heavy
maintenance bases throughout the United States to provide corrosion prevention
programs and light maintenance for aircraft undergoing heavy maintenance work
at these bases. Costs of revenues consist largely of direct and indirect labor,
direct material and supplies, insurance and other indirect costs applicable to
the completion of each contract. Operating expenses consist of all general and
administrative and operating costs not included in costs of sales, including
but not limited to facilities rent, indirect labor and other overhaul costs.
18
<PAGE> 29
This division of the Company has two locations, one at Acadiana
Regional Airport in New Iberia, Louisiana (Pride) and a second facility at
Redbird Airport in Dallas, Texas (TriStar Paint).
Ground Handling & Service Division
Net revenues consist primarily of gross revenues from a variety of
support services including aircraft interior cleaning, exterior washes,
lavatory and water services and light catering. Costs of revenues consist
largely of direct and indirect labor, direct material and supplies, and other
indirect costs. Operating expenses consist of all general and administrative
and operating costs not included in costs of sales.
Airline Services has had operations at Dallas-Fort Worth International
Airport since 1990, Dallas Love Field airport since 1986, San Francisco
International Airport since 1995 and Gulfport Biloxi Regional Airport since
1994. Additionally, the Company has recently executed new ground service
contracts with customers under which it has established operations in the Los
Angeles International Airport, Oakland Airport, and Kansas City Airport. See
"Business--Ground Handling & Service Division."
FBO Operations & Airport Management
The Company commenced its FBO operations in July 1996, upon the
commencement of business at its initial FBO site located at Redbird Airport in
Dallas, Texas. This division generates revenues from the sale of aviation fuel
and other services provided to general aviation customers located at the
Redbird Airport facility. Costs associated with this activity include primarily
fuel, facility rent, and direct labor. The Company initiated these operations
at its existing Dallas location with the intent to profitably operate the
business, but also to allow it to assemble its financial and managerial
resources to begin its acquisition activities in this division. The Company has
also entered into an agreement to acquire CAS, which operates an FBO in Casper,
Wyoming. See "Acquisition of Casper Air Service" and "Business--FBO & Airport
Management Division."
Aviation Group - Corporate Overhead
Operating expenses consist of all general and administrative and
operating costs to provide management to the Company's divisions, to support
expected growth, and to seek acquisition targets, not directly attributable to
the divisions' operations.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
The Company's net revenue increased by $4,541,000, or 214%, for the
nine months ended March 31, 1997 compared to the nine months ended March 31,
1996. This increase in revenue resulted primarily from the acquisition of
Pride, which contributed net revenue totaling $5,266,000 for 1997 compared to
$767,000 for 1996.
Revenues from the Ground Handling & Services Division increased 61% to
$726,000 from $452,000 for the comparable nine months periods ended March 31,
1997 and 1996. This increase is attributable to increases in business with
existing customers and the addition of additional customers at the airports
served by the Company. No growth during these periods resulted from the
addition of new airport locations.
In July 1996, the Company began its FBO Operations with the opening of
its initial location at the Redbird Airport in Dallas, Texas. This facility
generates its revenues from the sale of aviation fuel and other general
services provided to general aviation customers based at, and flying into, the
Redbird Airport. Since inception, the Company has adjusted its fuel sales
prices to reflect increases and decreases of fuel prices, which represents its
largest operating cost. Competitive factors could, however, limit the Company's
ability to pass on significant fuel price increases, should such increases
occur. This operation continues in the start-up phase, incurring costs
implemented in anticipation of future internal and external growth. Such
expenditures should dissipate in the future.
The Company's costs of sales increased by $3,157,000 to $4,597,000 for
the nine months ended March 31, 1997 from $1,440,000 for the nine months ended
March 31, 1996. This increase in costs of sales resulted primarily from the
acquisition of Pride.
19
<PAGE> 30
The Company's operating expenses increased by $1,770,000 from
$2,411,000 for the nine months ended March 31, 1997 compared to $642,000 for
the nine months ended March 31, 1996. This increase in operating expenses
resulted primarily from the acquisition of Pride and management's merger and
acquisition search program. The Company has postured itself with management,
consultants, and systems to expand internally and through acquisitions. The
operating expenses generated by these efforts are reflected in Corporate
Overhead.
The Company's interest expense has increased primarily from the
acquisition of Pride and the sale of the Bridge Notes. For the nine months
ended March 31, 1997, interest expense increased by $120,000 from debt assumed
from Pride, from convertible notes executed to acquire the Pride stock and from
the Bridge Notes.
The difference in Company pre-tax income of $507,000 for the
comparable nine month periods ended March 31, 1997 and 1996 resulted largely
from increases in corporate overhead of $161,000, losses associated with the
Company's start- up of its FBO operating division of $104,000, increase in
interest expense of $120,000, and goodwill and other amortization of $184,000
relating to the Company's acquisition of Pride.
NINE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995
The Company changed its fiscal year end from September 30 to June 30
during 1996.
The Company purchased the stock of Pride on March 1, 1996, in a
transaction accounted for as a purchase. The results of operations of Pride are
included in the accompanying financial statements beginning March 1, 1996, and
accordingly, include only four months of operations for the Company's nine
month period ended June 30, 1996. Therefore, when comparing fiscal years 1996
and 1995, the financial information includes different operating entities.
The Company's net revenue increased by $1,348,000, or 153%, for the
nine months ended June 30, 1996 compared to the year ended September 30, 1995.
This increase in revenue resulted primarily from the acquisition of Pride,
which contributed net revenue totaling $2,520,000 for 1996 compared to $0 for
1995.
Revenues from Ground Handling for the nine month period ending June
30, 1996 are comparable on a pro-rated basis to the twelve month period ending
September 30, 1995. Gross margins decreased during the period, however, to 26%
in fiscal 1996 from 53% in fiscal 1995. This decrease is attributable to the
loss of a significant charter airline customer during the period whose contract
generated significant gross profits for Airline Services during the fiscal 1995
year. No revenue or operating cost changes during these periods were the result
of adding new airport locations.
The Company's costs of revenues increased by $1,421,000, to $2,838,000
for the nine months ended June 30, 1996 from $1,417,000 for the year ended
September 30, 1995. This increase in costs of revenues resulted primarily from
the acquisition of Pride. Cost of revenues also increased as a percentage,
relative to net revenue, to 73%, for the fiscal year ended June 30, 1996 from
56% for the fiscal year ended September 30, 1995. Pride, which has a multi-year
paint contract with United Airlines, earns lower gross margins than TriStar
Paint, which performs its services on a higher- margin, less predictable basis.
The Company's operating expenses increased by $340,000 to $906,000 for
the nine months ended June 30, 1996 from $566,000 for the year ended September
30, 1995. This increase in operating expenses resulted primarily from the
acquisition of Pride. The operating expenses generated by Aviation Group are
largely reflective of its acquisition efforts.
The Company's interest expense has increased primarily from the
acquisition of Pride. Interest expense increased by $51,000 from debt assumed
from Pride and from convertible notes executed to acquire the Pride stock.
FINANCIAL CONDITION AND LIQUIDITY
Prior to January 1996, the Company financed its operations and capital
expenditures from a combination of cash generated from operations, bank loans,
leases and invested capital from the sole shareholder. In January 1996, the
Company commenced a private placement, generating net proceeds approximating
$1.2 million, to acquire the stock of Pride and for general working capital
purposes.
20
<PAGE> 31
Exclusive of the Pride acquisition, the Company made capital
expenditures during the fiscal nine months ended June 30, 1996 and nine months
ended March 31, 1997 of $12,000 and $335,000, respectively. The majority of
capital expenditures incurred during the aforementioned periods relate to
equipment purchases to enhance the existing operating facilities and
computerized systems.
As part of its growth strategy, the Company intends to pursue
acquisitions of related aviation businesses. Management believes financing for
such acquisitions will be provided from operations, bank financing and through
additional security offerings. See "Acquisition of Casper Air Service."
In February 1997, the Company completed a private offering of $500,000
of its 10% Bridge Note. The proceeds of this offering were used to fund the
costs of the Company's initial public offering, and for general working capital
and operating purposes. If the Company successfully completes this Offering by
September 30, 1997, the terms of these notes requires the Company to issue to
the holders that number of shares of Common Stock which equals $250,000 divided
by the initial public offering price. Accordingly, $250,000 of the proceeds has
been allocated to equity and credited to paid in capital and the notes payable
were recorded at a discounted amount of $250,000. The discount will be
amortized to interest expense over the shorter of the period through September
30, 1997 or the consummation date of the Offering. Unamortized discount at
March 31, 1997 totaled $210,000.
The Company intends to raise net proceeds from this offering
approximating $6.8 million. The proceeds will be used to repay the 10% Bridge
Notes, fund the cash portion of the CAS acquisition, the repayment of certain
indebtedness, capital expenditures for existing operations, facilities
improvements, acquisition of other aviation services companies and general
working capital for operations and other corporate purposes. The Company's
capital structure will be improved significantly as a result of completing this
offering. See "Use of Proceeds" and "Capitalization."
Pursuant to the existing United Airlines contract, the Company has a
commitment for a total of $18 million of scheduled aircraft painting and
stripping work through 1999. This commitment is subject to the risks outlined
in "Risk Factors--Dependence on One Customer."
The Company believes that funds available under its existing credit
line and bank financing, together with cash generated from operations will be
adequate for its anticipated cash needs. Management feels the proceeds from the
offering will allow it to experience accelerated growth both internally and
through well planned acquisitions of aviation services companies.
21
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma
Consolidated Statements of Operations for the fiscal year (nine months) ended
June 30, 1996, and the nine month interim period ended March 31, 1997, and the
Company's Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1997, in
each case giving effect to: (i) the acquisition in March 1996 of Pride, (ii)
the CAS acquisition to be closed concurrently with the closing of this
Offering, and (iii) this Offering and the application of the net proceeds
therefrom. Both the Pride and CAS acquisitions are accounted for using the
purchase method of accounting.
The Company's Unaudited Pro Forma Consolidated Statements of
Operations present such events in each case, as if each had been consummated at
the beginning and operated throughout the periods presented. The Company's
Unaudited Pro Forma Consolidated Balance Sheet presents the CAS acquisition as
if it had been consummated on March 31, 1997. Pride was a consolidated
subsidiary of the Company at March 31, 1997, and is accordingly included in the
Company's actual balance sheet for that period. The pro forma adjustments
relating to the allocation of the purchase price of CAS represent the Company's
preliminary determinations of the purchase accounting and other adjustments and
are based upon available information and certain assumptions the Company
considers reasonable under the circumstances. Final amounts could differ from
those set forth therein.
The Unaudited Pro Forma Consolidated Financial Information of the
Company is presented for illustrative purposes only and does not purport to
present the financial position or results of operations of the Company had the
Pride and CAS acquisitions and the Offering occurred on the dates indicated,
nor are they necessarily indicative of the results of operations which may be
expected to occur in the future.
The following unaudited pro forma consolidated financial information
should be read in connection with the more detailed information, including the
financial statements and notes thereto included elsewhere in this Prospectus.
22
<PAGE> 33
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FISCAL YEAR (NINE MONTHS)
ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Pride Aviation
Fiscal Year Operations Casper Air Service Fiscal Year
(Nine Months) Five Months Operations for the (Nine Months)
Ended Ended Nine Months Ended
June 30, 1996 February 29, Ended April 30, Adjust- June 30, 1996
Actual 1996 1996(7) ments(1) Proforma
------------- -------------- ------------------ -------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $3,881,000 $2,874,000 $5,252,000 $(717,000) $11,290,000
Cost of revenue 2,838,000 2,117,000 4,688,000 (642,000) 9,001,000
---------- ---------- ---------- --------- -----------
Gross profit 1,043,000 757,000 564,000 (75,000) 2,289,000
---------- ---------- ---------- --------- -----------
General and administrative expenses 752,000 466,000 368,000 (172,000)(2) 1,414,000
Depreciation and amortization 154,000 60,000 164,000 32,000 (3) 410,000
---------- ---------- ---------- --------- -----------
906,000 526,000 532,000 (140,000) 1,824,000
---------- ---------- ---------- --------- -----------
Income (loss) from operations 137,000 231,000 32,000 65,000 465,000
---------- ---------- ---------- --------- -----------
Other income (expenses)
Interest income 2,000 -- 24,000 -- 26,000
Interest expense (71,000) (58,000) (165,000) 22,000 (4) (272,000)
Other, net -- 22,000 (21,000) (4,000) (3,000)
---------- ---------- ---------- --------- -----------
(69,000) (36,000) (162,000) 18,000 (249,000)
---------- ---------- ---------- --------- -----------
Income (loss) before provision
for income taxes 68,000 195,000 (130,000) 83,000 216,000
Provision for income taxes 34,000 -- -- 50,000 (6) 84,000
---------- ---------- ---------- --------- -----------
Net income (loss) $ 34,000 $ 195,000 $ (130,000) $ 33,000 $ 132,000
========== ========== ========== ========= ===========
Pro forma net income (loss) per
common and common equivalent
share (unaudited) $ 0.02 $ 0.08
========== ===========
Pro forma weighted average common
and common equivalent shares
outstanding (unaudited) (5) 1,605,156 1,714,781
========== ===========
</TABLE>
23
<PAGE> 34
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS NINE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Casper Air Service
Nine Months Operations for the Nine Months
Ended Nine Months Ended
March 31, 1997 Ended March 31, 1997
Actual January 31, 1997 Adjustments (1) Proforma
-------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue $6,664,000 $6,570,000 $(1,010,000) $12,224,000
Cost of revenue 4,597,000 5,629,000 (755,000) 9,471,000
---------- ---------- ---------- -----------
Gross Profit 2,067,000 941,000 (255,000) 2,753,000
---------- ---------- ---------- -----------
General and administrative
expenses 2,120,000 421,000 (154,000) (2) 2,387,000
Depreciation and amortization 291,000 159,000 (104,000) (3) 346,000
---------- ---------- ---------- -----------
2,411,000 580,000 (258,000) 2,733,000
---------- ---------- ---------- -----------
Income (loss) from operations (344,000) 361,000 3,000 20,000
---------- ---------- ---------- -----------
Other income (expenses)
Interest income -- 19,000 -- 19,000
Interest expense (153,000) (169,000) 57,000 (265,000)
Other, net -- 60,000 -- 60,000
---------- ---------- ---------- -----------
(153,000) (90,000) 57,000 (186,000)
---------- ---------- ---------- -----------
Income (loss) before provision
for income taxes (497,000) 271,000 60,000 (166,000)
Provision (benefit) for income taxes (164,000) -- 129,000 (6) (35,000)
---------- ---------- ---------- -----------
Net income (loss) $ (333,000) $ 271,000 $ (69,000) $ (131,000)
========== ========== ========== ===========
Pro forma net income (loss)
per common and common
equivalent share (unaudited) $ (.21) $ (.08)
========== ===========
Pro forma weighted average common
and common equivalent shares
outstanding (unaudited) (5) 1,605,156 1,714,781
========== ===========
</TABLE>
24
<PAGE> 35
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Adjustments include the elimination of income and expenses associated
with the aircraft charter operations of CAS, which the Company does
not intend to continue after the acquisition of CAS. For the nine
months ended April 30, 1996 and January 31, 1997, respectively, the
charter department's operating results (and related adjustments to the
pro forma analysis included herein) were as follows:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
April 30, 1996 January 31,1997
-------------- ---------------
<S> <C> <C>
Revenues $ 717,000 $1,010,000
Cost of revenue (642,000) (755,000)
--------- ----------
Gross Profit 75,000 255,000
--------- ----------
General and administrative expenses (84,000) (71,000)
Depreciation and amortization (88,000) (139,000)
---------- ----------
Income from operations (97,000) 45,000
Other income (expenses)
Interest income -- --
Interest expense (58,000) (57,000)
Other, net 4,000 --
---------- ---------
(54,000) (57,000)
---------- ---------
Income (loss) before provision
for income taxes $ (151,000) $ (12,000)
========== ==========
</TABLE>
(2) Includes $89,000 and $83,000 of non-payroll benefits and other
compensation for the periods ended April 30, 1996 and January 31,
1997, respectively, incurred by CAS for the benefit of its
shareholders and management. These costs will not be incurred by the
Company on an ongoing basis after the closing of the CAS purchase
transaction.
(3) Includes additional amortization of goodwill (amortized over a 20-year
period) and depreciation expense from the Pride and CAS acquisitions
for the pro forma periods ended June 30, 1996 and March 31, 1997,
respectively, in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Interim
(Nine Months) Nine Months
Ended Ended
June 30, 1996 March 31, 1997
------------- --------------
<S> <C> <C>
Pride goodwill amortization and
related depreciation $ 85,000 *
CAS goodwill amortization and
related depreciation 35,000 $35,000
-------- -------
$120,000 $35,000
======== =======
</TABLE>
* Pride goodwill amortization and related depreciation for the
nine months ended March 31, 1997 of $193,000 is included in
actual operating results of the Company for the period then
ended.
(4) Includes additional interest of $36,000 on convertible notes issued in
connection with the Pride acquisition for the pro forma period ended
June 30, 1996.
(5) Includes 109,625 of Common Stock (assuming an initial public offering
price of $8.00 per share) issuable to the shareholders of CAS upon the
consummation of the CAS transaction.
25
<PAGE> 36
(6) Represents the adjustment to reflect the tax effects of the pro forma
adjustments.
(7) Reflects the nine months ended April 30, 1996. The results of
operations for the three months ended July 31, 1995 were extracted
from CAS's audited income statement for the fiscal year ended April
30, 1996 to provide a nine month period that is comparable to the
Company's nine month fiscal year ended June 30, 1996. The results of
operations for the three months ended July 31, 1995 were as follows:
<TABLE>
<S> <C>
Revenues $1,663,000
Cost of revenue 1,522,000
Gross Profit 141,000
General and administrative expenses 112,000
Depreciation and amortization 84,000
196,000
Income (loss) from operations (55,000)
Other income (expenses), net (41,000)
Income (loss) before provision of income taxes $ (96,000)
</TABLE>
26
<PAGE> 37
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- -----------------------------------
Aviation Casper Air
Group, Inc. Service Adjustments As Adjusted
(March 31, 1997) (January 31, 1997) ------------- ------------
---------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash $ 82,000 $ 288,000 $(1,473,000) (1) $ 4,899,000
6,750,000 (4)
(748,000) (5)
Accounts receivable 655,000 614,000 -- 1,269,000
Inventory 249,000 1,311,000 -- 1,560,000
Aircraft held for sale -- -- 1,638,000 (2) 1,638,000
Deferred tax assets 163,000 -- (163,000) (6) --
Prepaid expenses and other 61,000 10,000 -- 71,000
---------- ---------- ----------- -----------
Total current assets 1,210,000 2,223,000 6,004,000 9,437,000
---------- ---------- ----------- -----------
Property and equipment, net 2,281,000 1,386,000 (712,000) (2) 2,955,000
---------- ---------- ----------- -----------
Other assets
Goodwill, net 937,000 -- 907,000 (3)(6) 1,844,000
Investment-CAS -- -- 2,350,000 (1) --
(2,350,000) (3)
Other 491,000 11,000 -- 502,000
---------- ---------- ----------- -----------
1,428,000 11,000 907,000 2,346,000
---------- ---------- ----------- -----------
$4,919,000 $3,620,000 $ 6,199,000 $14,738,000
========== ========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $ 209,000 $ 329,000 -- $ 538,000
Short-term bank borrowings 248,000 -- $ (248,000) (5) --
Bridge Notes 290,000 -- 210,000 (5) --
(500,000) (5)
Notes payable -- 628,000 -- 628,000
Floor plans payable -- 138,000 -- 138,000
Accounts payable 741,000 559,000 -- 1,300,000
Accrued interest 29,000 -- -- 29,000
Accrued liabilities 422,000 151,000 -- 573,000
Deferred income taxes -- -- 152,000 (6) 152,000
---------- ---------- ----------- -----------
Total current liabilities 1,939,000 1,805,000 (386,000) 3,358,000
---------- ---------- ----------- -----------
Long-term liabilities
Long-term debt, net of
current maturities 1,303,000 983,000 2,286,000
Deferred income taxes 305,000 -- -- 305,000
---------- ---------- ----------- -----------
1,608,000 983,000 -- 2,591,000
---------- ---------- ----------- -----------
Stockholders' Equity
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none outstanding -- -- -- --
Common stock, $.01 par value,
10,000,000 shares authorized,
2,741,125 shares issued and
outstanding 16,000 19,000 (19,000) (3) 27,000
1,000 (1)
10,000 (4)
Additional paid-in capital 1,951,000 2,697,000 (2,697,000) (3) 9,567,000
876,000 (1)
6,740,000 (4)
Retained earnings (deficit) (595,000) (395,000) 395,000 (3) (805,000)
---------- ---------- (210,000) (5) -----------
-----------
1,372,000 2,321,000 5,096,000 8,789,000
Treasury stock -- (569,000) 569,000 (3) --
Unearned ESOP -- (920,000) 920,000 (3) --
---------- ---------- ----------- -----------
1,372,000 832,000 6,585,000 8,789,000
---------- ---------- ----------- -----------
$4,919,000 $3,620,000 $ 6,199,000 $14,738,000
========== ========== =========== ===========
</TABLE>
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AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
For purposes of preparing the Unaudited Pro Forma Consolidated Balance
Sheet, the assets and liabilities of CAS to be acquired or assumed by the
Company have been recorded at their estimated fair values. A final
determination of the required purchase price accounting adjustments and of the
fair value of the assets and liabilities acquired or assumed has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the unaudited pro forma financial information reflects the
Company's best estimate based upon currently available information.
The following adjustments have been made in connection with the
initial public offering and the CAS acquisition:
(1) Adjustment reflects an estimated purchase price and related
purchase costs for the CAS acquisition of $2,350,000. The
transaction will be funded by cash totaling $1,473,000 and
109,625 shares of the Company's Common Stock ($.01 par value)
at an estimated per share price of $8.00.
(2) Upon purchasing CAS, the charter operations will be
discontinued. The 12 aircraft currently used in CAS's charter
division will be sold by the Company. Based on a third party
offer for nine of the aircraft totaling $1,438,000, and an
estimated value of $200,000 for the remaining three aircraft
in inventory, management estimates the fair value of the 12
aircraft to be $1,638,000. The adjustment reflects a
reclassification of the assets from property and equipment to
"aircraft held for sale." The aircraft held for sale have a
historical net book value of $712,000. The net book value of
the remaining property and equipment is estimated to
approximate fair value.
(3) The adjustment reflects the elimination of the investment
account on the Company's balance sheet, the elimination of the
net equity on the balance sheet of CAS on the acquisition date
and the recording of net goodwill resulting from the
acquisition of approximately $907,000 (including tax
attributes).
(4) Reflects the net proceeds from the initial public offering of
1,000,000 shares of the Company's $0.01 par value Common
Stock.
(5) Upon completion of the initial public offering, management
plans to pay off its line of credit, with a current balance of
$248,000, and the Bridge Notes totaling $500,000.
(6) Reflects the deferred tax effects for differences between the
financial statement and tax bases of the net assets to be
acquired in the CAS acquisition (including the recording of
additional goodwill of $315,000).
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<PAGE> 39
BUSINESS
GENERAL
Aviation Group, Inc., a Texas corporation (the "Company"), is a
provider of services and products to airline companies and other aviation
firms. Although its primary market is the United States, the Company ultimately
aspires to compete in the global marketplace. In addition to growth of its
existing businesses, the Company seeks to grow via the acquisition of other
aviation service businesses that complement and strengthen the Company's
existing operations.
The Company was organized in December 1995 to consolidate the
ownership of Tri-Star Aircraft Services, Inc. ("TriStar Paint"), Tri-Star
Airline Services, Inc. ("Airline Services") and Pride Aviation, Inc. ("Pride").
At that time, the Company acquired all of the outstanding shares in TriStar
Paint and Airline Services from The Sanders Companies, Inc. ("Sanders
Companies") in exchange for the issuance of 1,000,000 shares of Common Stock to
Sanders Companies. Sanders Companies is wholly owned by the Company's President
and Chief Executive Officer, Lee Sanders. On March 1, 1996, in connection with
the Company's acquisition of Pride, the Company paid $486,000 cash and issued
10%, five-year Convertible Notes in the aggregate principal amount of $857,000
and 100,250 shares of Common Stock.
The Company is currently organized into three divisions devoted to
Aviation Group's primary lines of business. These business segments are as
follows:
o Painting & Paint Stripping Services: The Overhaul & Service Division,
through TriStar Paint and Pride, provides painting and paint stripping
services for commercial and freight aircraft at their facilities
located in Dallas, Texas and New Iberia, Louisiana. Pride's primary
customer is United Airlines, Inc. TriStar Paint provides paint
services on a plane-by-plane bid basis to a variety of customers.
o Ground Handling & Services: Through Airline Services, the Ground
Handling & Services Division provides aircraft ground handling and
light catering services to a variety of passenger and freight airlines
at various airports, including DFW International, Los Angeles
International and San Francisco International, for customers such as
United Parcel Service, Southwest Airlines, United Airlines, Federal
Express and Northwest Airlines, among others.
o FBO Operations & Airport Management: In July 1996, the Company began
to operate its FBO Division. The Company's first fixed base operation,
located at Redbird Airport in Dallas, Texas provides fuel and light
maintenance services to general aviation, corporate and light freight
aircraft customers. There are presently over 1,700 operators of fixed
base operating stations ("FBO's") serving the United States. The
Company believes that acquiring or otherwise operating such businesses
in smaller, second-tier airports located near major urban areas across
the United States provides a significant opportunity.
The Company believes that airlines will increase the outsourcing of
their maintenance and service requirements to third party vendors in the
future. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budget with outsourcing
vendors in 1994. There are over 10,000 maintenance and service vendors
worldwide in the aviation industry. The Company believes that the aviation
service industry is highly fragmented. It also believes that its existing
operations, enhanced by additional growth and acquisitions of complementary
businesses, will enable it to provide quality customer service with financial,
insurance, and other operating economies-of-scale that major customers
increasingly require. The Company does not presently intend to operate as a
commercial airline or as a provider of commercial jet engine or airframe
overhaul services.
The principal executive offices of the Company are located at 700
North Pearl Street, Suite 2170, Dallas, Texas 75201, telephone number (214)
922-8100.
INDUSTRY OVERVIEW
The airline industry is currently experiencing revenue growth along
with increased profitability. Several new airlines have commenced operation in
this expanding market. These airlines constitute potential customers for the
Company's services. Aviation activity is expected to increase significantly
over the next ten years. According to the 1997 Boeing Current Market Outlook,
global commercial air travel is expected to increase 75% through the year 2006,
while the
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number of passenger and cargo aircraft deliveries is expected to
increase by 48%. According to the FAA, U.S. turbine powered general and
business aviation will increase 28% by the year 2006. Production of general
aviation aircraft rose by 10% in the first half of 1996, after a 16% increase
in 1995. The Company believes that the growth in aviation activity will
increase the demand for maintenance, repair, painting, ground handling and
other services provided by the Company.
Because of the high internal overheads and unionization of airline
labor forces, many airlines have found that it is more cost efficient to engage
independent contractors to perform maintenance, painting and ground handling
services. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budget with outsourcing
vendors in 1994. Management expects the trend toward outsourcing these services
to continue in the airline industry.
The Company believes that the aviation service industry is highly
fragmented. There are presently over 1,700 operators of fixed base operating
stations ("FBO's") serving the United States. There are over 10,000 maintenance
and service vendors worldwide in the aviation industry.
OVERHAUL & SERVICE DIVISION
The Overhaul & Service Division, which includes Pride and TriStar
Paint, provides painting, paint stripping, and other aircraft coating services
to major passenger and freight airlines. The Company paints few corporate
aircraft and at present has no military aircraft contracts. This division's
operations include aircraft stripping and painting services, light aircraft
maintenance, and corrosion preventive cleaning programs.
The type and quality of paint and other supplies utilized by the
Company is generally dictated to the Company by its customers, subject to FAA
and EPA guidelines. In most cases, the Company's customers arrange for the
sources of paint supplies that it utilizes. The Company believes that there are
available numerous sources for the paint and other supplies utilized by the
Company.
The Company utilizes electrostatic paint equipment in its aircraft
painting activities and is a leader in the development of techniques for high
solids painting and non-methylene chloride stripping. Any research costs
incurred by the Company relating to these new techniques have been borne by the
Company's customers. Pride conducted a high solids paint test program for
Continental Airlines in February 1992 with most major aviation paint
manufacturers participating. Since 1993, most of the Company's painting has
been performed with high solids compliant coatings.
Beginning in late 1993, most stripping performed for major airlines by
the Company was with compliant non-methylene chloride material. Testing of a
non-acid stripper is ongoing for United Airlines for use on its aircraft.
Currently, the Company is capable of providing stripping and painting services
for most narrow-bodied aircraft in its Dallas, Texas facilities, including, but
not limited to, Boeing 727s, Boeing 737s and McDonnell Douglas DC-9s and
MD-80s. The three New Iberia, Louisiana hangar facilities are capable of
housing all aircraft except Boeing 747s.
Pride. Pride was incorporated in the State of Oklahoma in 1990. The
administrative offices along with its aircraft painting facilities are located
in New Iberia, Louisiana. In September 1990, Pride obtained its first
certificate from the Federal Aviation Administration ("FAA") to operate an
approved repair station at its facilities in New Iberia, Louisiana. Since that
time, the certificate has been expanded to permit Pride to conduct certain FAA
classes of inspections and light maintenance for a variety of jet aircraft.
Pride is also certified to perform structural repairs on certain equipment in a
variety of jet aircraft. Pride's painting facilities located in New Iberia,
Louisiana can house all narrow-bodied jets. Of a total of three hangars, one
hangar has been built to accommodate wide-bodied jets such as the Boeing 767
and McDonnell Douglas DC-10 aircraft.
The Company's primary customer, United Airlines, Inc. ("United"),
accounted for approximately 85% of the Overhaul & Service Division revenues for
the nine months ended March 31, 1997. In 1994, Pride entered into a five-year
Services Agreement (the "Services Agreement") with United which has been
amended several times and currently will expire in 1999 but is cancelable prior
to that date by United upon 90 days written notice. Under the Services
Agreement, Pride provides paint stripping and painting services for jet
aircraft owned or operated by United. United provides the specifications,
designs, stencils, decals and marks for the painting. The Services Agreement
contains a warranty by Pride to United that its services meet United's
specifications and are free from defects in workmanship. Pride must reimburse
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<PAGE> 41
United for costs of repair and certain expenses in connection with this
warranty. Pride must perform its services for United at its New Iberia,
Louisiana facilities. United schedules the jet aircraft to be painted by Pride
each calendar year by December 31 of the prior year. In addition to painting,
upon request from United, Pride will repair parts and components identified by
Pride as needing repair.
The Services Agreement contains fixed prices for each type of aircraft
painted by Pride. The prices are adjusted annually based on the Consumer Price
Index. The Services Agreement currently provides that Pride will paint Boeing
727, Boeing 737, Boeing 757, Boeing 767 and McDonnell Douglas DC-10 aircraft. A
total of 588 aircraft are scheduled to be painted under the Services Agreement.
Through December 31, 1996, Pride has completed 215 of the aircraft.
The Company, through Pride, has been negotiating a contract with
United for the painting of United's Boeing 747 commercial aircraft fleet. To
date, these negotiations are incomplete. If it obtains the contract, the
Company may construct a new aircraft hangar at its New Iberia, Louisiana
facilities. See "--Facilities."
The Company, through Pride, is currently working to obtain a long-term
contract to paint newly manufactured aircraft for Boeing Commercial Airplane
Group ("Boeing"). Boeing has conducted due diligence regarding Pride's
capabilities and expertise. Subject to the satisfaction of certain conditions,
Boeing has requested Pride to conduct a beta test by painting one of its jet
aircraft in late May 1997. If Boeing awards a contract to Pride, the Company
intends to lease a hangar facility in Portland, Oregon in which to perform this
work for Boeing.
TriStar Paint. TriStar Paint's business began in March 1990, and
TriStar Paint was incorporated in the State of Texas during 1994. The Company
acquired all of the stock in TriStar Paint in December 1995. TriStar Paint is
in the business of providing stripping and painting services for airlines,
aircraft lessors, and aircraft brokers. TriStar Paint's painting facilities
located at Redbird Airport in Dallas, Texas can house most narrow-bodied jets
including, but not limited to, Boeing 727s and 737s and McDonnell Douglas DC-9s
and MD 80s.
TriStar Paint received its initial certificate from the FAA to operate
an approved repair station in February 1995. The certificate was subsequently
expanded to permit TriStar Paint to provide stripping and painting services to
a variety of aircraft and to provide certain FAA classes of inspections and
light maintenance on two types of aircraft.
TriStar Paint provides its painting and other services on a
plane-by-plane basis to its customers, versus Pride's long-term contract
arrangement with United. The Company believes that this arrangement gives it
flexibility to meet customer needs. TriStar Paint has provided stripping and
painting services, on a plane-by-plane bid basis, to Dee Howard Company,
Southwest Airlines, Northwest Airlines, TransWorld Airlines, Emery Air Freight,
Roadway Global Air and Zantop International Airlines. In addition, Dee Howard
Company and Zantop International Airlines provide heavy maintenance services to
airline companies, and TriStar Paint acts as a subcontractor in providing its
services to these customers.
TriStar Paint is also capable and qualified to perform certain
structural cleaning and anticorrosive maintenance programs, which involve
cleaning inside the skin of the aircraft. Years of particle accumulation are
removed and a preventative spray is applied to reduce the amount of future
corrosion and particle accumulation. Such services have historically been
provided on a subcontract basis to airline customers of major maintenance
facilities.
TriStar Paint bids against its competitors in providing painting and
cleaning services to its maintenance and airline customers. In addition to
providing stripping and painting services at its Redbird Airport facilities,
TriStar Paint will send its equipment and personnel to provide onsite services
at the facilities of maintenance companies. These subcontract services have
been provided at airport facilities in San Antonio, Texas, Macon, Georgia and
Alexandria, Louisiana.
GROUND HANDLING & SERVICE DIVISION
Airline Services. Through Airline Services, the Company engages in the
cleaning, handling, and light catering of aircraft in various airports located
within the continental United States. Airline Services' predecessor operations
began in December 1986. It was incorporated in the State of Texas in August
1994. The Company acquired all of the stock of Airline Services in December
1995.
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Airline Services provides its customers with a variety of support
services including aircraft interior cleaning, exterior washes, lavatory/water
services and light catering. Airline Services presently operates at the
following airports: Dallas-Fort Worth International, Dallas Love Field, San
Francisco International, Kansas City International, Los Angeles International
Airport and Gulfport-Biloxi Regional. Airline Services currently provides some
or all of these services at different locations for United Airlines, United
Parcel Service, Sunjet, Aviation Services International, Inc. on behalf of
Allegro Airlines, World Technology Services, Reno Air, Sun Country Airlines,
Northwest Airlines, Federal Express and other customers.
Interior cleaning is performed between flights at the airport. This
involves cleaning the inside of the cockpit, cabin and galleys, servicing the
lavatories, fresh water facilities and stocking the aircraft with magazines,
air sickness bags and emergency cards. All pricing for this service is based on
airline specifications. Exterior cleaning involves cleaning the exterior of the
aircraft during nighttime layovers. Typically, an aircraft's exterior will be
cleaned once during a two or three week cycle. Airline Services uses specially
designed equipment and pressure sprayers to clean the exteriors of the
aircraft. Similar to interior cleaning, all pricing for this service is based
on airline specifications. Airline Services presently has light catering
operations in Gulfport, Mississippi. Light catering consists of stocking soft
drinks, peanuts, pretzels, coffee, tea, beer, wine, liquor, cold sandwiches and
serving supplies on the aircraft. Pricing will depend on the type and quantity
of the products supplied.
General. The Company believes that its flexible workforce provides
customers with a quality, price competitive outsourcing service. The Company
obtains its contracts with its customers generally by competitive bid. The
Ground Handling & Service Division actively pursues new customers and
additional work from existing customers at those airports where it already has
a presence. In addition, the Company pursues work opportunities at other
airports, and with other airline customers, as such opportunities arise.
FBO & AIRPORT MANAGEMENT DIVISION
In July 1996, the Company began to operate a third business segment,
its FBO & Airport Management Division. The Company's first fixed-base
operation, located at Redbird Airport in Dallas, Texas, sells fuel and provides
light maintenance services, including for example fluid, tire and control
inspections, to general aviation and corporate aircraft at this location.
The Company believes that this division, which serves corporate and
other general aviation customers, may offset its current dependence on major
airlines for its painting, ground handling, and other services. The Company's
fixed base operation in Dallas, Texas is located at a general service airport
located within a ten minute drive of the Dallas, Texas central business
district. There are over 500 acres of land adjacent to this airport for
aviation, industrial, and distribution development, and the Company believes
that, as such development progresses, its Redbird FBO operation will benefit
from this growth by gaining additional aviation fuel and light service
customers.
The Company believes that there are significant opportunities for
growth, internally and via acquisition, in the FBO & Airport Management
Division. The Company recently hired additional management and executive
personnel with specific expertise in the FBO management and acquisition
business to assist it in the execution of its business strategy in this
division.
The Company has reached an agreement to acquire CAS, which operates an
FBO in Casper, Wyoming. See "Acquisition of Casper Air Service."
ACQUISITIONS OF COMPLEMENTARY BUSINESSES
A key element of the Company's strategy involves growth through
acquisitions of other companies, assets or product or service lines that would
complement or expand the Company's existing businesses. There are over 10,000
maintenance and service vendors worldwide in the aviation industry, and the
Company believes that the aviation service industry is highly fragmented. The
Company believes that acquisitions will enable it to leverage its fixed costs
of operations and further expand the products and services which it can offer
to its customers.
The Company is currently evaluating a number of acquisition
opportunities. The Company desires to expand its existing aircraft parts,
ground service and FBO operations by acquiring similar businesses with whom it
currently competes
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or who provide services at locations not presently served by the Company.
Additionally, the Company has reviewed certain acquisition opportunities of
aviation companies that specialize in the overhaul and service of replacement
and after-market parts. These parts, called "rotable parts," are removed by
airlines and major overhaul companies and subsequently rebuilt and refurbished
in accordance with FAA guidelines for future use. Other than the agreement to
acquire CAS, no commitments or binding agreements have been entered into date
and accordingly no assurance can be given that any of the acquisitions
currently being considered will be consummated.
FACILITIES
Dallas Facilities. TriStar Paint leases an aircraft maintenance hangar
at Redbird Airport in Dallas, Texas at an annual rental rate of $42,000. This
single bay, narrow body hangar measures 160 feet by 140 feet and allows a tail
clearance of 38 feet. It has additional office space.
The Company's Redbird FBO facility consists of approximately 4,000
square feet of space for pilots and other customers and adjacent ramp space for
the temporary parking and fueling of aircraft by Company personnel. The
facility is presently under lease for $42,000 per year until 2006.
The Redbird Airport has two runways, one approximately 6,450 feet by
150 feet and the other 3,800 feet by 150 feet. The long runway is load rated
for narrow body, military and commercial aircraft. Normal hours of operation
are 8:00 a.m. to 7:00 p.m., seven days a week.
New Iberia Facilities. Pride leases from the Iberia Parish Airport
Authority (the "Authority") four aircraft hangars and office space at Acadiana
Regional Airport in New Iberia, Louisiana. The Acadiana Regional Airport has a
200 foot by 8002 foot runway, load rated for all military and commercial
aircraft. Normal hours of operation for the tower are from 7:00 a.m. to 9:00
p.m., seven days a week, with call out service available from 9:00 p.m. to 7:00
a.m.
Pride leases aircraft maintenance Hangar 88 together with adjoining
corporate offices for an annual rental of $100,000. The initial term of this
lease expires on August 1, 2000. These facilities were constructed prior to
1960. This lease also covers a 3.369 acre automobile parking area. Hangar 88
is 160 feet wide by 185 feet deep with 40 foot hangar doors on both the east
and west side. A taxiway leading to both sides of the hangar allows this
building to house two narrow body aircraft at one time.
On land adjacent to the Hangar 88 complex, construction of a new
aircraft maintenance Hangar 88-C was completed in 1995 using $2,900,000 of bond
funds provided by the State of Louisiana. It is 185 feet wide by 223 feet deep,
with 40 foot hangar doors and a tail door which is an additional 20 feet in
height, and is capable of housing wide-bodied McDonnell Douglas DC-10 aircraft.
Hangar 88-C is leased by Pride for an initial term expiring October 1, 2023 at
an annual rental of $158,000. The Hangar 88 and 88-C complex constitute Pride's
major facilities at the Acadiana Regional Airport.
Pride also leases a smaller aircraft maintenance hangar for an annual
rental of $60,000. The initial term of the lease expires on February 1, 2001.
This hangar is used by Pride to paint Boeing 737 aircraft, which may be
completely enclosed within the hangar while being painted.
Finally, Pride leases another small aircraft maintenance hangar for
annual rental of $19,000. The initial term of this lease expires on February 1,
2003. Pride uses this hangar for painting of commuter airplanes and other small
aircraft.
Each of the four leases allows the Authority and Pride to agree to
extensions and requires rental escalations of 10% every five years. The leases
also require Pride to pay fuel fees of 16% of Pride's cost for aircraft fuel
and lubricating oils. Pride is usually able to charge these fuel fees to its
customers.
Pride has commenced discussions with the Authority for purposes of
obtaining funds from the State of Louisiana to build a larger hangar for the
housing and maintenance of Boeing 747 aircraft. The Iberia Parish is interested
in expanding the current facilities at the airport to create additional
employment in the Parish. There are numerous site locations available on the
airport grounds for future expansion. The State of Louisiana has appropriated
$4.2 million to pay part of the cost of construction of a hangar at Acadiana
Regional Airport if Company management elects to proceed with this project. The
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<PAGE> 44
estimated total cost of the hangar is $8,500,000. The Company does not
presently intend to pursue this project unless it obtains a contract from
United to paint United's 747 aircraft fleet.
Dallas Office Space. The Company also occupies 5,900 square feet of
office space at 700 North Pearl Street, Suite 2170, Dallas, Texas, pursuant to
a sublease that expires in November 1998. The Company pays a monthly rental of
$4,400.
ADVERTISING AND MARKETING
To date, the Company has generated most of its revenues from direct
sales and customer referrals. In the future, the Company also intends to
utilize direct mailings, direct sales contacts and trade journal advertisements
as a secondary source of advertising and public relations. In March 1997, the
Company hired a full-time marketing representative who contacts directly the
maintenance and service executives of airlines and other aviation customers to
generate business for the Company. Additionally, the Company has recently begun
to market jointly its ground service capabilities along with the marketing
efforts of certain nonaffiliated equipment and product suppliers. The focus of
the effort is to obtain "turnkey" contracts for a combination of products and
services to be provided to airline customers jointly by the Company and these
product suppliers. Notwithstanding the highly competitive nature of the
industry, management of the Company believes that additional customers may be
obtained by the Company.
CUSTOMERS
TriStar Paint and Pride provide stripping and painting services to
major carriers in the airline industry. Pride's past and current customers
include United Airlines, Continental Airlines, Northwest Airlines and Piedmont
Airlines. TriStar Paint's past and current customers include Express One,
Roadway Global Air, Southwest Airlines and TransWorld Airlines. For the nine
months ended March 31, 1997, United accounted for approximately 73% of the
total revenues of the Company.
The Company has also performed stripping and painting services and
corrosion preventive cleaning programs as a subcontractor in major heavy
maintenance facilities at several locations in the United States. Customers
include Dee Howard Company in San Antonio, Texas, and Zantop International
Airlines, Inc. in Macon, Georgia.
Airline Services performs ground handling services and light catering
at several airports in the United States. Its primary customers consist of
United Airlines, Emery Air Freight, Sunjet, Northwest Airlines, Allegro
Airlines, Airborne Express, Southwest Airlines, UPS, Federal Express and
Aviation Service International, Inc. For the nine months ended March 31,
1997, the ground handling services and light catering accounted for
approximately 10.5% of the total revenues of the Company.
REGULATION
Environmental Regulation. The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), is a federal statute providing a comprehensive
program for regulating the generation, treatment, storage and disposal of
hazardous waste. Federal regulations adopted by the United States Environmental
Protection Agency ("EPA") pursuant to RCRA govern waste handling activities
involving substances that are either listed as hazardous or have certain
specified hazardous characteristics (e.g., corrosive, ignitable). Under RCRA,
liability and stringent operating requirements are imposed on businesses that
generate hazardous waste.
Federal and state environmental laws include statutes intended to
allocate the cost of remedying past contamination among specifically identified
parties. The Comprehensive Environmental Response, Compensation and Liability
Act as amended ("CERCLA" or "Superfund"), 42 U.S.C. 9601 et. seq., imposes
strict and joint and several liability upon owners or operators of facilities
at, from, or to which a release of hazardous substances has occurred, upon
parties who generated hazardous substances that were released at such
facilities, and upon parties who arranged for the transportation or disposal of
hazardous substances to applicable facilities.
The day-to-day operations of the Company are also subject to
regulation under the Clean Air Act, as amended ("CAA"). In particular, the EPA
and state agencies have promulgated, or are required to promulgate, regulations
which affect or will affect the operations of the Company. These regulations
include New Source Performance Standards ("NSPS")
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<PAGE> 45
and National Emission Standards for Hazardous Air Pollutants ("NESHAPs"). NSPS
and NESHAP rules may require additional controls on emissions of certain listed
hazardous air pollutants ("HAPs"). The CAA identifies chemicals that the
Company uses and/or processes, such as methylene chloride, phenol and methyl
ethyl ketone as HAPs for purposes of regulation. The CAA may also require the
Company to maintain operating permits for its facilities' air emissions. The
EPA has announced plans to impose more stringent standards for ozone and
particulate matter. Regulations promulgated to achieve these standards may
require additional controls on emissions of particulate matter and volatile
organic compounds.
The Company must comply with RCRA, CERCLA, CAA and other federal,
state and local environmental protection laws, and the regulations promulgated
thereunder, in its operations and facilities. These laws and regulations are
particularly applicable to the paints and paint stripping chemicals and
solvents used by the Company in its operations. The Company could be held
liable as a current or former operator for releases of hazardous substances at
its facilities. The Company could also incur liability for cleanup costs at
off-site facilities to which the Company shipped hazardous substances for
treatment, handling, storage, or disposal. Management of the Company believes
that the Company's operations and facilities are in material compliance with
all federal, state and local environmental laws and regulations and that the
Company's hazardous waste management practices minimize the potential for
release of hazardous substances into the environment. The Company has not
experienced any significant environmental regulatory problems in the past, and
to date, the Company has not been subject to any significant fines, penalties
or other liabilities under these laws and regulations. However, no assurance
can be given that such laws, regulations or interpretations thereof will not
necessitate significant expenditures by the Company or otherwise have a
material adverse impact on the Company's operations or financial condition in
the future.
Aviation Regulation. The FAA regulates all aspects of the airline and
aircraft industries. The Company's subsidiaries have certifications from the
FAA to operate aircraft repair stations. Such certifications are limited as to
the kinds of repair and maintenance activities that may be performed by the
Company's subsidiaries at their certified facilities. The FAA regularly
inspects these facilities for compliance with FAA regulations and guidelines.
Failure to comply with FAA regulations and guidelines could result in a loss of
certification. A loss of certification for a particular facility would prevent
that facility from performing any aircraft repair or maintenance operations.
The Company believes that its subsidiaries are in compliance in all material
respects with the FAA's regulations and guidelines. Nevertheless, no assurance
can be given that such regulations and guidelines or any FAA enforcement
actions may not have a material adverse effect on the Company's operations and
financial condition in the future.
COMPETITION
The airlines services industry is highly competitive. Each of the
Company's subsidiaries is in direct competition with other companies. Although
Leading Edge Corporation of Greenville, South Carolina is the Company's primary
competitor as a standalone aircraft paint contractor, many of the major airline
companies paint their own aircraft. In addition, although TriStar Paint also
serves as a subcontractor to several heavy maintenance facilities for aircraft,
many heavy maintenance facilities perform aircraft stripping and painting
services as an adjunct to their maintenance operations and, consequently,
directly compete with the Company. The owners of these heavy maintenance
facilities include Dee Howard Company, Pemco, Tramco, Inc. and Raytheon. The
Company's Ground Handling & Service Division has several competitors at each
major airport at which Airline Services provides services. There are many other
companies that provide similar services at numerous locations to airlines and
compete directly with the Company. Some of the Company's larger competitors
include AMR Services, a division of AMR Corp., Pedus, Intex and World Aviation
Services. These competitors provide interior and exterior aircraft cleaning
services and light catering services similar to those provided by the Company.
The Company's FBO & Airport Management Division currently has no
competitors at Redbird Airport in Dallas, Texas for the FBO services that it
provides. Although CAS has only one smaller competitor in the sale of fuel and
no competition in any of its other services at Natrona County International
Airport in Casper, Wyoming, it competes with many firms in the repair,
maintenance and sale of aircraft and distribution of parts. Competition in the
parts distribution market is generally based on price, availability of product
and quality, including traceability. The FBO industry has experienced
significant consolidation and elimination of FBO operations over the last 20
years. CAS and the Company have a number of large, well-capitalized competitors
who own or operate multiple FBO locations, including AMR Combs, Signature
Flight Support and Raytheon. The major competitors of CAS in the sale of parts
include Aviall, Inc., Aviation Service Corporation, Cooper Aviation Industries,
Inc. and many of the parts manufacturers themselves. In its propeller,
accessory, avionics and engine maintenance and overhaul business, CAS has
significant competitors, including AeroPropeller in Denver, Colorado
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<PAGE> 46
and Weststar Aircraft in Grand Junction, Colorado. CAS believes that the
primary competitive factors in this marketplace are price, quality, engineering
and customer service. CAS's remote location in Casper, Wyoming in some cases
constitutes a competitive disadvantage.
EMPLOYEES
Pride generally employs between 160 and 200 employees. Airline
Services and TriStar Paint have an aggregate of approximately 60 employees, of
which seven are employed in the Dallas Redbird FBO Operations & Airport
Management Division. CAS had a total of 43 employees as of April 1, 1997.
Management believes its employee relations to be excellent. No employees are
covered by collective bargaining agreements. The Company anticipates that it
will hire additional employees in the next 12 months as revenues permit and as
its operations expand.
TRAINING
The Company provides formal classroom training to its employees with
respect to the safe handling of hazardous substances, occupational safety and
health, aircraft maintenance procedures and other safety and operational
procedures that are fundamental to its operations. On-the-job training is also
emphasized to ensure that classroom knowledge is transformed to operational
skills. Much of the Company's training program is mandated by the FAA and OSHA.
INSURANCE
The Company carries $200,000,000 of insurance for general aviation
liability and $50,000,000 of hangarkeeper insurance, as required by its
customers, and customary coverage for other business insurance. While the
Company believes its insurance is adequate, there can be no assurance that such
coverage will fully protect it against all losses which it might sustain.
Moreover, the Company's insurance for aircraft liability carries a deductible
requiring the Company to pay $25,000 of any loss or damage. The Company is the
beneficiary of a $1,000,000 key man life insurance policy on Mr. Sanders.
FINANCING
On March 1, 1996, in connection with the acquisition of Pride, the
Company issued $857,000 in aggregate principal amount of five year, 10%
Convertible Notes to certain of the beneficial owners of Pride. The notes
require quarterly payments of interest and, commencing April 1, 1998, equal
quarterly installments of principal sufficient to amortize the balance of each
note by March 1, 2001. Holders of the notes may elect at any time to convert
the notes into shares of the Company's Common Stock at a conversion price of
$4.50 per share, subject to adjustment upon certain events. The cash portion of
the consideration paid for Pride was financed through the net proceeds from the
Company's sale of 500,000 shares of its Common Stock at $3.00 per share in a
Regulation D private offering. See "Description of Securities--Shares Eligible
for Future Sale."
At the time of its acquisition by the Company, Pride owed to the
Louisiana Economic Development Corporation (the "LEDC") approximately $508,000.
To obtain the LEDC's consent to the Company's acquisition of Pride, Pride
prepaid $100,000 of the debt using an advance from the net proceeds of the
private offering of the Company's Common Stock. The Company granted to the LEDC
the right to exchange the debt for newly issued shares of the Company's Common
Stock at a rate of $4.50 per share and a security interest in 50.15% of the
outstanding shares of Pride's stock to secure the debt. The remaining balance
of the debt to the LEDC is payable by Pride in equal monthly installments of
$3,800.
The Company's subsidiaries, TriStar Paint and Airline Services, are
guarantors of a $250,000 revolving line of credit owed to Compass Bank (the
"SBA Debt") by The Sanders Companies, Inc. ("Sanders Companies"), the Company's
controlling stockholder. The SBA Debt existed prior to the Company's
organization in December 1995. As of March 31, 1997, a total of $243,000 was
owed on the SBA Debt. Repayment of 75% of the SBA Debt is guaranteed by the
Small Business Administration (the "SBA"). At March 31, 1997, all of the loan
proceeds from the SBA Debt had been used for the benefit of the Company's
subsidiaries. The SBA Debt is secured by a pledge of all of the outstanding
stock of The Sanders Companies, Inc., TriStar Paint and Airline Services and
the personal guaranty of Lee Sanders, the Company's President. Upon
consummation of this Offering, the Company will apply the proceeds from the
Offering to payoff the SBA Debt to the extent the proceeds of the SBA Debt were
used by the Company's subsidiaries. It is expected that the guaranties
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<PAGE> 47
by TriStar Paint, Airline Services and Mr. Sanders and the pledge of the
Company's stock in TriStar Paint and Airline Services will be released and that
any remaining balance of the SBA Debt will be refinanced by Sanders Companies.
In February 1997, the Company sold $500,000 in aggregate principal
amount of its 10% Bridge Notes. The Bridge Notes are unsecured, bear interest
at the rate of 10% per annum payable quarterly beginning December 31, 1997 and
are subordinated in right of payment to all existing indebtedness of the
Company, including trade debt. The Company used the proceeds from the issuance
of the Bridge Notes for general corporate purposes and to fund the costs of
this Offering. The Bridge Notes are due in full on June 30, 1998 or earlier in
certain circumstances, including within five days following the closing of this
Offering. In connection with the full payment of the Bridge Notes after this
Offering, the Company has agreed to issue to the holders of the Bridge Notes
that number of shares of Common Stock equal to the quotient of $250,000 divided
by the initial public offering price.
The shares of Common Stock to be issued upon conversion of the
Convertible Notes, exchange of the LEDC debt or payoff of the Bridge Notes will
be subject to certain restrictions on their transfer. See "Description of
Securities--Shares Eligible for Future Sale."
The Company's hangar facilities are primarily financed on long term
operating leases. The material leases are described above under "Facilities."
LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceeding
other than ordinary routine litigation considered to be incidental to its
business.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, current ages and positions of the executive officers and
directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lee Sanders (1) 37 President, Chief Executive Officer and Director
Paul Lubomirski 43 President of Pride
Victor Doyle 56 Vice President - Overhaul & Service Division
Tony Ramsaroop 33 Vice President - Ground Handling & Services Division
Wallace Congdon 71 Vice President - FBO & Airport Management Division
John Arcari 57 Vice President - Marketing and Development
Gary Cooper 42 Vice President, Chief Financial Officer and Treasurer
Charles E. Weed (1) 65 Director
Gordon Whitener (1)(2) 34 Director
Richard Morgan 39 Director
</TABLE>
- --------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
The Board of Directors is classified into three classes of directors
pursuant to which the directors serve for staggered three-year terms. The terms
of office of Messrs. Morgan, Weed, Whitener and Sanders as directors expire at
the annual meetings of shareholders to be held in 1999, 1997, 1998 and 1999,
respectively. The classification of directors may have the effect of delaying,
deferring or preventing a change in control of the Company. Under its
agreements with the Company, the Representative has a right to designate a
director to serve on the Board. Officers serve at the discretion of the Board
of Directors.
BUSINESS HISTORIES
Lee Sanders has served as the founder, Chief Executive Officer,
President and principal owner of the Company and its predecessors for more than
five years. As a result of his service for the Company and its predecessors,
Mr. Sanders has experience in managing businesses that provide aircraft
painting, aircraft interior modification and airline ground handling services.
He also brings a marketing background from his experiences in starting and
operating private businesses. Mr. Sanders is responsible for overseeing the
Company's marketing efforts, customer relations, production, finance,
acquisitions and overall planning and operations. Mr. Sanders is a graduate of
the University of Tennessee, with a Bachelor of Science in Business
Administration.
Paul Lubomirski was appointed as President of Pride in March 1996 and
has over 20 years of experience with industrial and marine paint applications
and has extensive knowledge of paint systems and electrostatic application
equipment. He has served as an officer and employee of Pride since its
incorporation in 1990. Mr. Lubomirski also brings a solid administrative
background from years of experience in operating private businesses and
organizing and conducting many training seminars. Mr. Lubomirski attended the
University of Hawaii where he majored in mechanical engineering. He directs the
stripping and painting operations of the Company. He has primary responsibility
for the Company's facilities and training programs applicable to the strip and
paint operations.
Victor Doyle was appointed as a Vice President of the Company in
December 1996 and has worked in various technical and managerial positions
within the aviation maintenance industry since 1966. He is currently a
consultant to the Company and will become a full-time employee upon completion
of this Offering. He is a trained aviation mechanic, is FAA licensed in
numerous mechanical and inspection specialties, and has significant expertise
in maintenance planning and production. He attended Parks College, in St.
Louis, Missouri, and has previous work experience with Braniff Airways and
Orion Air, Inc. From 1988 to 1992, he was employed as Regional Maintenance
Director for United Parcel Service. From 1992 to 1994, he was a regional
Director of Maintenance for Lockheed Aeromod Center, Inc. in Greenville, South
Carolina.
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<PAGE> 49
From 1994 until joining the Company in 1996, he was the Director of Marketing
and Customer Service for Dalfort Aviation, a private commercial aircraft
overhaul and maintenance company located in Dallas, Texas.
Tony Ramsaroop was appointed as a Vice President of the Company in
March 1996 and has extensive experience in the aviation industry including
technician, flight crew, inspector, flight instructor and airline station
manager. Mr. Ramsaroop has held management positions with the Company and its
predecessors since 1988. Previously, he was a flight engineer, aircraft
mechanic and Quality Assurance Supervisor with the United States Navy. He
directs the operations of the Company in ground handling and catering services.
He has primary responsibility for the Company's facilities and training
programs applicable to airline ground services and catering operations. He is a
graduate of Le Tourneau University.
Wallace Congdon was appointed as a Vice President of the Company in
February 1997 and has over forty-five years experience in the general aviation
industry, primarily in the management of fixed base operations ("FBO's") across
the United States for various employers. He is currently a consultant to the
Company and will become a full-time employee upon completion of this Offering.
He has specific management knowledge in the areas of fuel, light aircraft
maintenance, airport facilities management and leasing, aircraft sales, and
other FBO-related functions. From 1988 to 1993, he held various senior
management positions within Aero Services International, Inc., a major owner
and operator of FBO's and corporate jet aircraft. Since 1993 and prior to
joining the Company in 1996 to develop and implement its FBO & Airport
Management Division, he performed aviation and FBO management consulting
services for a variety of clients. Prior employers and senior management
positions include Hughes Aviation Services, the Ohio Aviation Company,
TigerAir, Inc., Aviall, Inc. and Western Skyways. He is a veteran of the United
States Navy, and has an undergraduate degree from Le Tourneau University.
Richard Morgan was appointed as a director of the Company on February
26, 1997. He also serves as a consultant to the Company. Mr. Morgan is self
employed, and has conducted business consulting, strategic planning, and
corporate finance services individually and in conjunction with others for
various corporate clients since 1984. Mr. Morgan was additionally Chief
Financial Officer of Search Capital Group, Inc. ("Search") from August 1985
through December 1994, when he voluntarily resigned. After Mr. Morgan's
departure, eight Search subsidiaries conducting business in the sub- prime,
used-automobile finance business filed for protection under Chapter 11 of the
Federal Bankruptcy Code in August 1995. Mr. Morgan holds a graduate degree in
business from Vanderbilt University.
Gary Cooper was appointed Treasurer and Vice President of the Company
on February 12, 1997. For the past five years, Mr. Cooper has owned and
operated his own public accounting firm in Dallas, Texas, and has additionally
taught various accounting and financial courses for certified public
accountants' continuing education programs. Additionally, Mr. Cooper has served
in financial management positions in various public companies prior to 1991.
Mr. Cooper is a Certified Public Accountant in the State of Texas, and holds a
degree in accounting from Middle Tennessee State University.
Charles E. Weed was elected a director of the Company in December 1996
and served as the President of Sunbelt Business Capital Incorporated
("Sunbelt") from August 1992 to February 1996. Mr. Weed is engaged in the
business of making private investments individually and also serves as a
consultant to the Company. Prior to August 1984, Mr. Weed was Chairman and
Chief Executive Officer of Michigan General, a large industrial conglomerate.
Between August 1984 and August 1992, he was retired and engaged in making
private investments.
Gordon Whitener was elected a director of the Company in December 1996
and has been President and Chief Executive Officer of Interface Americas of
LaGrange, Georgia, a subsidiary of Interface Inc. and one of America's largest
manufacturer's of commercial carpet since 1994. He is additionally a member of
Interface Inc.'s board of directors. From 1992 to 1994, Mr. Whitener held
various senior marketing and sales positions in the commercial carpet
manufacturing industry with companies including Interface and Collins & Aikman.
Mr. Whitener is a graduate of the University of Tennessee.
John Arcari was appointed as a Vice President of the Company in April
1997. From 1958 to 1987, he served in numerous line and management positions
with Pan American World Airways. From 1987 to 1990, he was vice president of
maintenance and engineering for Tower Air, a New York-based airline. From 1990
to 1993, he was president of Page Avjet, an aircraft heavy maintenance and
overhaul outsourcing company. From 1994 until his employment with the Company,
he was an independent consultant to aviation maintenance and service
outsourcing companies.
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<PAGE> 50
No family relationships exist among the directors or executive
officers of the Company. None of the directors serve as members of the Board of
Directors of another company which is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
BOARD COMMITTEES
The Compensation Committee consists solely of Mr. Whitener. The
Compensation Committee recommends compensation for officers other than the
President, administers incentive compensation and benefit plans, including the
Company's 1997 Stock Option Plan, and recommends policies relating to such
plans.
The Audit Committee currently consists of Messrs. Weed, Sanders and
Whitener. The Audit Committee will meet periodically with management and the
Company's independent auditors and will review the results and scope of the
audit and other services provided by the Company's independent auditors, the
Company's accounting procedures, and the adequacy of the Company's internal
controls.
DIRECTORS' COMPENSATION
Directors are reimbursed for certain expenses in connection with
attendance at board and committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information, for the nine-month
transition period ended June 30, 1996 for the Company and the fiscal years
ended September 30, 1994 and 1995 for the Company's predecessors, TriStar Paint
and Airline Services, regarding the compensation of the Chief Executive Officer
of the Company and its predecessors. No executive officers of the Company or
its predecessors had compensation in excess of $100,000 for the periods
indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------
Other Annual
Name and Principal Position Year Salary Compensation
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Lee Sanders, President and 1996 (1) $73,847 $9,283 (2)
Chief Executive Officer 1995 (3) 80,000
1994 (3) 60,000
</TABLE>
- --------------------
(1) The compensation shown for 1996 represents compensation for the
nine-month transition period ended June 30, 1996.
(2) Represents aggregate annual lease payments and insurance costs for an
automobile.
(3) Compensation paid by the Company's predecessors.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company engages Charles Weed as a consultant pursuant to a
consulting agreement between Mr. Weed and the Company which expires in February
1998. The Company pays Mr. Weed a fee of $4,100 per month.
Richard Morgan, Victor Doyle and Wallace Congdon serve as consultants
to the Company on a month-to-month basis. No written agreements exist with
Messrs. Morgan, Doyle and Congdon. Other than Mr. Morgan, the Company intends
to hire these consultants as full-time employees upon the closing of this
Offering. Mr. Morgan receives a fee of $4,000 per month in consideration for
financial, strategic planning and acquisition consulting services provided to
the Company. Mr. Congdon receives a fee of $1,500 per month in consideration
for his management of the Company's FBO & Airport Management Division and
acquisition consulting services relating to the CAS acquisition. Mr. Doyle
receives a fee of $4,800 per month in consideration for ground handling and
maintenance consulting services provided to the Company. All of the consultants
are reimbursed their expenses.
40
<PAGE> 51
The Company has an employment agreement with each of Paul Lubomirski,
John Arcari and Tony Ramsaroop, which expire in 1999, 2000 and 2000,
respectively. Mr. Lubomirski and Mr. Arcari are paid annual salaries of $90,000
and $80,000, respectively, and Mr. Ramsaroop is paid an annual salary of
$60,000 until completion of this Offering when his salary will increase to
$70,000. Each employment agreement contains a non-competition agreement for a
period of three years after any expiration or termination of the agreement.
Each employee is entitled to additional benefits, including disability
insurance, life insurance, and health and dental insurance. Mr. Ramsaroop and
Mr Arcari are eligible for additional bonuses as may be determined by the Board
of Directors. Mr. Lubomirski's employment agreement specifies a formula for
bonus payments that varies between 10% and 70% of his annual salary if Pride's
net profit for any fiscal year exceeds $600,000 during the term of his
agreement. The bonus will be 20%, 40% and 70% of his annual salary if the net
profit exceeds $700,000, $800,000 or $900,000, respectively for a fiscal year.
The Company entered into an employment agreement with Lee Sanders in
March 1996. On April 15, 1997, the employment agreement was amended. The
amended employment agreement requires the Company to pay Mr. Sanders an annual
salary of $144,000 with increases at the end of each calendar year based on the
Consumer Price Index. Mr. Sanders is eligible for a bonus to be determined in
the sole discretion of the Board based on merit, the Company's financial
performance and other relevant criteria. The employment agreement expires on
April 15, 2000 but automatically extends for an additional year on April 15 of
each year unless either party affirmatively elects not to extend the term. The
employment agreement contains a non-competition agreement for three years after
any expiration or termination of the agreement. Mr. Sanders is entitled to
additional benefits, including disability insurance, life insurance, and health
and dental insurance. If the Company terminates Mr. Sanders' employment at any
time or if Mr. Sanders terminates his employment within one year after a change
in ownership or control of the Company, the Company is required to pay him
severance pay equal to the unpaid salary for the remainder of the term of the
agreement plus the total salary and bonus compensation paid to him during the
year period preceding the termination. A change in ownership or control of the
Company includes appointment of any person other than Mr. Sanders as President
or Chief Executive Officer or the removal of him from either of such positions,
any change in a majority of the Board members not approved by him, any transfer
or issuance of shares representing more than 25% of the beneficial ownership of
the Company if not approved in advance by Mr. Sanders, any material change in
his authority or duties and any breach by the Company of the employment
agreement not remedied within ten days after notice from him. Mr. Sanders has
approved the issuance of the shares of Common Stock in connection with this
Offering, the acquisition of CAS and the payoff of the Bridge Notes.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Texas Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of Texas
corporations. The Company's Articles of Incorporation and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the Corporation Act. Under the Corporation Act, an officer or
director may be indemnified if he acted in good faith and reasonably believes
that his conduct (i) was in the best interests of the Company if he acted in
his official capacity or (ii) was not opposed to the best interest of the
Company in all other cases. In addition, the indemnitee may not have reasonable
cause to believe his conduct was unlawful in the case of a criminal proceeding.
In any case, he may not be found liable to the Company for improperly receiving
a personal benefit or for willful or intentional misconduct in the performance
of his duty to the Company. The Company must indemnify an officer or director
against reasonable expenses if he is successful, may indemnify for such
reasonable expenses unless he was found liable for willful or intentional
misconduct in the performance of his duty to the Company, and may advance
reasonable defense expenses if he undertakes to reimburse the Company if he is
later found not to satisfy the standard for indemnification of expenses.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
For a discussion of provisions of the underwriting agreement with
regard to the indemnification of the Underwriters, see "Underwriting."
41
<PAGE> 52
EMPLOYEE STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "Employee Option Plan") was
adopted by the Board of Directors and the Company's shareholders in February
1997. The purpose of the Employee Option Plan is to provide increased
incentives to key employees and directors of the Company to render services and
exert maximum effort for the business success of the Company. Pursuant to the
Employee Option Plan, the Company may grant incentive and nonstatutory
(nonqualified) stock options to key employees and directors of the Company. A
total of 150,000 shares of Common Stock have been reserved for issuance under
the Employee Option Plan.
The Board or the Compensation Committee has the authority to select
the key employees and directors of the Company to whom stock options are
granted (provided that incentive stock options only be granted to employees of
the Company). Subject to the limitations set forth in the Employee Option Plan,
the Board or the Compensation Committee has the authority to designate the
number of shares to be covered by each option, determine whether an option is
to be an incentive stock option or a nonstatutory option, establish vesting
schedules, specify the type of consideration to be paid to the Company upon
exercise and, subject to certain restrictions, specify other terms of the
options.
The maximum term of options granted under the Employee Option Plan is
ten years. The aggregate fair market value of the stock with respect to which
incentive stock options are first exercisable in any calendar year may not
exceed $100,000 per incidence. Options granted under the Employee Option Plan
are nontransferable and generally expire within three months after the
termination of an optionee's service to the Company. In general, if an optionee
is disabled, dies or retires from his or her service to the Company, such
option may be exercised up to three months following such disability or death
unless the board or Compensation committee determine to allow a longer period
for exercise.
The exercise price of incentive stock options must not be less than
the fair market value of the Common Stock on the date of grant. The exercise
price of incentive stock options granted to any person who at the time of grant
owns stock possessing more than 10% of the total combined voting power of all
classes of stock must be at least 110% of the fair market value of such stock
on the date of grant, and the term of those options cannot exceed five years.
On February 12, 1997, pursuant to the Employee Option Plan, the Board
authorized the grant of 15,000 options to Tony Ramsaroop, 15,000 options to
Gary Cooper, and 1,000 options to Paul Lubomirski. These options are incentive
stock options exercisable at the initial public offering price. The Board also
authorized the grant to Gordon Whitener of 10,000 non-statutory stock options
exercisable at $4.50 per share of Common Stock.
On April 28, 1997, the Board authorized the grant of a total of 24,500
incentive stock options to 14 of its officers and employees, including 3,000
each to Wallace Congdon, John Arcari and Victor Doyle. These options are
exercisable at the initial public offering price.
OPTION GRANTS
The Company did not grant stock options or stock appreciation rights
during the nine months ended June 30, 1996.
See "--Employee Stock Option Plan" for information regarding option
grants made as of February 12, 1997 and April 28, 1997 to certain of the
Company's executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective March 1, 1996, in connection with the Company's acquisition
of Pride, the Company entered into a consulting agreement with Charles Weed, a
director of the Company. The Company is obligated to pay Mr. Weed a consulting
fee of $4,100 per month until February 1998. As one of the Sunbelt
shareholders, Mr. Weed was issued a 10% Convertible Note in the principal
amount of $52,000 in connection with the Company's acquisition of Pride. He
subsequently purchased an additional $70,000 of the Company's 10% Convertible
Notes from another holder. Effective March 1, 1996, the Company also issued to
Mr. Weed a convertible note in the principal amount of $27,000 in exchange for
unpaid consulting fees owed to him by Pride. This note has terms similar to the
Company's 10% Convertible Notes except that it is convertible at $3.00 (in lieu
of $4.50) per share. As of March 31, 1997, Mr. Weed held convertible notes
totaling $122,000 in principal amount. Mr. Weed is also a member and manager
of Sunbelt Business Capital, L.L.C.
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<PAGE> 53
Sunbelt L.L.C."). In connection with the Pride acquisition, Sunbelt spun off to
its shareholders certain of its assets, including debt in the approximate
amount of $323,000 owed by Pride. The Company issued 56,000 shares to these
shareholders (including 8,354 shares to Mr. Weed) in exchange for the
cancellation of $168,000 of debt. The remainder of this debt was contributed by
these shareholders to Sunbelt L.L.C. Pride delivered a new promissory note
dated March 1, 1996 to evidence this debt in the approximate amount of $155,000
Sunbelt L.L.C. The note required payments of 27 equal monthly installments
6,400. On May 13, 1997, when the outstanding princial balance of the note was
$83,000, Sunbelt L.L.C. sold the note to Jerry R. Webb who at the same time
loaned an additional $200,000 to Pride. The entire $283,000 debt to Mr. Webb
was restructured and is evidenced by a new note payable in full on May 13,
1998, bearing interest at 18% per annum. The note requires monthly payments of
interest only. Mr. Weed and one other individual, who is not affiliated with
the Company, own participation interests of $83,000 and $100,000, respectively,
in the debt owed to Mr. Webb by Pride.
Prior to the Company's organization, Lee Sanders, through his wholly
owned subsidiary, The Sanders Companies, Inc. (the "Sanders Companies"), owned
all of the outstanding capital stock of Airline Services and TriStar Paint.
Mr. Sanders is the President and Chief Executive Officer of the Company. Prior
to August 31, 1995, the Sanders Companies was the owner of the property and
equipment reflected on the combining financial statements for these entities
and charged each of these wholly-owned subsidiaries lease rent for the use of
such assets. In 1995, these assets were transferred from the Sanders Companies
at net book value, along with associated debt, to either Airline Services or
TriStar Paint, as appropriate. Lease rent charged by the Sanders Companies to
TriStar Paint and Airline Services for the year ended September 30, 1995
totaled $12,000.
Prior to the Company's organization in December 1995, Airline Services
and TriStar Paint were operated as part of a controlled group of companies with
other operations of the Sanders Companies and with no minority shareholders. As
of September 30, 1995, TriStar Paint had advanced funds to the Sanders
Companies in an amount totaling $165,000. These advances resulted from Airline
Services and TriStar Paint immediately transferring to the Sanders Companies
any payments received from their customers. Each of the subsidiaries of the
Sanders Companies, including TriStar Paint and Airline Services, maintained
zero balance bank accounts. As disbursements would clear each subsidiary's bank
account, cash would immediately be transferred from the bank account of the
Sanders Companies. These advances have ceased and will not occur in the future.
On September 30, 1995, TriStar Paint and Airline Services had
inter-company receivable balances from the Sanders Companies totaling $258,000
and $364,000, respectively. Effective on September 30, 1995, these companies
declared a dividend of these receivable balances to the Sanders Companies.
These balances resulted from transactions executed and recorded between the
Sanders Companies and its wholly-owned subsidiaries, Airline Services and
TriStar Paint, from the sharing of administrative expenses and advances to and
from each of the separate corporations.
In December 1995, the Sanders Companies contributed all of the
outstanding stock of Airline Services and TriStar Paint to the Company as its
initial capitalization in exchange for 1,000,000 shares of Common Stock. For
this purpose, the Company's stock was assigned a value of $3.00 per share,
based primarily on the combined historical earnings of TriStar Paint and
Airline Services, and arms-length negotiations with the principals of Pride
Aviation, Inc., for which an agreement to acquire was reached in January 1996,
and the placement agent for the Company's $1,500,000 private offering of Common
Stock that commenced in January 1996.
Prior to March 1, 1996, the Sanders Companies provided services and
allocated certain general and administrative expenses to the various companies
operating under its control, including the Company, TriStar Paint and Airline
Services. Such charges were allocated to the members of the control group based
upon the level of management and supervision time required, services provided
and certain other factors. Management of the Company believes that such
allocations are reasonable. These general and administrative expenses totaled
$77,000 for the nine months ended June 30, 1996. For the year ended September
30, 1995, these general and administrative expenses allocated to TriStar Paint
and Airline Services totaled $157,000.
The proceeds of this offering will be used to satisfy a $250,000
revolving line of credit with Compass Bank, the balance of which was $243,000
at March 31, 1997. This line of credit is personally guaranteed by Lee Sanders.
See "Business--Financing" for a discussion of the line of credit.
Neither Sanders Companies, the Company, Airline Services nor TriStar
Paint had any minority shareholders prior to March 1, 1996. Since that date,
the Board of Directors of the Company believes that all transactions between
the
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<PAGE> 54
Company and any of its affiliates have been made on terms no less favorable
to the Company than would have been obtained from non-affiliated third parties.
Any future transactions between the Company and any of its affiliates will be
subject to approval by a majority of the disinterested members of the Board of
Directors or by a majority of the shareholders of the Company, other than any
interested shareholders, and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company
will not make any loans to its officers, directors, post-Offering 5%
shareholders or affiliates, except for bonafide business purposes.
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<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 1, 1997 by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) each of the Company's directors, (iii) the
executive officer named in the Compensation Table, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Percent of Total (2)
Name and Address Number of Shares ------------------------------------
of Beneficial Owner Beneficially Owned (1) Before Offering After Offering
- ------------------- ---------------------- --------------- --------------
<S> <C> <C> <C>
Lee Sanders 1,000,000 (3) 62.5% 38.5%
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
Richard Morgan 100,000 (4) 6.0 3.7
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
Paul Lubomirski 44,250 2.8 1.7
Charles E. Weed 44,455 (5) 2.7 1.7
Gordon Whitener 10,000 (6) * *
All executive officers and
directors as a group (9 persons) 1,198,705 69.4 44.0
</TABLE>
- --------------------------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date set forth above through the
exercise of any option, warrant or convertible or exchangeable note.
(2) In calculating percentage ownership, all shares of Common Stock that
the named shareholder has the right to acquire upon exercise of any
option, warrant or convertible or exchangeable note are deemed to be
outstanding for the purpose of computing the percentage of Common
Stock owned by the shareholder, but are not deemed outstanding for the
purpose of computing the percentage of Common Stock owned by any other
shareholders. Percentages of shares beneficially owned are based upon
1,600,250 shares outstanding before this offering. Accordingly,
shares and percentages beneficially owned after the offering are based
on 2,600,250 shares before taking into account any shares issued in
connection with the CAS acquisition and the payoff of the Bridge
Notes.
(3) Represents shares owned of record by The Sanders Companies, Inc., a
corporation wholly owned by Mr. Sanders.
(4) Includes 80,000 shares purchasable at $2.50 per share pursuant to a
warrant expiring February 28, 1999.
(5) Includes 27,101 shares issuable, at $4.50 per share, upon the
conversion of convertible notes in the total principal amount of
$121,000 and 9,000 shares issuable, at $3.00 per share, upon the
conversion of a convertible note in the principal amount of $27,000.
(6) Represents shares purchasable, at $4.50 per share, under non-statutory
options expiring in 2004 granted under the Company's 1997 Stock Option
Plan.
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<PAGE> 56
DESCRIPTION OF SECURITIES
The Company is a Texas corporation and its affairs are governed by its
Articles of Incorporation ("Articles of Incorporation"), its Bylaws ("Bylaws")
and by the Texas Business Corporation Act. The following description of the
Company's capital stock is qualified in all respects by reference to the
Articles of Incorporation and Bylaws, which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, $0.01 par value, and 5,000,000 shares of preferred
stock, $0.01 par value ("Preferred Stock"). The Common Stock and Warrants are
being offered separately and not as units, and each are separately
transferable.
COMMON STOCK
As of April 1, 1997, the Company had 49 holders of its Common Stock.
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available thereof at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of Preferred Stock. Holders
of Common Stock do not have cumulative voting rights and are entitled to one
vote per share on all matters on which the holders of Common Stock are entitled
to vote. The Common Stock is not entitled to preemptive rights and is not
subject to redemption or conversion. Upon liquidation, dissolution, or
winding-up of the Company, the assets (if any) legally available for
distribution to shareholders are distributable ratably among the holders of the
Common Stock after payment of all debt and liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
All outstanding shares of Common Stock are, and the shares of Common Stock to
be issued pursuant to this offering will be, when issued and delivered, validly
issued, fully paid, and nonassessable. The rights, preferences, and privileges
of holders of Common Stock will be subject to the preferential rights of any
outstanding class or series of Preferred Stock that the Company may issue in
the future.
WARRANTS
In connection with this offering, the Company will issue 1,000,000
Warrants. The Warrants are subject to the terms and conditions of a Warrant
Agreement (the "Warrant Agreement") between the Company and the Company's
transfer agent, as Warrant Agent. The following description of the Warrants is
qualified in all respects by the Warrant Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The shares of Common Stock underlying the Warrants, when issued upon exercise
thereof and payment of the purchase price, will be fully paid and
nonassessable.
Each Warrant entitles the holder to purchase one share of Common Stock
at any time during the five years following the date of this Prospectus for
120% of the initial public offering price, subject to adjustment in certain
circumstances, unless earlier redeemed, at which time the Warrants will expire.
The Warrants are redeemable in whole and not in part by the Company upon 30
days' notice at a price of $0.05 per Warrant, provided that the closing bid
quotations or sale prices of the Common Stock have averaged at least 165% of
the initial public offering price for a period of any 15 consecutive trading
days ending on the tenth day prior to the day on which the Company mails the
notice of redemption to the Warrant holders. In the event the Company gives
notice of its intention to redeem the Warrants, a holder would be forced to
either exercise his Warrant within 30 days of the notice of redemption or
accept the redemption price. The holders of the Warrants will have exercise
rights until the close of business on the date fixed for the redemption
thereof. The number and kind of securities or other property for which the
Warrants are exercisable are subject to adjustment upon the occurrence of
certain events, including mergers, reorganizations, stock dividends, stock
splits, and recapitalizations. Holders of Warrants have no voting, dividend, or
other rights as shareholders of the Company with respect to the shares
underlying the Warrants, unless and until the Warrants are exercised.
The Warrants may be exercised by filling out and signing the
appropriate form on the Warrants and mailing or delivering the Warrants to the
Warrant Agent in time to reach the Warrant Agent by the expiration date,
accompanied by payment in full of the exercise price for the Warrants being
exercised in United States funds (in cash or by check or bank draft payable to
the order of the Company). Common Stock certificates will be issued as soon as
practicable after exercise and payment of the exercise price as described
above.
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<PAGE> 57
The shares of Common Stock issuable upon exercise of the Warrants and
the securities issuable upon exercise of the Representative's Warrants have
been registered with the Commission. The Company will be required, from time to
time, to file post-effective amendments to its registration statement in order
to maintain a current prospectus covering the issuance of such shares upon
exercise of the Warrants. The Company has undertaken to make such filings and
to use its best efforts to cause such post-effective amendments to become
effective. If for any reason a required post-effective amendment is not filed
or does not become effective or is not maintained, the holders of the Warrants
may be prevented from exercising their Warrants.
Holders of the Warrants have the right to exercise the Warrants only
if the underlying shares of Common Stock are qualified, registered or exempt
from registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. The Company has undertaken, however, (i) to
obtain a listing for the shares of Common Stock on Nasdaq and the Boston Stock
Exchange, which provides an exemption from state securities law registration in
many states and (ii) to register the shares of Common Stock in certain states
where this exemption is not available.
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the
then current market price when the holder might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants in the event of a call for redemption. Holders who do not exercise
their Warrants prior to redemption by the Company will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, the Company may not call the Warrants at any time that a
current registration statement under the Securities Act of 1933, as amended, is
not then in effect. Any redemption of the Warrants during the one-year period
commencing on the date of this Prospectus shall require the written consent of
the Representative.
REPRESENTATIVE'S WARRANTS
The Company has agreed, upon completion of this offering, to sell to
the Representative for $0.001 per Warrant, the Representative's Warrants to
purchase (i) 10% of the number of shares of Common Stock sold in this offering
(excluding the Underwriters' over-allotment option) and (ii) Underlying
Warrants to purchase the same number of shares of Common Stock at an exercise
price equal to 165% of the exercise price of the Warrants. The Representative's
Warrants will be exercisable for a period of four years commencing one year
after the date of this Prospectus. In addition, the Company will provide
certain demand and piggyback registration rights in connection with the
Representative's Warrants. See "Underwriting."
EXISTING WARRANTS AND OPTIONS
Placement Warrants. On March 1, 1996 and June 24, 1996, the Company
issued warrants to purchase an aggregate of 200,000 shares of Common Stock (the
"Placement Warrants") to RAS Securities Corp. ("RAS") upon the closings of the
private placement of 500,000 shares of Common Stock by the Company. RAS has
subsequently transferred these Placement Warrants to certain of its employees.
Each Placement Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.00 per share, exercisable on or before February 28,
1999. As of the date of this Prospectus, none of the holders of the Placement
Warrants has exercised his Placement Warrants. The Placement Warrants contain
provisions that protect the holders against dilution by adjustment of the
exercise price and the number of shares of Common Stock subject to the
Placement Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers, or consolidations.
Holders of Placement Warrants do not possess any rights as shareholders of the
Company prior to exercise. Holders of Placement Warrants have been granted
certain registration rights. Any shares to be issued upon exercise of the
Placement Warrants will be subject to certain transfer restrictions. For a
discussion of these restrictions, see "--Shares Eligible For Future Sale"
below.
Morgan Warrant. Effective June 30, 1996, the Company and Richard L.
Morgan entered into a Warrant Agreement (the "Morgan Warrant") pursuant to
which Mr. Morgan has the right to purchase 80,000 shares of Common Stock at a
price of $2.50 per share. The Warrant Agreement expires February 28, 1999. Mr.
Morgan has not exercised any of his rights under the Morgan Warrant as of the
date of this prospectus. The Morgan Warrant contains provisions that
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<PAGE> 58
protect Mr. Morgan against dilution by adjustment of the exercise price and the
number of shares of Common Stock subject to the Morgan Warrant in certain
events, such as stock dividends and distributions, stock splits,
recapitalizations, mergers or consolidations. The Morgan Warrant does not grant
any shareholder rights to the holder thereof prior to exercise. The Morgan
Warrant grants to Mr. Morgan certain registration rights. Any shares to be
issued upon exercise of the Morgan Warrant will be subject to certain transfer
restrictions. For a discussion of these restrictions, see "-- Shares Eligible
for Future Sale" below.
Employee Stock Options. See "Management--Employee Stock Option Plan"
for a description of outstanding options granted under the 1997 Stock Option
Plan.
PREFERRED STOCK
The Board of Directors may, without further action of the shareholders
of the Company, issue shares of Preferred Stock in one or more series and fix
or alter the rights or preferences thereof, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation preferences, conversion rights, and any other
rights, preferences, privileges, and restrictions of any wholly unissued series
of Preferred Stock. The rights of holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any Preferred Stock
that may be issued in the future. No shares of Preferred Stock are outstanding,
and the Company has no present plans to issue any such shares. The issuance of
shares of Preferred Stock could adversely affect the voting power of holders of
Common Stock and could have the effect of delaying, deferring, or preventing a
change in control of the Company or other corporate action.
DEBT SECURITIES
In connection with the acquisition of Pride on March 1, 1996, the
Company issued $857,000 in aggregate principal amount of its five-year, 10%
Convertible Notes ("Convertible Notes") to the former shareholders of Pride as
a portion of the acquisition price payable to them for their shares in Pride.
The Convertible Notes require the Company to pay quarterly payments of interest
at a rate of ten percent (10%) per annum. Commencing April 1, 1998, the
Convertible Notes also require equal quarterly installments of principal in an
amount necessary to fully amortize the notes by March 1, 2001, when all
remaining principal and accrued interest will be due. Each of the Convertible
Notes is convertible at the option of the holder into shares of Common Stock at
a price of $4.50 per share. In addition, the Company issued to Charles Weed, in
consideration for cancellation of accrued, unpaid consulting fees owed by
Pride, a Convertible Note in the amount of $27,000 that is convertible at $3.00
per share. The conversion rates are subject to adjustment in the event of any
stock dividend, split, combination or reclassification of the outstanding
Common Stock of the Company. The Convertible Notes require the Company to treat
all holders of the Convertible Notes as pari passu members of the same class.
Each of the Convertible Notes (other than the $27,000 note held by Mr. Weed) is
secured by a pledge of the pro rata portion of outstanding stock of Pride that
was owned directly or beneficially by the holder of the Convertible Note
immediately prior to the Company's acquisition of Pride. All of the Company's
stock in Pride is pledged to secure the Convertible Notes, subject to the
Company's prior pledge of approximately 50% of the Pride stock to secure
certain of Pride's debt. If the Company fails to make a required payment of
principal and interest within ten (10) days after written notice of default is
received, the holder of the Convertible Note may exercise any of its remedies
with respect to the pledged stock.
In February 1997, the Company sold $500,000 in aggregate principal
amount of its 10% Bridge Notes. The Bridge Notes are unsecured and bear
interest at the rate of 10% per annum payable quarterly beginning December 31,
1997. The Company used the proceeds from the issuance of the Bridge Notes for
general corporate purposes and to fund the costs of this Offering. The Bridge
Notes are due in full on June 30, 1998 or earlier in certain circumstances,
including within five days following the closing of this Offering. Subject to
the closing of this Offering, upon the full payment of the Bridge Notes, the
Company has agreed to issue to the holders of the Bridge Notes that number of
shares of Common Stock equal to the quotient of $250,000 divided by the initial
public offering price.
CERTAIN ARTICLES OF INCORPORATION PROVISIONS
The Articles of Incorporation provides that the Company's directors
will not be personally liable for monetary damages to the Company or its
shareholders for an act or omission in the director's capacity as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its shareholders, (ii) for acts or omissions not in good
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<PAGE> 59
faith or which involved intentional misconduct or a knowing violation of law,
(iii) for any transaction from which the director derived any improper personal
benefit, (iv) for acts or omissions for which the liability of a director is
expressly provided by statute or (v) an act related to an unlawful stock
repurchase or payment of a dividend. This provision in the Articles of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
nonmonetary relief would remain available under Texas law. This provision also
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
Prior to the completion of this offering, the Company intends to
engage Continental Stock Transfer and Trust Company, New York, New York, to
serve as the stock transfer agent and registrar for the Common Stock. The
Company currently serves as its own stock transfer agent and registrar.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the CAS acquisition and the payoff
of the Bridge Notes, the Company will have approximately 2,741,095 shares of
Common Stock outstanding, excluding any exercise of currently outstanding
warrants and convertible or exchangeable notes. The 1,000,000 shares of Common
Stock to be sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except that any
shares purchased by affiliates of the Company will be subject to the
limitations of Rule 144 under the Securities Act. The 1,000,000 Warrants to be
sold in this offering will also be freely transferable without restriction or
further registration under the Securities Act, except that any Warrants
purchased by affiliates of the Company will be subject to the limitations of
Rule 144 under the Securities Act. In addition, the approximate 109,595 shares
of Common Stock to be issued to the former shareholders of CAS in the CAS
acquisition have been registered for resale and will not be restricted. All of
the Company's outstanding shares of Common Stock, warrants, options and
convertible or exchangeable notes are "restricted securities" as that term is
defined in Rule 144 under the Securities Act.
In general, under Rule 144 a minimum of one year must elapse between
the later of the date of the acquisition of restricted securities from the
issuer or its affiliates and a resale of the securities under Rule 144. If the
one- year test is met, a person (or persons whose shares are aggregated),
including persons who may be deemed "affiliates" of the Company, would be
entitled to sell within any three-month period a number of securities that does
not exceed the greater of 1% of the number of shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date an order to sell is placed with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the securities proposed to be sold for at
least two years, would be entitled to sell such securities under Rule 144(k)
without regard to the requirements described above. Accordingly, all of the
Company's outstanding shares of Common Stock (except for the approximate
140,845 shares to be issued upon payoff of the 10% Bridge Notes and in the CAS
acquisition), warrants and convertible or exchangeable notes will be eligible
for sale under Rule 144 upon completion of this Offering, or shortly
thereafter, as a result of the one-year holding period.
Two officers of the Company beneficially owning a total of 1,044,250
shares of Common Stock will sign lock-up agreements under which such holders
will agree not to offer, sell, or otherwise dispose of 90% of their shares of
Common Stock (939,825 shares) that might otherwise be eligible for sale for a
period of 24 months after the date of this Prospectus without the prior written
consent of the Representative. These officers, with respect to the remaining
10% of their shares of Common Stock (104,425 shares), and all remaining holders
of the Company's securities other than the Bridge Notes and CAS shareholders
(owning 556,000 shares of Common Stock and outstanding warrants, options or
convertible or exchangeable notes exercisable for 612,658 shares of Common
Stock) will agree with the Representative to lock-up periods of six months for
all, and 12 months for 50%, of the shares of Common Stock that they own or may
acquire after the date of this Prospectus. The terms of the Bridge Notes
provide that the shares of Common Stock to be issued upon full payment of the
Bridge Notes may not be sold by the holder for one year after the closing of
this Offering, unless the consent of the Representative is obtained. Upon the
expiration of the lock-up agreements, these shares will become eligible for
sale in the public market assuming the shares continue to be registered for
sale by the selling securityholders or, if not registered, subject to the
provisions of Rule 144.
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<PAGE> 60
In connection with this offering, the Company has registered all of
the Company's outstanding shares of Common Stock and all shares of Common Stock
issuable upon exercise of outstanding warrants, upon conversion or exchange of
outstanding convertible or exchangeable notes, upon payoff of the Bridge Notes
or upon consummation of the CAS acquisition. The selling shareholders, their
plan of distribution and other required disclosures are set forth in a
supplement to this Prospectus. So long as the Company maintains the
effectiveness of this registration and the selling shareholders comply with
prospectus delivery and other requirements for the public sale of registered
securities, the selling shareholders may resell their shares without
restrictions, except for any applicable lock-up agreement.
Prior to this offering, there has been no public market for the Common
Stock or Warrants. The Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or Warrants or the availability of
Common Stock or Warrants for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of the Common Stock or
Warrants in the public market could adversely affect the market price of the
Common Stock or Warrants and could impair the Company's future ability to raise
capital through an offering of its equity securities.
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<PAGE> 61
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representative, First London Securities
Corporation, have severally agreed to purchase from the Company the following
respective numbers of shares of Common Stock and Warrants at the public
offering price, less the underwriting discounts and commissions, set forth on
the cover page of this Prospectus.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Number of Warrants
Underwriter to be Purchased to be Purchased
----------- ----------------- -----------------
<S> <C> <C>
First London Securities Corporation . . .
Total . . . . . . . . . . . . . . 1,000,000 1,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Securities offered hereby if any are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $__per share of Common Stock and $__
per Warrant. After the initial public offering, the public offering price,
concessions, and other selling terms may be changed by the Representative.
The Company has agreed to pay underwriting discounts and commissions
in the aggregate of 10% of the initial public offering price of the Securities
offered hereby. The Company also has agreed to reimburse the Representative's
expenses on a non-accountable basis in the amount of 3% of the gross proceeds
received from the sale of the Securities, including the over-allotment option.
Any such expenses in excess of the expense allowance will be borne by the
Underwriters. The Company has also agreed to pay to the Representative a
commission of 6% of the exercise price of any Warrants which are exercised in
the future pursuant to a solicitation by the Representative, subject to certain
conditions, including, among other things, that such exercising Warrantholder
designates in writing the Representative to receive such commission.
The Company has granted to the Underwriters an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase (i) up to
150,000 additional shares of Common Stock and (ii) 150,000 additional Warrants
at the public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. The Underwriters may exercise
such option only to cover over-allotments, if any. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof that the
number of Securities to be purchased by it shown in the above table bears to
1,000,000, unless the Underwriters agree otherwise in writing, and the Company
will be obligated, pursuant to the option, to sell such Securities to the
Underwriters. If purchased, the Underwriters will offer for sale such
additional shares of Common Stock and Warrants on the same terms as those on
which the 1,000,000 shares of Common Stock and 1,000,000 Warrants are being
offered.
The Company has agreed, upon completion of this offering, to sell to
the Representative or its designees, for $0.001 per warrant, Representative's
Warrants to purchase (i) 10% of the number of shares of Common Stock sold in
this offering (excluding the over-allotment option) and (ii) Underlying
Warrants to purchase the same number of shares of Common Stock. The terms and
conditions of the Underlying Warrants are identical to those of the Warrants
offered hereby, except that the exercise price of the Underlying Warrants is
165% of the exercise price of the Warrants. The Representative's Warrants will
be exercisable for a four-year term, commencing one year after the date of
this Prospectus, at an exercise price equal to 165% of the initial public
offering price of the Securities offered hereby. The Representative's Warrants
will be restricted from sale, transfer, assignment, or hypothecation except to
the Underwriters and persons who are officers or partners of the Underwriters.
The number of shares of Common Stock and Underlying Warrants covered by the
Representative's Warrants and the exercise price are subject to adjustment upon
certain events to prevent dilution.
The Representative's Warrants will give the holders an opportunity to
profit from a rise in the market price of the Common Stock to the extent that
the market price exceeds the exercise price of the Representative's Warrants.
Any profit
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<PAGE> 62
realized by the Underwriters upon the sale of the Representative's Warrants or
the securities issuable thereunder may be deemed to be additional underwriting
compensation. If the Representative's Warrants are exercised, the interest of
the Company's shareholders will be diluted. It may be more difficult for the
Company to raise additional capital while the Representative's Warrants are
outstanding, and the holders of the Representative's Warrants may be expected
to exercise them when the Company, in all likelihood, would be able to obtain
needed additional capital by a new offering of securities on terms more
favorable than those provided for by the Representative's Warrants.
The Company has granted to the holders of the Representative's
Warrants and the underlying securities certain rights with respect to
registration under the Securities Act of the securities underlying the
Representative's Warrants. For a period of four years commencing one year
following the date of this Prospectus, either the Representative or the holders
of not less than a majority of the Common Stock issued or issuable upon
exercise of the Representative's Warrants may require the Company to effect one
registration under the Securities Act with respect to the Common Stock
underlying the Representative's Warrants and the Underlying Warrants, and the
Company is required to use its best efforts to effect such registration. In
addition, subject to certain limitations, in the event the Company proposes to
register any of its securities under the Securities Act during the four-year
period commencing one year after the effective date of the Registration
Statement of which this Prospectus forms a part, the holders of the
Representative's Warrants and the underlying Common Stock are entitled to
notice of such registration and may elect to include the Common Stock
underlying the Representative's Warrants held by them in such registration. The
Company's out-of-pocket expenses associated with any registration initiated
upon the request of the Representative or the holders of the Common Stock
issued or issuable upon exercise of the Representative's Warrants will be
reimbursed by the holders whose shares are included in such registration. The
registration of securities pursuant to the registration rights applicable to
the Representative's Warrants may impede future financing.
Two officers of the Company beneficially owning a total of 1,044,250
shares of Common Stock will sign lock-up agreements under which such holders
will agree not to offer, sell, or otherwise dispose of 90% of their shares of
Common Stock (939,825 shares) that might otherwise be eligible for sale for a
period of 24 months after the date of this Prospectus without the prior written
consent of the Representative. These officers, with respect to the remaining
10% of their shares of Common Stock (104,425 shares), and all remaining holders
of the Company's securities other than the Bridge Noteholders and the CAS
shareholders (owning 556,000 shares of Common Stock and outstanding warrants,
options or convertible or exchangeable notes exercisable for 612,658 shares of
Common Stock) will agree with the Representative to lock-up periods of six
months for all, and 12 months for 50%, of the shares of Common Stock that they
own or may acquire after the date of this Prospectus. The terms of the Bridge
Notes provide that the shares of Common Stock to be issued upon full payment of
the Bridge Notes may not be sold by the holder for one year after the closing
of this Offering, unless the consent of the Representative is obtained. Upon
the expiration of the lock-up agreements, these shares will become eligible for
sale in the public market assuming the shares continue to be registered for
sale by the selling securityholders or, if not registered, subject to the
provisions of Rule 144.
Pursuant to the Underwriting Agreement, for a period of five years
from the effective date of the Registration Statement of which this Prospectus
forms a part, the Representative has the right to designate a person to serve
on, or as a non-voting advisor to, the Board of Directors of the Company,
subject to approval by the Board.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission ("Commission") such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Representative has advised the Company that the Underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the
Company's Common Stock or the Warrants. The initial public offering price for
the Securities has been determined by negotiations between the Company and the
Representative. Among the factors considered in such negotiations were
prevailing market conditions, the history and prospects of the Company, the
present state of the Company's development, the industry in which it competes,
an assessment of the
52
<PAGE> 63
Company's management, the market price for securities of comparable companies
at the time of the offering, and other factors deemed relevant.
LEGAL OPINIONS
The validity of the issuance of the Common Stock and Warrants offered
hereby will be passed upon for the Company by Bracewell & Patterson, L.L.P.,
Dallas, Texas. Certain legal matters in connection with the issuance of the
Common Stock and Warrants offered hereby will be passed upon for the
Underwriters by Jackson & Walker, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of Aviation Group, Inc. and
subsidiaries and the financial statements of Pride Aviation, Inc., included in
this prospectus and elsewhere in the registration statement, to the extent and
for the periods indicated in their reports, have been audited by Arsement, Redd
& Morella, L.L.C., independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The combined financial statements of Tri-Star Aircraft Services, Inc.
and Tri-Star Airline Services, Inc. (Predecessor) for the year ended September
30, 1995, have been included herein and in the registration statement, in
reliance upon the report of James Smith & Company, a Professional Corporation,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Casper Air Service and
subsidiary as of April 30, 1996 and for the two years ended April 30, 1996,
included in this prospectus and in the registration statement, have been
audited by McGladrey & Pullen, LLP, independent certified public accountants,
and are included herein upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act with respect to the Securities being offered pursuant to this
Prospectus. This Prospectus does not contain all information set forth in the
Registration Statement and exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 25049 and at the regional offices of the Commission
located at 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 25049. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. Statements
contained in this Prospectus concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company will be subject to the informational requirements of the
Exchange Act and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission described above. The Company intends to furnish to
its shareholders annual reports containing financial statements audited by
independent certified public accountants following the end of each fiscal year.
53
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AVIATION GROUP, INC. AND SUBSIDIARIES
Independent Auditors' Report dated October 7, 1996 by Arsement, Redd & Morella, L.L.C. A-1
Independent Auditor's Report dated December 22, 1995 by James Smith & Company A-2
Consolidated balance sheets as of June 30, 1996 and March 31, 1997 (unaudited) A-3
Consolidated statements of operations for the nine months ended June 30, 1996, for the year ended
September 30, 1995 (Predecessor) and for the nine month periods ended March 31, 1996
and 1997 (unaudited) A-4
Consolidated statements of changes in shareholders' equity for the nine months ended June 30, 1996,
for the year ended September 30, 1995 (Predecessor) and for the nine month period ended
March 31, 1997 (unaudited) A-5
Consolidated statements of cash flows for the nine months ended June 30, 1996, for the year ended
September 30, 1995 (Predecessor) and for the nine month periods ended March 31, 1996
and 1997 (unaudited) A-6
Notes to consolidated financial statements A-7
FINANCIAL STATEMENTS OF PRIDE AVIATION, INC.
Independent Auditors' Report dated October 7, 1996 by Arsement, Redd & Morella, L.L.C. P-1
Balance sheet as of September 30, 1995 P-2
Statements of operations for the year ended September 30, 1995 and five months ended February 29, 1996 (unaudited) P-3
Statements of changes in shareholders' equity (deficit) for the year ended September 30, 1995 and
five months ended February 29, 1996 (unaudited) P-4
Statements of cash flows for the year ended September 30, 1995 and five months ended February 29, 1996
(unaudited) P-5
Notes to financial statements P-7
CONSOLIDATED FINANCIAL STATEMENTS OF CASPER AIR SERVICE AND SUBSIDIARY
Independent Auditors' Report dated March 27, 1997 by McGladrey & Pullen, LLP C-1
Consolidated balance sheets as of April 30, 1996 and January 31, 1997 (unaudited) C-2
Consolidated statements of income for the fiscal years ended April 30, 1996 and 1995 and the nine months
ended January 31, 1997 and 1996 (unaudited) C-3
Consolidated statements of stockholders' equity for the fiscal years ended April 30, 1996 and 1995 and
the nine months ended January 31, 1997 (unaudited) C-4
Consolidated statements of cash flows for the fiscal years ended April 30, 1996 and 1995 and the nine
months ended January 31, 1997 and 1996 (unaudited) C-6
Notes to consolidated financial statements C-8
</TABLE>
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
To Aviation Group, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Aviation Group,
Inc. (a Texas corporation) and subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the nine months 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aviation Group, Inc. and
subsidiaries as of June 30, 1996, and the results of their operations and cash
flows for the nine months then ended in conformity with generally accepted
accounting principles.
Arsement, Redd & Morella, L.L.C.
October 7, 1996
Lafayette, Louisiana
A-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Tri-Star Aircraft, Inc. and
Tri-Star Airline Services, Inc.
We have audited the accompanying combined statements of income, changes in
shareholders' equity and cash flow of Tri-Star Aircraft, Inc. and Tri-Star
Airline Services, Inc. (Texas corporations) (the Predecessor) for the year
ended September 30, 1995. These financial statements are the responsibility of
the Predecessor's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
Our audit was conducted in accordance with generally accepted audited
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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined statements of income, changes in shareholder's
equity and cash flow present fairly, in all material respects, the results of
operations of the Predecessor for the year ended September 30, 1995, in
conformity with generally accepted accounting principles.
JAMES SMITH & COMPANY
A Professional Corporation
December 22, 1995
Dallas, Texas
A-2
<PAGE> 67
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 457,000 $ 82,000
Accounts receivable 644,000 655,000
Inventory 143,000 249,000
Deferred tax assets 11,000 163,000
Prepaid expenses and other 22,000 61,000
----------- -----------
Total Current Assets 1,277,000 1,210,000
----------- -----------
Property and Equipment 2,409,000 2,744,000
Less: accumulated depreciation (220,000) (463,000)
----------- -----------
2,189,000 2,281,000
Other Assets
Goodwill, net 975,000 937,000
Other 83,000 491,000
----------- -----------
1,058,000 1,428,000
----------- -----------
$ 4,524,000 $ 4,919,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 209,000 $ 209,000
Bridge notes -- 290,000
Short-term bank borrowings 223,000 248,000
Accounts payable 574,000 741,000
Accrued interest 36,000 29,000
Due to affiliates 2,000 --
Accrued liabilities 359,000 422,000
----------- -----------
Total Current Liabilities 1,403,000 1,939,000
----------- -----------
Long-Term Liabilities
Long-term debt, net of current maturities 1,350,000 1,303,000
Deferred income taxes 316,000 305,000
----------- -----------
1,666,000 1,608,000
----------- -----------
Shareholders' Equity
Preferred Stock, $.01 par value, 5,000,000 -- --
shares authorized, none outstanding
Common Stock, $.01 par value, 10,000,000
shares authorized, 1,600,250 shares issued
and outstanding 16,000 16,000
Additional paid-in capital 1,701,000 1,951,000
Retained earnings (deficit) (262,000) (595,000)
----------- -----------
1,455,000 1,372,000
----------- -----------
$ 4,524,000 $ 4,919,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
A-3
<PAGE> 68
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31,
June 30, September 30, (unaudited)
1996 1995 1997 1996
----------- ----------- ----------- -----------
(Nine Months) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
Revenue $ 3,881,000 $ 2,533,000 $ 6,664,000 $ 2,123,000
Cost of Revenue 2,838,000 1,417,000 4,597,000 1,440,000
----------- ----------- ----------- -----------
Gross Profit 1,043,000 1,116,000 2,067,000 683,000
----------- ----------- ----------- -----------
General and Administrative Expenses 752,000 553,000 2,120,000 587,000
Depreciation and Amortization 154,000 16,000 291,000 57,000
----------- ----------- ----------- -----------
906,000 569,000 2,411,000 644,000
----------- ----------- ----------- -----------
Income (Loss) From Operations 137,000 547,000 (344,000) 39,000
----------- ----------- ----------- -----------
Other Income (Expenses)
Interest Income 2,000 -- -- 2,000
Interest Expense (71,000) (20,000) (153,000) (33,000)
Other, net -- 3,000 -- 2,000
----------- ----------- ----------- -----------
(69,000) (17,000) (153,000) (29,000)
----------- ----------- ----------- -----------
Income (Loss) Before Provision for Income
Taxes 68,000 530,000 (497,000) 10,000
Provision (Benefit) for Income Taxes 34,000 188,000 (164,000) 6,000
----------- ----------- ----------- -----------
Net Income (Loss) $ 34,000 $ 342,000 $ (333,000) $ 4,000
=========== =========== =========== ===========
Pro forma earnings (loss) per common and
common equivalent share (unaudited) $ 0.02 $ (0.21)
=========== ===========
Pro forma weighted average common and
common equivalent shares outstanding
(unaudited) 1,605,156 1,605,156
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
A-4
<PAGE> 69
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
-------------------------- Paid In Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
Predecessor combined balances at
September 30, 1994 (1) $ 1,000 $ 50,000 $ 162,000 $ 213,000
Net Income -- -- -- 342,000 342,000
Contribution from The Sanders
Companies, Inc. (Note I) -- -- 151,000 -- 151,000
Dividend to The Sanders
Companies, Inc.(Note I) -- -- -- (787,000) (787,000)
----------- ----------- ----------- ----------- -----------
Predecessor combined balances at
September 30, 1995 (1) 1,000 201,000 (283,000) (81,000)
Restatement to reflect combination
of entities under common control
(Note A) 1,000,000 9,000 (9,000) -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1995
as restated 1,000,000 10,000 192,000 (283,000) (81,000)
Dividend to The Sanders
Companies, Inc. (Note I) -- -- -- (13,000) (13,000)
Issuance of shares in connection 500,000 5,000 1,209,000 -- 1,214,000
private offering
Issuance of shares in connection
with acquisition of Pride Aviation, Inc. 44,250 500 132,500 -- 133,000
Issuance of shares in connection
with settlement of long-term debt 56,000 500 167,500 -- 168,000
Net Income 34,000 34,000
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 1,600,250 16,000 1,701,000 (262,000) 1,455,000
Bridge Notes Warrants (Note O) -- -- 250,000 -- 250,000
Net Loss (unaudited) -- -- -- (333,000) (333,000)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited) 1,600,250 $ 16,000 $1,951,0000 $ (595,000) $ 1,372,000
=========== =========== =========== =========== ===========
</TABLE>
(1) The Predecessor entities, TriStar Aircraft Services, Inc. and TriStar
Airline Services, Inc. had 10,000 and 1,000 shares of common stock outstanding,
respectively, at both September 30, 1994 and 1995.
The accompanying notes are an integral part of these statements.
A-5
<PAGE> 70
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Nine Months Ended
Ended Year Ended March 31,
June 30, September 30, (Unaudited)
1996 1995 1997 1996
----------- ----------- ----------- -----------
(Predecessor)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 34,000 $ 342,000 $ (333,000) $ 4,000
----------- ----------- ----------- -----------
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 154,000 16,000 291,000 57,000
Accrued interest -- -- 40,000 --
(Increase) decrease in deferred income taxes 47,000 36,000 (163,000) 6,000
(Increase) decrease in accounts receivable (123,000) 147,000 26,000 (230,000)
(Increase) decrease in inventories (42,000) -- (106,000) (39,000)
(Increase) decrease in prepaids and other current assets 29,000 (25,000) (75,000) 23,000
Increase (decrease) in accounts payable (214,000) (87,000) 36,000 (43,000)
Increase (decrease) in interest payable 36,000 -- (7,000) 15,000
Increase (decrease) in accrued liabilities (20,000) -- 63,000 44,000
Other (14,000) 11,000 (43,000) (29,000)
----------- ----------- ----------- -----------
Total Adjustments (147,000) 98,000 62,000 (196,000)
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities (113,000) 440,000 (271,000) (192,000)
----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Cash paid for acquisition of Pride Aviation, Inc. (506,000) -- -- (506,000)
Cash paid for acquisition targets -- -- (78,000) --
Cash payments for the purchase of equipment (12,000) (64,000) (335,000) (4,000)
----------- ----------- ----------- -----------
Net Cash Used by Investing Activities (518,000) (64,000) (413,000) (510,000)
----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Bank overdraft -- 29,000 130,000 48,000
Proceeds from short-term borrowings 80,000 170,000 25,000 80,000
Repayments of short-term borrowings (27,000) -- -- (27,000)
Proceeds from issuance of Bridge Notes and Warrants -- -- 500,000 --
Proceeds from issuance of long-term debt -- 194,000 -- --
Advances (to)/from related parties -- (685,000) (45,000) 50,000
Payment of Initial Public Offering costs -- -- (266,000) --
Proceeds from issuance of common stock 1,214,000 -- -- 700,000
Deferred financing costs -- -- (36,000) --
Principal payments on long-term debt (179,000) (84,000) -- (149,000)
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Financing Activities 1,088,000 (376,000) 308,000 702,000
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 457,000 -- (375,000) --
Cash and Cash Equivalents at Beginning of Period -- -- 457,000 --
----------- ----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 457,000 $ -- $ 82,000 $ --
=========== =========== =========== ===========
Supplemental Disclosure of Cash Paid for Interest and
Income Taxes:
Cash paid for interest $ 35,000 $ 20,000 $ 113,000 $ 33,000
Cash paid for income taxes -- -- -- --
Supplemental Disclosure of Non-cash Investing
and Financing Activities:
Issuance of common stock in connection with
the acquisition of Pride Aviation, Inc. $ 133,000 -- -- $ 133,000
Issuance of long-term debt in connection with the
the acquisition of Pride Aviation, Inc. $ 857,000 -- -- $ 857,000
Common stock issued to retire long-term debt $ 168,000 -- -- --
Contribution from The Sanders Companies, Inc. -- $ 151,000 -- $ 151,000
Dividend - to The Sanders Companies, Inc. -- $ 787,000 -- $ 787,000
</TABLE>
The accompanying notes are an integral part of these statements.
A-6
<PAGE> 71
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Aviation Group, Inc. (the "Company") (a Texas corporation) was formed
on December 4, 1995 for the purposes of combining certain aircraft
service operations formerly owned by The Sanders Companies, Inc.
("Sanders") and to acquire additional aircraft servicing related
businesses. Sanders is 100% owned by Lee Sanders, president and chief
executive officer of the Company. On February 21, 1996, the Company
acquired Pride Aviation, Inc. ("Pride") in a business combination
accounted for as a purchase. Pride operates a Federal Aviation
Administration ("FAA") approved repair station and provides aircraft
painting and maintenance services (See Note C).
On December 20, 1995, the Company entered into an Exchange Agreement
(the "Exchange") whereby Sanders contributed all of the outstanding
common stock of Tri-Star Airline Services, Inc. ("Airline") and
Tri-Star Aircraft Services, Inc. ("Aircraft") (collectively the
"Tri-Star Companies" or "Predecessor") to the Company in exchange for
100% of the common stock (1,000,000 shares) of the Company. The
Exchange was accounted for similar to a pooling of interest with no
change in historical basis of assets and liabilities as Sanders
controlled 100% of the stock of the companies prior to and subsequent
to the transaction. Prior to the Exchange, the Tri-Star Companies were
operated as members of a controlled group with other operations of
Sanders. For periods prior to the Exchange, the continuing operations
of the Companies have been separated from the controlled group.
The Company's primary business includes the operation of FAA approved
repair stations in New Iberia, Louisiana and Dallas, Texas which
provide painting and paint stripping services to the commercial
airline and corporate and private aircraft industry. The Company also
provides refueling services and light maintenance services in Dallas,
Texas and snack catering and aircraft cleaning services at various
commercial airports in the United States.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements present the
combined results of the Predecessor for all periods through December
31, 1995, and the consolidated results of the Company and its
subsidiaries subsequent to that date. The Company changed its fiscal
year end during 1996 from September 30 to June 30. All intercompany
balances and transactions have been eliminated in consolidation.
Interim Period Financial Statements
The unaudited financial statements as of March 31, 1997 and for the
nine months ended March 31, 1997 and 1996, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and
results of operations for the respective periods. Operating results
for the interim periods are not necessarily indicative of the results
for full years.
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 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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
A-7
<PAGE> 72
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Accounts Receivable
The Company uses the allowance method in accounting for losses on
accounts receivable. Provision for losses on trade receivable is made
in amounts estimated to be adequate to cover anticipated bad debts.
Accounts receivable are charged against the allowance when it is
determined by management that payment will not be received. Any
subsequent receipts are credited to the allowance. Bad debt expense
charged to operations for the nine months ended June 30, 1996 and the
year ended September 30, 1995 was $16,000 and $47,000, respectively.
The allowance for doubtful accounts was $30,000 at June 30, 1996.
Inventory
Inventories are stated at the lower of cost or market, with cost
determined by the average costing method.
Goodwill
Goodwill represents the cost in excess of fair value of the net assets
(including tax attributes) acquired in the Pride acquisition. Goodwill
is being amortized on a straight line basis over a 20 year period.
Amortization expense and accumulated amortization totaled $17,000 at
June 30, 1996.
Property and Equipment
Property and equipment are stated at cost. Depreciation has been
provided using straight line and double declining balance methods over
the estimated useful lives of the assets which range from 5 to 30
years.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income.
Unaudited Pro Forma Net Income (Loss) Per Common Share
The Company's historical capital structure prior to 1996 is not
comparable to its current structure due to the Exchange discussed in
Note A and the issuance of common stock, warrants and convertible debt
during the fiscal period ended June 30, 1996 in connection with a
private placement of the Company's common stock and the acquisition of
Pride. Accordingly, historical net income (loss) per common share is
not considered meaningful and has not been presented herein.
Pro forma net income (loss) per common share is computed based on the
weighted average number of common shares outstanding and gives effect
to certain adjustments described below. During the fiscal period ended
June 30, 1996, the Company issued common stock, warrants and
convertible debt with issuance and exercise prices below that of the
expected initial public offering ("IPO") price of the Company's common
stock of $8.00 per share. Pursuant to Securities and Exchange
Commission requirements, the dilutive effect of these securities has
been included in the calculation as if they were outstanding as of the
beginning of the periods presented and the dilutive effect of the
common stock and warrants was measured using the treasury stock
method. No adjustment was made for the assumed conversion of the
Company's convertible debt and the Bridge Notes Warrants since the
effect would be antidilutive for the periods presented.
NOTE C - ACQUISITION OF PRIDE AVIATION, INC.
On February 21, 1996, the Company entered into an agreement to acquire
99% of the outstanding common stock of Pride for cash of $486,000,
issuance of $857,000 of 10% Convertible Notes, issuance of 44,250
shares of the Company's common stock valued at approximately $133,000.
At the closing of the acquisition, Pride
A-8
<PAGE> 73
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE C - ACQUISITION OF PRIDE AVIATION, INC., continued
had approximately $906,000 of long-term debt and $947,000 of other
liabilities. The acquisition was accounted for using the purchase
method. Accordingly, the purchase price was allocated to the net
assets acquired based on their estimated fair values. The transaction
was closed in early March 1996 and the results of operations of Pride
are included in the accompanying financial statements beginning March
1, 1996. The excess of the purchase price over the fair value of the
net assets acquired (including tax attributes) of $991,000 has been
recorded as goodwill and is being amortized using the straight-line
method over 20 years.
Supplemental Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma summary presents the consolidated
results of operations for the nine months ended June 30, 1996 as if
the Pride acquisition had occurred as of the beginning of the
Company's fiscal year (October 1, 1995). The summarized information
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of such date or of results which may
occur in the future.
<TABLE>
<S> <C>
Revenues $ 6,755,000
Net Income $ 72,000
Net income per common share $ .05
</TABLE>
Adjustments made in arriving at pro forma unaudited results of
operations included, increased interest expense on acquisition debt,
additional depreciation expense, amortization of goodwill and related
tax adjustments.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1996:
<TABLE>
<S> <C>
Machinery and equipment $1,659,000
Leasehold improvements 530,000
Furniture, fixtures and office equipment 114,000
Vehicles 106,000
----------
2,409,000
Less: accumulated depreciation (220,000)
----------
$2,189,000
==========
</TABLE>
Depreciation expense charged to operations for the nine months ended
June 30, 1996 and the year ended September 30, 1995 was $137,000 and
$16,000, respectively.
NOTE E - SHORT-TERM BANK BORROWINGS
The Company has a $250,000 line of credit facility with Compass Bank
("Line of Credit") which is guaranteed by the U. S. Small Business
Administration. The Line of Credit was effectively assumed by Tri-Star
Aircraft Services, Inc. with the transfer of assets and liabilities in
connection with the Exchange discussed in Note A.
The Line of Credit bears interest at a rate of prime plus 2% (10.75%
at June 30, 1996) and extends through September 30, 1997. Borrowings
under the Line of Credit are determined on a borrowing base formula
which is based on a percentage of qualifying accounts receivable of
the Company and Sanders. Borrowings outstanding under the Line of
Credit totaled $223,000 at June 30, 1996.
The Line of Credit is secured by the accounts receivable, equipment,
furniture and fixtures and capital stock of Sanders and the Tri-Star
Companies. Sanders, as primary maker, remains the liable for
borrowings under the Line of Credit. The Line of Credit is also
secured by the personal guaranty of Lee Sanders.
A-9
<PAGE> 74
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE E - SHORT-TERM BANK BORROWINGS, continued
The Line of Credit Agreement contains restrictive covenants which
among other things prohibits the creation of debt, corporate mergers,
sale of assets and other certain other transactions unless consent is
received from the bank. Management believes the Company and Sanders
were in compliance with the terms of the Line of Credit agreement at
June 30, 1996 and March 31, 1997.
NOTE F - LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 1996:
<TABLE>
<S> <C>
Convertible notes payable, payable in quarterly installments totaling
$72,000 beginning April 1, 1998, bearing interest at 10%, maturing
March 1, 2001 and secured by the Company's shares of common stock of
Pride Aviation, Inc. The notes are convertible into shares of common
stock of the Company at conversion prices ranging from $3.00 to $4.50
per share, subject to adjustment for certain equity transactions. $ 884,000
Convertible notes payable to Louisiana Economic Development
Corporation dated March 1, 1996, payable in 60 monthly installments of
$3,800, including interest at 7.38% and one final installment of the
remaining unpaid balance on March 1, 2001. The note is secured by
pledge of certain shares of common stock, accounts receivable,
inventory and equipment of Pride Aviation, Inc. The note is
convertible into shares of common stock of the Company at a price of
$4.50 per share, subject to adjustment for certain equity
transactions. 386,000
Note payable to Sunbelt Business Capital, L.L.C., payable in monthly
installments of $6,400, including interest at 12%, due June 1998 and
secured by certain accounts receivable and equipment. 135,000
Note payable to Schwing Insurance Agency, payable currently, with
interest at 7.5% on the unpaid balance. 72,000
Note payable to Fidelity Bank, payable in monthly installments of
$1,000 including interest at prime plus 2.5% (10.75% at June 30,
1996), maturing August 1997 and secured by certain machinery and
equipment. 20,000
Note payable to Compass Bank, payable in monthly installments of
$1,600 including interest at prime plus 2.25% (10.5% at June 30,
1996), maturing September 1997 and secured by accounts receivable,
equipment, keyman life insurance policy, and personal guaranty and
pledge of stock of The Sanders Companies, Inc. by Lee Sanders. 27,000
Various notes payable to finance companies, due in monthly
installments totaling 23,000 $1,300, including interest at rates
ranging from 9.5% to 13.25%, maturing from April 1997 to March 1998
and secured by certain vehicles. 23,000
Other 12,000
-----------
Total long-term debt 1,559,000
Less: current maturities of long-term debt (209,000)
-----------
Net long-term debt $ 1,350,000
===========
</TABLE>
A-10
<PAGE> 75
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE F - LONG TERM DEBT, continued
The Company's notes payable to Fidelity Bank and Compass Bank and the
notes payable to finance companies were originally made by Sanders.
This debt was effectively assumed by the Tri-Star Companies with the
transfer of assets and liabilities in connection with the Exchange
discussed in Note A. Sanders remains liable under the note agreements
as the primary maker.
Maturities of long-term debt for each of the next five years are as
follows:
<TABLE>
<CAPTION>
June 30,
<S> <C>
1997 $209,000
1998 186,000
1999 315,000
2000 316,000
2001 532,000
</TABLE>
NOTE G - LEASES
The Company leases various equipment and office and hanger facilities
under cancelable and noncancelable rental arrangements. Rental
expenses from operating leases and monthly rentals for the nine months
ended June 30, 1996 and year ended September 30, 1995, were $252,000
and $42,000, respectively.
Minimum future lease payments for non-cancelable operating leases
for the next 5 years and thereafter are as follows:
<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
1997 $ 348,000
1998 322,000
1999 330,000
2000 334,000
2001 215,000
Thereafter 4,865,000
----------
$6,414,000
==========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company, in connection with the production of revenue, produces
chemical waste which is temporarily stored on the Company's premises.
Costs for disposal are expensed by the Company as waste is produced.
The provision for disposal of waste on hand totaled $16,000 as of June
30, 1996, and is included in accrued liabilities in the accompanying
balance sheet.
One of the Company's subsidiaries is partially self-insured for
employee medical claims. Insurance with independent insurance carriers
is maintained to cover medical claims in excess of self-insured
limits. The Company's self insured limits vary by month and policy
year and are based on various factors including the number of
employees and dependants covered and certain experience factors. In
addition to aggregate annual and monthly limitations, the Company's
exposure is further limited to $30,000 per employee per year.
NOTE I - SHAREHOLDERS' EQUITY
Private Offering
In March 1996, the Company issued 500,000 shares of common stock at a
price of $3.00 per share in a private offering and raised
approximately $1,214,000, net of sales commissions and offering costs
totaling $286,000.
A-11
<PAGE> 76
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE I - SHAREHOLDERS' EQUITY, continued
In connection with the private offering, the Company issued warrants
to the placement agent to purchase 200,000 shares of the Company's
common stock at a price equal to $1.00 per share, expiring February
28, 1999. The Company also issued warrants to an investment banking
advisor, for services provided in connection with the offering, to
purchase 80,000 shares of the Company's common stock at a price equal
to $2.50 per share, expiring February 28, 1999. The exercise price and
number of shares issuable under the warrants are subject to adjustment
for certain equity transactions and other circumstances. The warrants
also contain a "cashless" exercise feature whereby the warrants may be
surrendered in exchange for a number of shares to be determined based
on the difference between the exercise price and the market price for
the Company's common stock.
The holders of the Company's common stock and warrants have certain
registration rights, including the right to require the Company to
file a registration statement to register their securities with the
Securities and Exchange Commission, upon request of a majority of the
holders of the Company's common stock and warrants.
Debt Retirement
During March 1996, the Company issued 56,000 shares of common stock to
retire $168,000 of the outstanding principal amount of indebtedness
owed to Sunbelt Business Capital, L.L.C. (See Note F).
Dividend to/Contribution from The Sanders Companies, Inc.
Through September 30, 1995, the Tri-Star Companies had advanced
$787,000 to Sanders. These advances were declared and classified as
dividends since Sanders did not intend to repay the advances.
The Company's Tri-Star Companies subsidiaries were included in the
consolidated tax return of Sanders for the years ended December 31,
1995 and 1994. The contribution from Sanders for the year ended
September 30, 1995 represents the current tax expense generated by the
Tri-Star Companies for that fiscal year. The tax expense was treated
as a contribution from Sanders since Sanders did not intend to require
the Company to pay it for the expense. The dividend to Sanders for the
nine month period ended June 30, 1996 represents the tax benefit
generated by the Tri-Star Companies for the three month period ended
December 31, 1995. The tax benefit was treated as a dividend to
Sanders since Sanders does not intend to pay the Company for the
benefit.
NOTE J - RELATED PARTY TRANSACTIONS
For periods prior to the Exchange and through March 1, 1996, Sanders
provided services and allocated certain general and administrative
expenses to the companies operating under the controlled group,
including the Tri-Star Companies. Such charges were allocated to the
members of the controlled group based upon the level of management and
supervision time required, services provided and certain other
factors. Management of the Company believes that such allocations are
reasonable. These charges are included in general and administrative
expenses and totaled $77,000 and $203,000 for the period ended June
30, 1996 and year ended September 30, 1995, respectively. One of the
subsidiaries of the Sanders controlled group was not profitable for
the year ended September 30, 1995, and subsequently ceased operations.
The amount of corporate overhead allocated to this subsidiary by
Sanders during the year ended September 30, 1995 was $144,000. Had
this subsidiary not operated in the year ended September 30, 1995, the
Company's corporate overhead allocation would have increased by
$97,000.
A-12
<PAGE> 77
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE J - RELATED PARTY TRANSACTIONS, continued
In connection with the Pride acquisition, on March 1, 1996, the
Company entered into consulting agreements with two former
shareholders of Pride. The consulting agreements provide for the
payment of monthly fees and reimbursement of certain expenses with
terms ranging from 12 to 24 months. Fees paid under these arrangements
totaled $40,000 for the period ended June 30, 1996 with $24,000
capitalized as other assets (See Note O) and $16,000 included in
general and administrative expenses. Minimum future payments over the
remaining terms of these arrangements are $92,000 and $24,000 for the
fiscal years ending June 30, 1997 and 1998, respectively.
As of June 30, 1996, the Company owed $2,000 to Sanders for net
payments made by Sanders on behalf of the Company. Such amount is
reflected as "Due to affiliate" in the accompanying balance sheet.
NOTE K - PROVISION FOR INCOME TAXES
The Company's Tri-Star Companies subsidiaries were included in the
consolidated tax return of Sanders for the periods prior to and
through the date of the Exchange. Sanders did not require its
subsidiaries to pay for their share of the consolidated tax expense or
reimburse the subsidiaries for tax benefits generated. Accordingly,
for periods prior to the Exchange, the tax expense (benefits) for the
Tri Star Companies were computed as if it were a separate taxpayer and
the resulting amount treated as an equity transaction with Sanders.
(See Note I). The Company will file a separate consolidated tax return
for the period ended June 30, 1996.
The provision for income taxes consist of the following components:
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
June 30, 1996 September 30, 1995
------------- ------------------
<S> <C> <C>
Current provision (benefit) (See Note I) $(13,000) $151,000
Deferred taxes 47,000 37,000
-------- --------
Provision for income taxes $ 34,000 $188,000
======== ========
</TABLE>
Deferred taxes are principally due to differences in the basis and
depreciable lives for property and equipment for book and tax purposes
and unused net operating loss carryforwards.
Deferred tax assets and liabilities consisted of the following at June
30, 1996:
<TABLE>
<S> <C>
Assets
Net operating loss carryforward $ 257,000
Liabilities
Property and equipment (536,000)
Other (26,000)
---------
Net deferred tax liability $(305,000)
=========
</TABLE>
The net deferred tax amounts are presented on the balance sheet as
follows:
<TABLE>
<S> <C>
Current deferred tax asset $ 11,000
Long-term deferred tax liability (316,000)
---------
$(305,000)
=========
</TABLE>
A-13
<PAGE> 78
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE K - PROVISION FOR INCOME TAXES, continued
The following is a reconciliation of taxes computed at the federal
statutory rate to the provision for income taxes included in the
financial statements:
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
June 30, 1996 September 30, 1995
------------- ------------------
<S> <C> <C>
Taxes computed by applying federal
statutory rate $ 23,000 $ 180,000
State income taxes, net of federal benefits 15,000 -
Expenses not deductible for tax purposes 6,000 8,000
Effect of graduated tax rates and other (10,000) -
-------- ---------
Provision for income taxes $34,000 $ 188,000
======= =========
</TABLE>
For income tax purposes, the Company has available at June 30, 1996,
unused federal and state net operating loss carryforwards of
approximately $823,000 and $135,000, respectively, which may be
applied against future taxable income of the Company's subsidiary
(Pride), subject to certain annual limitations, expiring in various
years from 2005 to 2009. The Company believes that it is more likely
than not that the net operating loss carryforwards will be utilized in
the future and accordingly, no valuation allowance has been recorded.
NOTE L - PROVISION FOR WARRANTY CLAIMS
The Company generally warrants its products and services against
defects in material and workmanship based on contract terms with
customers. The Company records an estimated liability for warranty
claims, based on actual claims experience, at the time the products
and services are provided and revenue is recognized. The Company's
warranty liability totaled $101,000 as of June 30, 1996, and is
included in accrued liabilities in the accompanying balance sheet.
Warranty claims, which are netted against revenue, totaled $38,000 and
$0 for the period ended June 30, 1996 and year ended September 30,
1995, respectively
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash
equivalents, accounts receivable, short-term bank borrowings and
accounts payable, the carrying amounts approximate fair value due to
their short maturities.
The carrying amount reported for long-term debt approximates fair
value based on current interest rates for debt with similar terms and
maturities.
NOTE N - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Substantially all of the Company's accounts receivable at June 30,
1996, result from sales to third party companies in the airline
industry. This concentration of customers may impact the Company's
overall credit risk, either positively or negatively, in that these
entities may be similarly affected by changes in economic or other
conditions. The Company believes that the risk is mitigated by the
size, reputation and nature of its customers. Although, the Company
generally does not require collateral or other security to support
customer receivables, it may have certain rights, such as the ability
to place liens on aircraft serviced, in the event of non-payment by
its customers.
During the period ended June 30, 1996, the Company derived
approximately 62% of its revenues from United Airlines. Receivables
due from United Airlines totaled approximately $202,000 at June 30,
1996.
A-14
<PAGE> 79
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE N - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS, continued
Revenues for the year ended September 30, 1995, included $1,627,000,
from major two major customers which represents 64% of total revenues.
NOTE O - SUBSEQUENT EVENTS (unaudited)
Acquisition Agreement
On July 10, 1996, the Company entered into an agreement to acquire
certain aircraft refueling operations from a third party for $170,000.
Under the terms of the agreement, the Company would acquire the
seller's interest in a fuel farm held under an operating lease
arrangement and acquire certain refueling contract rights and
refueling equipment. The Company paid $50,000 as a down payment for
the acquisition. As of March 31, 1997, the transaction had not closed
pending certain required regulatory approvals. If such approvals are
not granted, the Company's down payment will be returned and the
agreement canceled.
New Aircraft Hangar and Contract Proposals
The Company has been pursuing efforts to obtain a contract with United
Airlines ("United") for the painting of United's Boeing 747 commercial
aircraft fleet. The Company currently provides painting services for
United's non-747 fleet. Subsequent to June 30, 1996, the Company
submitted a Request For Proposal ("RFP") to United for the painting of
its Boeing 747 fleet. In conjunction with these efforts, the Company
has pursued and obtained commitments for approximately $4,200,000 in
Louisiana state and federal grants toward the construction and
operation of a new aircraft hangar at the Company's New Iberia,
Louisiana location. Approximately $4,300,000 in additional financing
will be required to fund the hangar's $8,500,000 estimated cost. As of
June 30, 1996, the Company has capitalized approximately $24,000 in
costs (See Note J) associated with arranging financing commitments for
the project.
There presently exists no binding agreement between the Company and
United to paint United's 747 fleet. The Company is not obligated to
construct the hangar or fund its $8.5 million cost. There can be no
assurance that if the United 747 paint contract is obtained that
sufficient or suitable financing can ultimately be arranged.
Bridge Notes
In February 1997, the Company completed a private offering of $500,000
of its 10% unsecured, subordinated bridge notes. The proceeds of this
offering are being used to fund costs of the Company's initial public
offering ("IPO") and general working capital purposes. If the Company
successfully completes the IPO by September 30, 1997, the terms of
these notes require the Company to issue to the holders that number of
shares of Common Stock which equals $250,000 divided by the initial
public offering price. Accordingly, $250,000 of the proceeds has been
allocated to equity and credited to paid in capital, and the notes
payable were recorded at a discounted amount of $250,000. The discount
will be amortized to interest expense over the shorter of the period
through September 30, 1997 or the consummation date of the initial
public offering. Unamortized discount at March 31, 1997 totaled
$210,000.
Stock Options
The Company's Board and shareholders approved a 1997 Employee Stock
Option Plan (the "Plan") in February 1997. The Company may grant
options under the Plan to key employees and directors of the Company.
The Board has authorized the grant of options to purchase 26,000
shares of Common Stock exercisable at the initial public offering
price and 10,000 shares of Common Stock exercisable at $4.50 per
share.
Acquisition of Casper Air Service
Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Company expects to consummate this
transaction concurrently with the closing of its initial public
offering. CAS is a full-service FBO located in Casper, Wyoming and has
been in business continuously since 1946. For the nine months ended
January 31, 1997,
A-15
<PAGE> 80
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995
NOTE O - SUBSEQUENT EVENTS (unaudited), continued
CAS had net income of $271,000 and sales of approximately $6,570,000.
The Company has agreed to pay the CAS shareholders approximately
$1,173,000 in cash and approximately $877,000 in value of Common
Stock, based on the initial public offering price.
A-16
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
To Pride Aviation, Inc.
New Iberia, Louisiana
We have audited the accompanying balance sheet of Pride Aviation, Inc. as of
September 30, 1995, and the related statements of operations, changes in
shareholders' equity (deficit) and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Pride Aviation, Inc. as of
September 30, 1995, and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arsement, Redd & Morella, L.L.C.
October 7, 1996
Lafayette, Louisiana
P-1
<PAGE> 82
PRIDE AVIATION, INC.
BALANCE SHEET
September 30, 1995
ASSETS
<TABLE>
Current Assets
<S> <C>
Cash and cash equivalents $ 1,000
Accounts receivable 366,000
Inventory 126,000
Note receivable 13,000
Other current assets 39,000
-----------
Total Current Assets 545,000
-----------
Plant and Equipment, net of accumulated
depreciation of $869,000 704,000
-----------
Other Assets
Deposits and other 142,000
-----------
$ 1,391,000
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Bank overdraft $ 74,000
Note payable to shareholder 265,000
Current maturities of long-term debt 315,000
Accounts payable 796,000
Accrued expenses 331,000
-----------
Total Current Liabilities 1,781,000
-----------
Long-term Liabilities
Long-term debt, net of current maturities 685,000
-----------
Shareholders' Equity (Deficit)
Common stock, $1.00 par value 50,000 shares
authorized, 10,000 shares issued and outstanding. 10,000
Additional paid-in capital 1,480,000
Accumulated deficit (2,565,000)
-----------
(1,075,000)
-----------
$ 1,391,000
===========
</TABLE>
P-2
The accompanying notes are an integral part of these statements.
<PAGE> 83
PRIDE AVIATION, INC.
STATEMENTS OF OPERATIONS
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996
<TABLE>
<Caption
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- -----------
(Unaudited)
<S> <C> <C>
Revenue $ 6,519,000 $ 2,874,000
Cost of Revenue 4,302,000 2,117,000
----------- -----------
Gross Profit 2,217,000 757,000
General and Administrative Expenses 1,957,000 466,000
Depreciation and Amortization 174,000 60,000
----------- -----------
Income From Operations 86,000 231,000
----------- -----------
Other Income (Expenses)
Other income -- 22,000
Interest expense (167,000) (58,000)
----------- -----------
(167,000) (36,000)
----------- -----------
Net Income (Loss) $ (81,000) $ 195,000
=========== ===========
</TABLE>
P-3
The accompanying notes are an integral part of these statements.
<PAGE> 84
PRIDE AVIATION, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996
<TABLE>
<CAPTION>
Common Paid in Accumulated
Stock Capital Deficit
----------- ----------- -----------
<S> <C> <C> <C>
Balance, September 30, 1994 $ 6,000 $ 1,480,000 $(2,484,000)
Net Loss -- -- (81,000)
Issuance of stock 4,000 -- --
----------- ----------- -----------
Balance, September 30, 1995 10,000 1,480,000 (2,565,000)
Net Income (Unaudited) -- -- 195,000
Contribution from shareholder (Unaudited) -- 95,000 --
----------- ----------- -----------
Balance, February 29, 1996 (Unaudited) $ 10,000 $ 1,575,000 $(2,370,000)
=========== =========== ===========
</TABLE>
P-4
The accompanying notes are an integral part of these statements.
<PAGE> 85
PRIDE AVIATION, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- -----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (81,000) $ 195,000
----------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 184,000 60,000
Interest paid with refinancing 36,000 --
(Increase) decrease in accounts receivable 61,000 (67,000)
(Increase) decrease in inventories (14,000) 8,000
(Increase) decrease in other current assets (36,000) 10,000
Increase (decrease) in accounts payable 200,000 15,000
Increase (decrease) in accrued liabilities 59,000 65,000
Increase (decrease) in interest payable (13,000) 5,000
Other -- 9,000
----------- -----------
Total Adjustments 477,000 105,000
----------- -----------
Net Cash Provided (Used) by Operating Activities 396,000 300,000
----------- -----------
Cash Flows From Investing Activities:
Cash payments for the purchase of equipment (209,000) (41,000)
Collection of notes receivable -- 13,000
----------- -----------
Net Cash Used by Investing Activities (209,000) (28,000)
----------- -----------
Cash Flows From Financing Activities:
Bank overdraft (9,000) (2,000)
Proceeds from short-term borrowings 2,047,000 --
Repayments on short-term borrowings (2,125,000) --
Proceeds from issuance of long-term debt 588,000 --
Principal payments on long-term debt (693,000) (93,000)
Advances to shareholder -- (177,000)
Proceeds from issuance of common stock 4,000 --
----------- -----------
Net Cash Provided (Used) by Financing Activities (188,000) (272,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents -- --
Cash and Cash Equivalents at Beginning of Period 1,000 1,000
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,000 $ 1,000
=========== ===========
Supplemental Disclosure of Cash Paid for
Interest and Income Taxes:
Cash paid for interest $ 145,000 $ 54,000
Cash paid for income taxes -- --
Supplemental Disclosure of Non-cash
Financing and Investing Activities:
Interest paid with refinancing of long-term debt $ 36,000 $ --
</TABLE>
P-5
The accompanying notes are an integral part of these statements.
<PAGE> 86
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Pride Aviation, Inc. (an Oklahoma corporation) (the "Company"),
located in New Iberia, Louisiana, was established as a F.A.A. repair
station for specialized aircraft maintenance services including paint
stripping and painting operations on certain types of aircraft.
In February 1996, the shareholders sold the company to Aviation Group,
Inc. ("Aviation Group") for cash of $486,000, 44,250 shares of the
Aviation Group, Inc. stock and assumption of the Company's long-term
debt and other liabilities. The accompanying statements include
statements of operations, changes in shareholders' deficit and cash
flows for the five month period through the effective date of the
sale, February 29, 1996. Subsequent to February 29, 1996, the
financial position and results of operations of the Company are
included with the consolidated financial statements of Aviation Group,
Inc. The accompanying financial statements were prepared on the
historical cost basis of accounting and do not reflect any purchase
accounting adjustments arising from the sale to Aviation Group, Inc.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Accounts Receivable
The Company uses the allowance method in accounting for losses on
accounts receivable. Management believes that all accounts receivable
as of September 30, 1995 and February 29, 1996 were fully collectible;
therefore, no allowance for doubtful accounts was recorded. Bad debt
expense charged to operations was $2,000 for the year ended September
30, 1995 and $0 (unaudited) for the five months ended February 29,
1996.
The Company grants credit to customers, many of whom are in the
airline industry.
Inventory
Inventories are stated at the lower of cost, with cost determined by
the average costing method.
Machinery and Equipment
Machinery and equipment are stated at cost. Depreciation has been
provided using straight line and double declining balance methods over
the estimated useful lives of the assets which range from 3 to 40
years.
P-6
The accompanying notes are an integral part of these statements.
<PAGE> 87
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income.
Reclassifications
Certain reclassifications have been made to the prior year statements
to conform to the current year presentation.
NOTE C - PLANT AND EQUIPMENT
Plant and equipment consisted of the following at September 30, 1995:
<TABLE>
<S> <C>
Machinery and equipment $ 869,000
Leasehold improvements 465,000
Furniture, fixtures and office equipment 66,000
Vehicles 16,000
Construction in progress 157,000
-----------
1,573,000
Less: accumulated depreciation (869,000)
-----------
$ 704,000
===========
</TABLE>
NOTE D - NOTE RECEIVABLE
The Company has a note receivable owed from Industrial Helicopters,
Inc. in the original amount of $40,000. The note is non-interest
bearing and is secured by equipment.
P-7
The accompanying notes are an integral part of these statements.
<PAGE> 88
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE E - LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt consisted of the following at September 30, 1995:
Note payable to Louisiana Economic Development Corporation, payable in
60 monthly installments of $11,675, including interest at 7.28%,
secured by pledge of stock and personal guaranty of Frank Rice,
assignment of life insurance, accounts receivable, inventory and
equipment $ 533,000
Note payable to Sunbelt Business Capital, Inc., payable in monthly
installments of $13,285 including interest at 12%, secured by personal
guaranty of the shareholders, accounts receivable, inventory and
equipment 372,000
Note payable to Schwing Insurance Agency, payable in monthly
installments of $3,825 including interest at 7.5%. 72,000
Other 23,000
----------
1,000,000
Less: current maturities of long-term debt (315,000)
----------
Net long-term debt $ 685,000
==========
</TABLE>
Maturities of long-term debt for each of the next five years are as follows:
<TABLE>
<S> <C>
September 30,
1996 $302,000
1997 249,000
1998 235,000
1999 130,000
2000 66,000
</TABLE>
P-8
The accompanying notes are an integral part of these statements.
<PAGE> 89
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE F - OPERATING LEASES
The Company leases various equipment and office and hanger facilities
under cancelable and noncancelable rental arrangements.
Rental expenses from operating leases and monthly rentals were as
follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 3 February 29,
1995 1996
----------- --------------
(Unaudited)
<S> <C> <C>
Rent expense $ 401,000 $ 205,000
=========== ===========
</TABLE>
The Company is committed to several operating leases for its hangars
and certain equipment. Minimum future lease payments of all
non-cancelable operating leases for the next five years are as
follows:
<TABLE>
<S> <C>
September 30,
1996 $ 383,000
1997 383,000
1998 384,000
1999 388,000
2000 305,000
Thereafter 5,036,000
----------
$6,879,000
==========
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company, in connection with the production of revenue, produces
chemical waste which is temporarily stored on the Company's premises.
Costs for disposal are expensed by the Company as waste is produced.
The provisions for disposal of waste on hand was as follows and are
included in other liabilities ccompanying balance sheet.
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 3 February 29,
1995 1996
----------- --------------
(Unaudited)
<S> <C> <C>
Provision for waste disposal $ 25,000 $ 18,000
========= =========
</TABLE>
P-9
The accompanying notes are an integral part of these statements.
<PAGE> 90
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE H - RELATED PARTY TRANSACTIONS
Frank Rice
Frank Rice was President of the Company and owned approximately 50.1%
of the Company's common stock prior to the sale to Aviation Group. The
Company had the following transaction with Frank Rice during the
periods ending September 30, 1995 and February 29, 1996.
Note Payable to Shareholder
The Company had notes payable to Frank Rice totaling $265,000 as of
September 30, 1995, payable on demand with interest at 18%. Interest
expense related to this note was $33,000 during the year ended
September 30, 1995. At September 30, 1995, the Company had $9,000 due
to Frank Rice which is included in accounts payable in the
accompanying balance sheet.
Transfer of Alexandria Assets (Unaudited)
Effective after the fiscal year ended September 30, 1995, the Company
transferred its Alexandria, Louisiana operations to Frank Rice. The
agreement provided for among other things, the assignment of all
receivables, payables, fixed assets and leases associated with the
Alexandria location to Frank Rice in exchange for Frank Rice's
forgiveness of the $265,000 note payable above and the Company's
forgiveness of certain advances made to Frank Rice on behalf of the
Alexandria operations. The excess of the amount of note payable
forgiven over the net book value of the assets transferred and the
advances forgiven totaled $95,000 and was recorded as a "Contribution
from shareholder" in the accompanying statement of changes in
shareholders' equity.
Sunbelt Business Capital
Sunbelt Business Capital was a shareholder of the Company prior to the
sale to Aviation Group. Charlie Weed, a consultant to the Company, was
also the President of Sunbelt Business Capital.
Consulting Fees
The amount of consulting fees incurred from Charlie Weed and Sunbelt
Business Capital for the year ended September 30, 1995 and the five
months ended February 29, 1996 was as follows:
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
----------- ------------
(Unaudited)
Charlie Weed $ 74,000 $ 30,000
======== ========
Sunbelt Business Capital $ 7,000 $ --
======== ========
P-10
The accompanying notes are an integral part of these statements.
<PAGE> 91
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE H - RELATED PARTY TRANSACTIONS, continued
Of the total amount of consulting fees for the year ended September
30, 1995, approximately $33,000 was included in accounts payable at
September 30, 1995.
Financing
The Company had a note payable to Sunbelt Business Capital in the
amount of $372,000 as of September 30, 1995. In addition, the Company
had a $300,000 line of credit facility with Sunbelt Business Capital
which bore interest at 18% and expired on May 1, 1995. Interest
expense related to the notes and line of credit was as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
-------- --------
(unaudited)
<S> <C> <C>
Interest expense $ 77,000 $ 18,000
======== ========
</TABLE>
NOTE I - INCOME TAXES
No provision or benefit for income taxes is recognized in the
financial statements for the year ended September 30, 1995 and the
five months ended February 29, 1996, due to the existence of net
operating losses and unrecognized net operating loss carryforwards.
Deferred tax assets consisted of the following at September 30, 1995:
Net operating losses $ 953,000
Valuation allowance on deferred tax asset (953,000)
------------
Net deferred tax asset $ --
============
For income tax purposes, the Company had available at September 30,
1995, unused operating loss carryforwards of $2,500,000, which were
available to be applied against future taxable income expiring in
various years from 2005 to 2009.
P-11
The accompanying notes are an integral part of these statements.
<PAGE> 92
PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)
NOTE J - PROVISION FOR WARRANTY CLAIMS
The Company generally warrants its products and services against
defects in material and workmanship based on contract terms with
customers. The Company records an estimated liability for warranty
claims, based on actual claims experience, at the time the products
and services are provided and revenue is recognized. The Company's
warranty liability totaled $74,000 as of September 30, 1995, and is
included in other liabilities in the accompanying balance sheet. The
provision for warranty claims, which is netted against revenue, was as
follows:
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
----------- ------------
Provision for warranty claims $ 68,000 $ 43,000
======== ========
NOTE K - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Substantially all of the Company's accounts receivable at September
30, 1995, result from sales to third party companies in the airline
industry. This concentration of customers may impact the Company's
overall credit risk, either positively or negatively, in that these
entities may be similarly affected by changes in economic or other
conditions. The Company believes that the risk is mitigated by the
size, reputation and nature of its customers. In addition, the Company
generally does not require collateral or other security to support
customer receivables.
The following summarizes the customers which accounted for greater
than 10% of the Company's revenues during the year ended September 30,
1995 and the five months ended February 29, 1996:
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- ------------
(Unaudited)
United Airlines 76% 96%
=== ===
P-12
The accompanying notes are an integral part of these statements.
<PAGE> 93
[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Casper Air Service
Casper, Wyoming
We have audited the accompanying consolidated balance sheets of Casper Air
Service and Subsidiary as of April 30, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended April 30, 1996. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Casper Air Service and Subsidiary, as of April 30, 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended April 30, 1996 in conformity with generally accepted accounting
principles.
/s/ MCGLADREY & PULLEN, LLP
Casper, Wyoming
January 24, 1997
C-1
<PAGE> 94
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996
AND JANUARY 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
ASSETS (Note 6) 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 229,000 $ 78,000
Restricted cash 100,000 100,000
Investment in available-for-sale securities (Note 2) 107,000 110,000
Trade receivables 468,000 614,000
Inventories (Note 3) 2,180,000 1,311,000
Deposits and other assets 31,000 10,000
----------- -----------
TOTAL CURRENT ASSETS 3,115,000 2,223,000
Property and Equipment, net (Note 4) 1,522,000 1,386,000
Notes Receivable Employees 13,000 11,000
----------- -----------
$ 4,650,000 $ 3,620,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (Note 5) $ 443,000 $ 628,000
Floor plans payable (Note 5) 1,315,000 138,000
Current maturities of long-term debt (Note 5) 366,000 329,000
Trade accounts payable 570,000 559,000
Accrued liabilities 66,000 44,000
Fuel, services and other deposits 98,000 107,000
----------- -----------
Total current liabilities 2,858,000 1,805,000
----------- -----------
Long-Term Debt, less current maturities (Note 5) 1,234,000 983,000
----------- -----------
Commitments and Contingencies (Notes 7 and 8)
Stockholders' Equity
Common stock, no par value, 10,000,000 shares
authorized, 187,146 shares issued 19,000 19,000
Additional contributed capital 2,697,000 2,697,000
Accumulated deficit (667,000) (396,000)
Unrealized gain (loss) on 'investment securities (Note 2) (2,000) 1,000
----------- -----------
2,047,000 2,321,000
Less: Treasury stock, 22,625 shares (569,000) (569,000)
Unearned ESOP shares (Note 7) (920,000) (920,000)
----------- -----------
558,000 832,000
----------- -----------
$ 4,650,000 3,620,000
=========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
C-2
<PAGE> 95
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995
AND THE NINE MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
-------------------------- --------------------------
1996 1995 1997 1996
- ------------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C>
Net Sales $ 6,915,000 $6,278,000 $ 6,570,000 $ 5,260,000
Cost of Sales 6,210,000 5,659,000 5,629,000 4,628,000
----------- ---------- ----------- -----------
GROSS PROFIT 705,000 619,000 941,000 632,000
Operating Expenses 728,000 901,000 580,000 632,000
----------- ---------- ----------- -----------
OPERATING INCOME
(LOSS) (23,000) (282,000) 361,000 --
----------- ---------- ----------- -----------
Other Income (Expense)
Interest income 31,000 38,000 19,000 23,000
Interest expense (213,000) (228,000) (169,000) (183,000)
Gain from sale of assets 4,000 426,000 53,000 4,000
Other income (expense) (25,000) 4,000 7,000 2,000
----------- ---------- ----------- -----------
(203,000) 240,000 (90,000) (154,000)
----------- ---------- ----------- -----------
NET INCOME (LOSS)
(NOTE 7) $ (226,000) $ (42,000) $ 271,000 $ (154,000)
=========== ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
C-3
<PAGE> 96
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 1996
and 1995 and the Nine Months Ended January 31, 1997
<TABLE>
<CAPTION>
Additional
Common Contributed Accumulated
Stock Capital Deficit
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, April 30, 1994 $ 19,000 $ 2,913,000 $ (399,000)
Redemption of ESOP shares - treasury stock -- (99,000) --
Purchase of treasury stock - ESOP shares -- -- --
Net (loss) -- -- (42,000)
----------- ----------- -----------
Balance, April 30, 1995 19,000 2,814,000 (441,000)
Redemption of ESOP shares - treasury stock -- (117,000)
Change in unrealized (loss) on available-for-sale
investments -- -- --
Net (loss) -- -- (226,000)
----------- ----------- -----------
Balance, April 30, 1996 19,000 2,697,000 (667,000)
Change in unrealized gain on available-for-sale
investments (unaudited) -- -- --
Net income (unaudited) -- -- 271,000
----------- ----------- -----------
Balance, January 31, 1997 (unaudited) $ 19,000 $ 2,697,000 $ (396,000)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
C-4
<PAGE> 97
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Investment Treasury Unearned
Securities Stock ESOP Shares Total
- --------------------------------------------------------
<C> <C> <C> <C>
$ -- $ (272,000) $(1,422,000) $ 839,000
-- (142,000) 241,000 --
-- (11,000) -- (11,000)
-- -- -- (42,000)
- ----------- ----------- ----------- -----------
-- (425,000) (1,181,000)
-- (144,000) 261,000 --
(2,000) -- -- (2,000)
-- -- -- (226,000)
- ----------- ----------- ----------- -----------
(2,000) (569,000) (920,000)
3,000 -- -- 3,000
-- -- -- 271,000
- ----------- ----------- ----------- -----------
$ 1,000 $ (569,000) $ (920,000) $ 832,000
=========== =========== =========== ===========
</TABLE>
C-5
<PAGE> 98
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995
AND THE NINE MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
-------------------------- -------------------------
1996 1995 1997 1996
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (226,000) $ (42,000) $ 271,000 $ (154,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 248,000 349,000 159,000 191,000
(Gain) on sale of assets (4,000) (426,000) (53,000) (4,000)
Loss on worthless debenture 15,000 15,000 -- 15,000
Increase (decrease) in cash as a result of
changes in operating assets and
liabilities:
Trade receivables 173,000 134,000 (146,000) 101,000
Inventories (1,243,000) 152,000 869,000 (350,000)
Deposits and other assets (24,000) 21,000 21,000 (60,000)
Accounts payable (111,000) (99,000) (11,000) (151,000)
Accrued liabilities 33,000 (47,000) (22,000) 4,000
Prepaid fuel, services and other
deposits (51,000) 141,000 9,000 (41,000)
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,190,000) 198,000 1,097,000 (449,000)
----------- ---------- ---------- -----------
Cash Flows from Investing Activities
Proceeds from sale of investments -- 21,000 -- --
Proceeds from sale of equipment 28,000 1,241,000 94,000 28,000
Purchase of property and equipment (239,000) (691,000) (64,000) (168,000)
Receipt of cash restricted for letters of
credit 150,000 3,000 -- 150,000
Investment in certificate of deposit (100,000) -- -- (100,000)
Investment in marketable securities (27,000) (56,000) -- (16,000)
Payments received on notes receivable 17,000 20,000 2,000 --
Advances on notes receivable -- -- -- (68,000)
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (171,000) 538,000 32,000 (174,000)
----------- ---------- ---------- -----------
Cash Flows from Financing Activities
Net increase (decrease) in outstanding
checks in excess of bank balance (177,000) -- -- (177,000)
Proceeds from (payments on) flooring
arrangements 1,315,000 -- (1,177,000) 278,000
Net change in short-term borrowing 267,000 (284,000) 185,000 300,000
Proceeds from issuance of long-term debt 213,000 290,000 -- 213,000
Principal reduction on long-term debt (312,000) (459,000) (288,000) (196,000)
Purchase of treasury stock -- (11,000) -- --
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,306,000 (464,000) (1,280,000) 418,000
----------- ---------- ---------- -----------
</TABLE>
Continued
C-6
<PAGE> 99
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995 AND THE NINE MONTHS ENDED
JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
April 30, January 31,
-------------------------- -------------------------
1996 1995 1997 1996
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (55,000) $ 272,000 $ (151,000) $ (205,000)
Cash and cash equivalents:
Beginning of year 284,000 12,000 229,000 284,000
----------- ---------- ---------- -----------
End of year $ 229,000 $ 284,000 $ 78,000 $ 79,000
=========== ========== ========== ===========
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest expense $ 219,000 $ 223,000 $ 182,000 $ 183,000
Supplemental Disclosure of Noncash
Financing Activities
Shares purchased from ESOP in lieu
of treasury shares 261,000 241,000 -- --
</TABLE>
See Notes to Consolidated Financial Statements.
C-7
<PAGE> 100
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Casper Air Service, the Company, operates a full-service, fixed-base operation
featuring aircraft sales, charter flights, aircraft maintenance, propeller
overhaul, an accessory overhaul shop, parts distribution, line service and
college-level aviation education at the Natrona County International Airport in
Casper, Wyoming. The Company grants credit to customers through the normal
course of business. Casper Air Service's wholly-owned subsidiary, Casper Flying
Service, rents a charter aircraft to Casper Air Service.
Casper Air Service acquired Casper Flying Service subsequent to April 30, 1996.
Casper Flying Service was owned by the majority stockholder of Casper Air
Service. These financial statements have been reinstated to reflect Casper
Flying Service as if it had been acquired April 3, 1994 in a manner similar to
a pooling of interest.
A summary of significant accounting policies applied in the preparation of the
accompanying financial statements follows:
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its subsidiary. All material
intercompany balances and transactions have been eliminated in consolidation.
Interim period financial statements: The unaudited financial statements as of
January 31, 1997 and for the nine months ended January 31, 1997 and 1996,
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly state the financial position
and results of operations for the respective periods. Operating results for the
interim periods are not necessarily indicative of the results for full years.
The interim financial statements are not intended to be a complete presentation
in accordance with generally accepted accounting principles.
Cash and cash equivalents: For purposes of the statement of cash flows, the
Companies consider all unrestricted highly-liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Investment in available-for-sale securities: Casper Air Service has
investments in marketable equity securities. Marketable equity securities
consist primarily of common stocks that are traded or listed on national
exchanges.
Financial Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires that management determine
the appropriate classification of securities at the date individual investment
securities are acquired, and that the appropriateness of such classification be
reassessed at each balance sheet date. Since the Company neither buys
investment securities in anticipation of short-term fluctuations in market
prices nor can commit to holding debt securities to their maturities, the
investment in marketable equity securities have been classified as
available-for-sale in accordance with Statement No. 115. Available-for-sale
securities are stated at fair value, and unrealized holding gains and losses,
net of the related deferred tax effect, are reported as a separate component of
stockholders' equity. Gains and losses are determined by the specific
identification method.
C-8
<PAGE> 101
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
Inventories: Aircraft inventory held for resale is valued at the lower of cost
(specific-identification method) or market, the parts inventory is valued at
cost (weighted-average method) which is not in excess of market.
Property and equipment: Depreciation is provided for in amounts sufficient to
relate the cost of the depreciable assets to operations over their estimated
service lives on the straight line basis. Depreciation is computed over the
following lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 7-40
Flight charter equipment 5-10
Other equipment 3-10
</TABLE>
Maintenance and repairs of property and equipment are charged to operations and
major improvements prolonging the life of the assets are capitalized.
Income taxes: Casper Air Service provides for deferred taxes on a liability
method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Prior to its acquisition, Casper Flying Service, with the consent of its
shareholder, elected to be taxed under sections of federal income tax law,
which provide that, in lieu of corporate income taxes, the stockholder
separately accounts for its items of income, deductions, losses and credits. As
a result of this election, no income taxes have been recognized in the
accompanying financial statements for Casper Flying Service prior to
acquisition. It is the intent of the Company to file a consolidated tax return
and income taxes are recognized after the acquisition date on a consolidated
basis.
Employee stock ownership plan: Casper Air Service accounts for compensation
expenses for ESOP contributions by a method which determines the expense to be
at least 80% of the amount that would be expensed under the shares allocated
method. Casper Air Service has elected not to implement the provision of
Statement of Position 93-6, Employers Accounting for Employee Stock Ownership
Plans, for stock sold to the ESOP prior to December 31, 1992. However, any
future stock purchases by the ESOP will be subject to the expense recognition
requirements of SOP 93-6.
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
C-9
<PAGE> 102
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
Fair value of financial instruments: Financial Accounting Standards Board
("FASB") Statement No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement No. 107 excludes certain
financial instruments and all nonfinancial assets and liabilities from its
disclosure requirements. The following methods and assumptions were used to
estimate the fair value of financial instruments:
Cash, cash equivalents and restricted cash: The carrying amount
approximates fair value because of the short maturity of those
instruments.
Investment in available-for-sale securities: Investments are carried
at fair value.
Notes payable and floor plans payable: The carrying amount
approximates fair value because the debt terms are negotiated
annually.
Long-term debt: The fair values of the Companies' long-term debt are
estimated using discounted cash flow analyses, based on the Companies'
current incremental borrowing rates for similar types of borrowing
arrangements. The fair value approximates carrying value.
NOTE 2. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities at April 30, 1996 are carried at market value.
The related cost and unrealized (loss) on these securities at April 30, 1996
were $109,000 and ($2,000), respectively. Marketable securities were sold
during the year ended April 30, 1996 for $25,000 with no realized gain or loss.
The unrealized loss on investment securities increased by $2,000 during the
year ended April 30, 1996.
NOTE 3. INVENTORIES
The composition of the inventories is as follows:
<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
1996 1997
------------ -----------
<S> <C> <C>
Aircraft held for sale $ 1,392,000 $ 485,000
Parts 783,000 817,000
Other 5,000 9,000
------------ -----------
$ 2,180,000 $ 1,311,000
============ ===========
</TABLE>
C-10
<PAGE> 103
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
Casper Air Service carries small quantities of a large number of parts for
older model planes still in service. A substantial portion of these parts are
sold to charter services and aircraft maintenance operations throughout the
United States and overseas. Management removes parts from inventory which are
dated or determined to be obsolete by the Federal Aviation Administration and
believe that the remaining parts are salable. However, in accordance with
industry practice, these inventories are included in current assets even
though a substantial portion will not be sold within one year in the normal
course of business.
In July 1996, Casper Air Service sold two of the three aircraft held for sale
as of April 30, 1996 for $1,427,000. The cost of these aircraft at April 30,
1996 was $1,315,000.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following as of April 30, 1996:
<TABLE>
<S> <C>
Buildings and improvements $ 1,641,000
Flight charter equipment 2,050,000
Other equipment 883,000
-----------
4,574,000
Accumulated depreciation (3,052,000)
-----------
$ 1,522,000
===========
</TABLE>
C-11
<PAGE> 104
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
NOTE 5. NOTES PAYABLE, FLOORING ARRANGEMENTS, LONG-TERM DEBT AND ASSETS
PLEDGED THEREON
The Companies' notes payable, financing arrangements and long-term debt and
assets pledged thereon as of April 30, 1996 are as follows:
<TABLE>
<S> <C>
Notes payable:
$400,000 line of credit with a bank, interest at 1.5% over bank's prime
rate (10.55% as of April 30, 1996), interest payable monthly,
collateralized by receivables and inventories, due October 1996,
subsequently renewed through November 1997 $ 370,000
$150,060 line of credit with a bank, interest at 1.5% over bank's prime
rate (10.5% as of April 30, 1996), interest payable quarterly,
collateralized by an airplane, due June 1996, subsequently renewed
through May 1997 73,000
----------
$ 443,000
==========
Flooring arrangements:
Flooring arrangement with Cessna, interest at 10.25%, paid in full on
sale of aircraft, July 1996 $1,210,000
Flooring arrangement with Cessna, interest at 10.5%, paid in full on sale
of aircraft, July 1996 105,000
----------
$1,315,000
==========
Long-term debt:
Note payable to Small Business Administration, payable in monthly payments
of $9,876, including interest at 10% due February 2003, collateralized
by building improvements, equipment and guarantees of the ESOP and
majority shareholder $ 588,000
Notes payable to aircraft finance corporations, payable in monthly payments
aggregating $12,186, plus interest at 2% over banks' prime rates (10.25%
to 11% as of April 30, 1996), due through April 2001, collateralized
by flight charter aircraft 547,000
Notes payable to bank, payable in monthly payments aggregating $2,737,
including interest rates ranging from 7.85% to 9.75%, due through
December 2000, collateralized by flight charter aircraft and certificate
of deposit 205,000
Note payable to an individual, payable in monthly payments of $5,840,
including interest at 8%, due March 1998, collateralized by an aircraft
and personal guarantee of the majority shareholder 124,000
Notes payable due in monthly payments aggregating $1,446 and an annual
payment of $6,802, including interest ranging from 10% to 21.45%, due
through January 2000, collateralized by equipment 74,000
Note payable to a former stockholder and relative of the majority
stockholder, payable in monthly payments of $3,000, including effective
interest at 31%, due April 2001, collateralized by the assets of
Casper Air Service 62,000
----------
1,600,000
Less current maturities (366,000)
----------
$1,234,000
==========
</TABLE>
C-12
<PAGE> 105
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
Aggregate future maturities of long-term debt as of April 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Year ended April 30,
- --------------------
<S> <C>
1997 $ 366,000
1998 290,000
1999 237,000
2000 300,000
2001 199,000
Thereafter 208,000
----------
$1,600,000
==========
</TABLE>
NOTE 6. INCOME TAXES
Net deferred tax assets consist of the following components as of April 30,
1996:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 183,000
Investment tax credits carryforward 81,000
Other components 32,000
----------
296,000
Less valuation allowance 296,000
----------
$ --
==========
</TABLE>
As of April 30, 1996, Casper Air Service has recorded a valuation allowance of
$296,000 on the deferred tax assets to reduce the total to an amount that is
estimated to be ultimately realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
No income tax benefit was included in operations for the years ended April 30,
1996 and 1995. This differs from the amounts obtained by applying the U.S.
federal income tax rate to pre-tax loss due to the following:
<TABLE>
<CAPTION>
(Unaudited)
January 31,
1996 1995 1997
<S> <C> <C> <C>
Computed "expected" tax benefit $ 77,000 $ 13,000 $ 92,000
Increase (decrease) resulting from:
Subsidiary election to be taxed at the
stockholder level (13,000) (10,000) --
Nondeductible expenses (5,000) -- --
Increase in valuation allowance (59,000) (3,000) --
Reduction of valuation allowance -- -- (92,000)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>
C-13
<PAGE> 106
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
At April 30, 1996, Casper Air Service had available net operating loss
carryforwards of $729,000, which includes the effect of the accumulated ESOP
contribution expense of $1,326,000 since the ESOP was adopted in 1989. The net
operating loss carryforward is available to offset future taxable income.
Casper Air Service also has investment tax credits of $81,000 available to
offset future federal income tax. The Internal Revenue Code, Section 382,
limits the utilization of net operating loss carryforwards when certain
ownership changes occur, measured over a three-year period. The net operating
loss carryforward and investment tax credits expire as follows:
<TABLE>
<CAPTION>
Net Operating Investment
Year of Expiration Loss Tax Credit
- ------------------ ------------- ----------
<S> <C> <C>
1997 $ -- $ 6,000
1998 -- 46,000
1999 -- 29,000
2007 48,000 --
2009 580,000 --
2110 7,000 --
2111 94,000 --
--------- ---------
$ 729,000 $ 81,000
========= =========
</TABLE>
NOTE 7. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan and Trust: Casper Air Service sponsors an
Employee Stock Ownership Plan and Trust ("ESOP") which covers substantially all
employees who are not included in a collective bargaining agreement. The ESOP
is designed to enable employees who meet minimum age and length of service
requirements to acquire stock ownership in the Company. The ESOP is
noncontributory and vesting occurs at a rate of 20% per year of accumulated
service, commencing with the third year of service.
The ESOP borrowed $2,500,000 from the Company to purchase 81,887 shares of
common stock in 1989. The loan obligation of the ESOP is considered unearned
employee benefit expense and, as such, is recorded as a reduction of the
Company's stockholders' equity. The ESOP shares which have not been allocated
are pledged as collateral for this debt. As the debt is repaid, shares are
released from collateral based on the proportion of debt service paid in the
year and allocated to active employees. Because no shares were allocated for
1996 or 1995, the expense was limited to the interest expense of $98,000 and
$118,000 for the years ended April 30, 1996 and 1995, respectively, which was
offset against the interest income from the note receivable.
If a terminated participant desires to sell his or her shares of the Company's
stock, or for certain employees who elect to diversify their account balances,
the Company may be required to purchase the shares from the participant at
their fair market value. However, as long as the existing ESOP debt is unpaid,
employees that terminate for reasons other than death or disability may not
receive share distributions from the plan and the Company has no obligation to
repurchase shares allocated to the terminating participant. The debt of the
ESOP is scheduled to be retired in 1999.
C-14
<PAGE> 107
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
During the year ended April 30, 1995, the fair market value of the stock
purchased by the Company from ESOP participants totaled $11,000. Those shares
are included in treasury stock in the accompanying balance sheet. No stock was
purchased from participants during the year ended April 30, 1996. The Company
also guaranteed a minimum return on investment to ten participants who rolled
401(k) balances into the ESOP. The guarantee exceeds the estimated fair
market value of the shares by approximately $37,500. This amount has been
recognized as a liability in the accompanying financial statements. At
April 30, 1996, 34,741 shares of the Company's stock, with an aggregate fair
market value of approximately $584,000 have been allocated to ESOP participants
based on independent appraisal as of April 30, 1996.
The principal portion of the April 30, 1996 and 1995 ESOP debt payments were
transacted through acquisition of 8,545 and 7,890 ESOP shares for an aggregate
amount of $261,000 and $241,000, respectively.
ESOP shares as of April 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Allocated shares 35,000 35,000
Unallocated shares 30,000 47,000
------ ------
65,000 82,000
====== ======
</TABLE>
Employee Benefit Risk Management Program: Casper Air Service provides employee
health care benefits through a risk management program. The Company is insured
under a stop-loss policy for individual claims exceeding $5,000 per year.
Expenses incurred for claims during the years ended April 30, 1996 were
$24,000. Premiums paid for stop-loss insurance were $37,000.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Operating Lease Arrangements: The Companies conduct a portion of their
operations in facilities and on real estate under various operating leases.
These operating leases currently require minimum annual rentals, plus
additional rentals based on five cents per gallon flowage fee for every gallon
of fuel pumped. The leases expire at various dates through August 2006. In
addition to these leases, there is an operating agreement with Natrona County
International Airport which is paid on a month-to-month basis. The following is
a schedule, by years, of minimum annual rentals under the operating leases and
agreement:
<TABLE>
<CAPTION>
Year ended April 30,
- --------------------
<S> <C>
1997 $ 35,000
1998 35,000
1999 35,000
2000 35,000
2001 35,000
Thereafter 24,000
---------
TOTAL MINIMUM ANNUAL RENTALS REQUIRED $ 199,000
=========
</TABLE>
C-15
<PAGE> 108
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------
The leases provide for the payment of certain taxes and other expenses by the
Companies. Rent expense for operating leases for the years ending April 30,
1996 and 1995 were $48,000 and $67,000, respectively, and $26,000 and $50,000
for the nine month periods end January 31, 1996 and 1997, respectively.
C-16
<PAGE> 109
[INSIDE BACK COVER]
AVIATION GROUP, INC.
GROUND HANDLING SERVICES
[Color picture of Company employee
vacuuming aisle inside aircraft] Interior cleaning services
are currently performed in
six airports nationwide.
[Color picture of Company employee
preparing to empty aircraft laboratory
from outside aircraft into a waste
disposal trailer]
Lavatory, light catering and other
ground services are provided.
[Color picture of Company Exterior aircraft cleaning
employees in protective clothing and polishing in
spray cleaning underbelly of jet accordance with all EPA
aircraft fuselage] requirements.
FBO SERVICES
[Color picture of main The Company's Casper Air Service FBO
hangar and offices of operating facility in Casper, Wyoming.
Casper Air Service with
plane parked in front of
hangar]
Propeller overhaul, engine [Color picture looking downward into
maintenance and other FAA- propeller repair shop at Casper Air
certified services are also Service]
provided by the Company's
FBO & Airport Management
Division.
<PAGE> 110
===============================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS
DATE.
________
TABLE OF CONTENTS
________
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . 12
Acquisition of Casper Air Service . . . . . . . 14
Dilution . . . . . . . . . . . . . . . . . . . 15
Dividend Policy . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Unaudited Pro Forma Combined Financial
Information . . . . . . . . . . . . . . . . . 22
Business . . . . . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . . . . . 38
Certain Relationships and Related Transactions 42
Principal Shareholders . . . . . . . . . . . . 44
Description of Securities . . . . . . . . . . . 45
Underwriting . . . . . . . . . . . . . . . . . 50
Legal Opinions . . . . . . . . . . . . . . . . 52
Experts . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
Until __________________, 1997 (25 days after the date of this Prospectus), 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.
===============================================================================
===============================================================================
AVIATION GROUP, INC.
1,000,000 SHARES OF
COMMON STOCK
AND
1,000,000 WARRANTS
_________
P R O S P E C T U S
_________
FIRST LONDON
SECURITIES CORPORATION
____________________, 1997
===============================================================================
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with this
offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . $ 13,681
Blue Sky fees and expenses . . . . . . . . . . . . . . . . 25,000(1)
NASD fee . . . . . . . . . . . . . . . . . . . . . . . . . 5,015
Nasdaq listing fees . . . . . . . . . . . . . . . . . . . 15,000(1)
Boston Stock Exchange listing fee . . . . . . . . . . . . 15,000(1)
Printing and engraving expenses . . . . . . . . . . . . . 30,000(1)
Accounting fees and expenses . . . . . . . . . . . . . . . 50,000(1)
Legal fees and expenses . . . . . . . . . . . . . . . . . 100,000(1)
Warrant Agent, Transfer Agent and Registrar fees . . . . . 5,000 (1)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 41,304(1)
---------
Total . . . . . . . . . . . . . . . . . . . . . . $ 300,000(1)
=========
</TABLE>
--------------------
(1) Estimated amounts
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, the Company has sold the following unregistered
securities:
On December 20, 1995, the Registrant was capitalized through the
issuance of 1,000,000 shares of Common Stock to The Sanders Companies, Inc. in
exchange for the transfer to the Registrant of all of the outstanding capital
stock of TriStar Airline Services, Inc. and TriStar Aircraft Services, Inc. in
a private transaction. The issuance of the stock was made by the Company in
reliance on the exemption from registration under the Securities Act provided
by Section 4(2) thereof. The Sanders Companies, Inc. was owned and controlled
by Lee Sanders, the Chief Executive Officer of the Registrant and its sole
director at that time.
In a private offering completed in June 1996 and exempt under
Regulation D, the Registrant sold 500,000 shares of Common Stock, at $3.00 per
share, to a total of 24 accredited investors and 13 sophisticated, non-
accredited investors. The total offering price was $1,500,000. The placement
agent RAS Securities Corp. received sales commissions of $195,000. As a result
of the successful completion of the Regulation D private offering, the
Registrant also issued to the placement agent and certain of its employees
warrants, expiring February 28, 1999, to purchase an aggregate of 200,000
shares of Common Stock at $1.00 per share. The shares sold by the Registrant
in the private offering were sold in reliance on the exemption from
registration under the Securities Act provided by Rules 505 and 506 thereunder.
The warrants issued to the placement agent and its employees were sold in
reliance on the exemption from registration under the Securities Act provided
by Section 4(2) thereof. As a registered broker/dealer or its sales agents,
the placement agent and its employees who received warrants were sophisticated
investors.
In June 1996, the Registrant and Richard Morgan, then a Consultant to
the Company, entered into a warrant agreement pursuant to which Mr. Morgan may
purchase up to 80,000 shares of Common Stock at $2.50 per share. This agreement
expires on February 28, 1999 and was issued in consideration for services
provided to the Registrant. The Warrant Agreement entered into with Mr. Morgan
was entered into by the Registrant in reliance on the exemption from
registration under the Securities Act provided by Section 4(2) thereof. Mr.
Morgan is a sophisticated investor as a result of his experience in investment
banking.
On March 1, 1996, the Registrant completed the purchase of Pride
Aviation, Inc. in a private transaction. In connection with the acquisition,
the Registrant issued (i) a total of 100,250 shares of Common Stock, and (ii)
10% Convertible Notes having an aggregate original principal balance of
$857,250. These securities were issued in various amounts to two holders of
59% of the outstanding stock of Pride and to the 11 holders of the outstanding
stock of Sunbelt Business Capital, Inc. which owned 40% of the outstanding
Pride stock. The shares of Common Stock and Convertible Notes were issued by
the Registrant in reliance upon the exemption from registration under the
Securities Act provided by Section 4(2) thereof. The recipients represented
that they were each "accredited investors" with the exception of one
corporation which represented that it had received advice from a person having
knowledge and experience in matters involving securities investments such that
II-1
<PAGE> 112
it was capable of evaluating the relative risks and merits of an investment in
the Registrant's Common Stock. All recipients received adequate written
disclosures regarding the Registrant.
In February 1997, the Registrant completed a private offering of
$500,000 in aggregate principal amount of its 10% Bridge Notes. The total
offering price was $500,000. The placement agents, RAS Securities Corp. and
First London
II-1
<PAGE> 113
Securities Corporation, received total sales commissions of $50,000. If the
Registrant successfully completes an initial public offering of its Common
Stock by September 30, 1997, the terms of the Bridge Notes require the
Registrant to repay in full the Bridge Notes within five days after the funding
of the initial public offering and to issue, as additional compensation to the
holders of the Bridge Notes, that number of shares of Common Stock which equals
$250,000 divided by the initial public offering price per share for the Common
Stock. The Bridge Notes were sold by the Registrant in reliance upon the
exemption from registration under the Securities Act provided by Rules 505 and
506 of Regulation D promulgated under the Securities Act.
Effective April 18, 1997, the Registrant entered into an agreement to
aquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Registrant expects to consummate this transaction
concurrently with the closing of this offering. The Registrant has agreed to
pay or issue to CAS's four shareholders approximately $1,173,000 in cash and
approximately $877,000 in value of Common Stock, based on the initial public
offering price. The sale by the Registrant of its shares of Common Stock to the
shareholders of CAS was made in reliance on the exemption from registration
under the Securities Act provided by Section 4(2) thereof. The recipients
receiving Common Stock received adequate written disclosures regarding the
Registrant and represented that they had such knowledge and experience in
financial and business matters that they were capable of evaluating the merits
and risks of an investment in such stock.
Each transaction described above was exempt from registration under
the Securities Act pursuant to Section 4(2) of the Act, or Regulation D of the
Commission promulgated thereunder, as transactions not involving a public
offering. Management of the Registrant believes that all of the recipients of
the Registrant's securities had adequate access, through employment with, other
relationships to or disclosures by the Registrant, to information concerning
the Registrant. The Registrant placed appropriate legends on the certificates
representing the securities issued in such transactions. No public
solicitation or general advertising was employed by the Registrant in
connection with any of the foregoing sales.
ITEM 27. EXHIBITS
The following documents are included as exhibits to this Registration
Statement and are filed herewith unless otherwise indicated. Exhibits
incorporated by reference are so indicated by parenthetical information.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between Registrant and First
London Securities Corporation
3.1 Articles of Incorporation of the Registrant filed with the
Texas Secretary of State, as amended*
3.2 Amended and Restated Bylaws of the Registrant
4.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.1)
4.2 Form of Certificate representing Common Stock
4.3 Form of Redeemable Warrant Agreement
4.4 Form of Warrant Certificate (attached as Exhibit A to Form of
Warrant Agreement filed as Exhibit 4.3)
4.5 Form of 10% Convertible Note of the Registrant maturing March 1,
2001*
4.6 Warrant Agreement dated as of June 30, 1996 between Registrant
and Richard L. Morgan, together with Warrant Certificate*
4.7 Warrant Agreement dated March 1, 1996 between Registrant and RAS
Securities Corp., together with form of warrant certificate*
4.8 Form of 10% Bridge Note of the Registrant*
4.9 Form of Representative's Warrant Agreement, by and between
Registrant and First London Securities Corporation
5.1 Opinion of Bracewell & Patterson, L.L.P. regarding the
legality of the Common Stock and Warrants being registered
10.1 Aviation Group, Inc. 1997 Stock Option Plan*
10.2 First Amended and Restated Employment Agreement between
Registrant and Lee Sanders*
10.3 Employment Agreement dated March 1, 1996, by and between the
Registrant and Paul Lubomirski*
10.4 Consulting Agreement dated March 1, 1996, by and between
the Registrant and Charles E. Weed*
</TABLE>
II-2
<PAGE> 114
<TABLE>
<S> <C>
10.5 Employment Agreement dated February 1, 1997, between the
Registrant and Tony Ramsaroop *
10.6 Services Agreement dated June 10, 1994, by and between Pride and
United Air Lines, Inc., as extended by letter dated February 7,
1997*
10.7 Lease Agreement dated September 18, 1996, effective as of August
1, 1996, by and between Redbird Development, Inc., a Texas
corporation, and Tri-Star Aircraft Services, Inc.*
10.8 Lease and Operating Agreement between Pride Aviation, Inc.
and Iberia Parish Airport Authority, dated December 28, 1994,
relating to Hangar No. 88-C*
10.9 Lease and Operating Agreement between Iberia Parish Airport
Authority and Pride Aviation, Inc., dated July 23, 1991, relating
to Hangar No. 88, as amended by that certain Agreement dated
December 10, 1992*
10.10 Lease and Operating Agreement dated October 2, 1991*
10.11 Revolving Credit Note dated September 30, 1995 from The Sanders
Companies, Inc. payable to the order of Equitable Bank (now
Compass Bank) in the amount of $250,000, and SBA Loan
Agreement, dated August 22, 1994, by and between The Sanders
Companies, Inc. and Equitable Bank (now Compass Bank)
relating to a revolving line of credit loan*
10.12 Amended and Restated Promissory Note dated March 1, 1996 in the
original principal amount of $407,689.77 executed by Pride in
favor of Louisiana Economic Development Corporation ("LEDC")*
10.13 Pledge Agreement dated March 1, 1996 from the Registrant in favor
of LEDC*
10.14 Exchange Agreement dated March 1, 1996 between the Registrant and
LEDC*
10.15 Form of 10% Convertible Note (included as Exhibit 4.5)
10.16 Form of Pledge Agreement from the Registrant in favor of holders
of 10% Convertible Notes*
10.17 Stock Purchase Agreement dated February 21, 1996, by and among
the Registrant, Pride, Sunbelt Business Capital Incorporated
("Sunbelt"), Sunbelt Business Capital L.L.C., and all the
stockholders of Pride and Sunbelt (exhibits and schedules not
included but will be provided supplementally to the Commission
upon request)*
10.18 Employment Agreement between Registrant and John Arcari*
10.19 Stock Purchase Agreement dated April 18, 1997 by and among the
Registrant, Casper Air Service and all of the stockholders
of Casper Air Service (exhibits and schedules not included but
will be provided supplementally to the Commission upon request)*
10.20 First Amendment to Consulting Agreement between Registrant and
Charles Weed
10.21 Second Amended and Restated Note dated May 13, 1997 made by Pride
payable to Jerry R. Webb in the original principal amount of
$282,925.47
10.22 Agency Agreement dated January 19, 1996 between Registrant and
RAS Securities Corp.
10.23 Letter agreement dated May 9, 1997 between Registrant and RAS
Securities Corp. terminating part of Agency Agreement
21.1 List of Subsidiaries of the Registrant*
23.1 Consent of Bracewell & Patterson, L.L.P. (included in their
opinion filed as Exhibit 5)
23.2 Consent of Arsement, Redd & Morella, L.L.C., independent
certified public accountants
23.3 Consent of James Smith & Company, a Professional
Corporation, as independent certified public accountants
23.4 Consent of McGladrey & Pullen, LLP
24.1 Power of Attorney (included on signature page of Registration
Statement)*
27.1 Financial Data Schedule*
99.1 Form of Lock-Up Agreement, executed by and between the
Registrant and certain of the Registrant's securityholders
</TABLE>
- --------------------
* Previously filed.
II-3
<PAGE> 115
SIGNATURES
In accordance with the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, in the City of Dallas, State of Texas, on the 21st day of May,
1997.
AVIATION GROUP, INC.
By: /s/ Lee Sanders
------------------------------------------------------
Lee Sanders, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lee Sanders President, Chief Executive May 21, 1997
- ---------------------------- Officer and Director
Lee Sanders
/s/ Richard L. Morgan Director May 21, 1997
- ----------------------------
Richard L. Morgan
/s/ Gary Cooper Vice President, Treasurer,
- ---------------------------- Chief Accounting Officer May 21, 1997
Gary Cooper and Chief Financial Officer
Charles Weed* Director
Gordon Whitener* Director
*By: /s/ Lee Sanders May 21, 1997
------------------------
Lee Sanders,
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 116
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement between Registrant and First
London Securities Corporation
3.1 Articles of Incorporation of the Registrant filed with the
Texas Secretary of State, as amended*
3.2 Amended and Restated Bylaws of the Registrant
4.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.1)
4.2 Form of Certificate representing Common Stock
4.3 Form of Redeemable Warrant Agreement
4.4 Form of Warrant Certificate (attached as Exhibit A to Form of
Warrant Agreement filed as Exhibit 4.3)
4.5 Form of 10% Convertible Note of the Registrant maturing March 1,
2001*
4.6 Warrant Agreement dated as of June 30, 1996 between Registrant
and Richard L. Morgan, together with Warrant Certificate*
4.7 Warrant Agreement dated March 1, 1996 between Registrant and RAS
Securities Corp., together with form of warrant certificate*
4.8 Form of 10% Bridge Note of the Registrant*
4.9 Form of Representative's Warrant Agreement, by and between
Registrant and First London Securities Corporation
5.1 Opinion of Bracewell & Patterson, L.L.P. regarding the
legality of the Common Stock and Warrants being registered
10.1 Aviation Group, Inc. 1997 Stock Option Plan*
10.2 First Amended and Restated Employment Agreement between Registrant
and Lee Sanders*
10.3 Employment Agreement dated March 1, 1996, by and between the
Registrant and Paul Lubomirski*
10.4 Consulting Agreement dated March 1, 1996, by and between
the Registrant and Charles E. Weed*
10.5 Employment Agreement dated February 1, 1997, between the
Registrant and Tony Ramsaroop*
10.6 Services Agreement dated June 10, 1994, by and between Pride and
United Air Lines, Inc., as extended by letter dated February 7,
1997*
10.7 Lease Agreement dated September 18, 1996, effective as of August
1, 1996, by and between Redbird Development, Inc., a Texas
corporation, and Tri-Star Aircraft Services, Inc.*
10. 8 Lease and Operating Agreement between Pride Aviation, Inc.
and Iberia Parish Airport Authority, dated December 28, 1994,
relating to Hangar No. 88-C*
10.9 Lease and Operating Agreement between Iberia Parish Airport
Authority and Pride Aviation, Inc., dated July 23, 1991, relating
to Hangar No. 88, as amended by that certain Agreement dated
December 10, 1992*
10.10 Lease and Operating Agreement dated October 2, 1991*
10.11 Revolving Credit Note dated September 30, 1995 from The Sanders
Companies, Inc. payable to the order of Equitable Bank (now
Compass Bank) in the amount of $250,000, and SBA Loan
Agreement, dated August 22, 1994, by and between The Sanders
Companies, Inc. and Equitable Bank (now Compass Bank)
relating to a revolving line of credit loan*
10.12 Amended and Restated Promissory Note dated March 1, 1996 in the
original principal amount of $407,689.77 executed by Pride in
favor of Louisiana Economic Development Corporation ("LEDC")*
10.13 Pledge Agreement dated March 1, 1996 from the Registrant in favor
of LEDC*
10.14 Exchange Agreement dated March 1, 1996 between the Registrant and
LEDC*
10.15 Form of 10% Convertible Note (included as Exhibit 4.5)
10.16 Form of Pledge Agreement from the Registrant in favor of holders
of 10% Convertible Notes*
</TABLE>
II-5
<PAGE> 117
<TABLE>
<S> <C> <C>
10.17 Stock Purchase Agreement dated February 21, 1996, by and among
the Registrant, Pride, Sunbelt Business Capital Incorporated
("Sunbelt"), Sunbelt Business Capital L.L.C., and all the
stockholders of Pride and Sunbelt (exhibits and schedules not
included but will be provided supplementally to the Commission
upon request)*
10.18 Employment Agreement between Registrant and John Arcari*
10.19 Stock Purchase Agreement dated April 18, 1997 by and among the
Registrant, Casper Air Service and all of the stockholders
of Casper Air Service (exhibits and schedules not included but
will be provided supplementally to the Commission upon request)*
10.20 First Amendment to Consulting Agreement between Registrant and
Charles Weed*
10.21 Second Amended and Restated Note dated May 13, 1997 made by Pride
payable to Jerry R. Webb in the original principal amount of
$282,925.47
10.22 Agency Agreement dated January 19, 1996 between Registrant and
RAS Securities Corp.
10.23 Letter agreement dated May 9, 1997 between Registrant and RAS
Securities Corp. terminating part of Agency Agreement
21.1 List of Subsidiaries of the Registrant*
23.1 Consent of Bracewell & Patterson, L.L.P. (included in their
opinion filed as Exhibit 5)
23.2 Consent of Arsement, Redd & Morella, L.L.C., independent
certified public accountants
23.3 Consent of James Smith & Company, a Professional
Corporation, as independent certified public accountants
23.4 Consent of McGladrey & Pullen, LLP
24.1 Power of Attorney (included on signature page of Registration
Statement)*
27.1 Financial Data Schedule*
99.1 Form of Lock-Up Agreement, executed by and between the
Registrant and certain of the Registrant's securityholders
</TABLE>
- --------------------
* Previously filed.
II-6
<PAGE> 1
EXHIBIT 1.1
AVIATION GROUP, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Dallas, Texas
_________ , 1997
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Gentlemen:
Aviation Group, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to this Underwriting Agreement (the "Agreement"), for whom
First London Securities Corporation is acting as the representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,000,000 shares of Common Stock (the "Shares") at $____ per
Share (the "Initial Public Offering Price") and 1,000,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") at $____ per Warrant. The Shares and
the Warrants are collectively referred to as the "Securities". Each Warrant is
exercisable to purchase one (1) share of Common Stock (the "Common Stock") at
120% of the Initial Public Offering Price per share at any time during the
period between the Effective Date and five (5) years from the Effective Date.
The date upon which the Securities and Exchange Commission ("Commission") shall
declare the registration statement of the Company effective shall be the
"Effective Date". The Warrants are subject to redemption under certain
circumstances. In addition, the Company proposes to grant to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
the option referred to in Section 2(b) to purchase all or any part of an
aggregate of 150,000 additional Shares and 150,000 additional Warrants (the
"Option Securities"), provided, however, that the Underwriters or the
Representative, as the case may be, shall purchase equal amounts of Shares and
Warrants.
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by
the Underwriters to execute this Agreement on their behalf. The Company
confirms the agreements made by it with respect to the purchase of the
Securities by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-22727) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration
statement, including a final form of Prospectus, copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to the Rules and Regulations under the Act prior to the Effective
Date. The registration statement (including all financial schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are respectively referred to as the "Registration Statement"
and the "Prospectus", except that (i) if the prospectus first filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from
said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined) , the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to
the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or Selected Dealers: (i) the Registration Statement and Prospectus
will in all respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that the Company makes no representations,
warranties or agreement as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriters specifically
for use in the preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, under the heading
"Underwriting" and regarding the identity of counsel to the Underwriters under
the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary 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 other) to own its properties and conduct its business
as described in the Prospectus and is duly qualified to do business as a
foreign corporation and is in good standing in all other jurisdictions in which
the nature of its business or the character or location
2
<PAGE> 3
of its properties requires such qualification, except where failure to so
qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization"; all of the issued and outstanding securities of the
Company have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any securities of the Company have been
granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreement, will
be duly and validly authorized, validly issued, fully paid and non-assessable,
free of preemptive rights and no personal liability will attach to the
ownership thereof.
The Common Stock Representative's Warrants, the Warrant Representative's
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative's Warrants, and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (all as defined
in the Representative's Warrant Agreement described in Section 12 herein), have
been duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
3
<PAGE> 4
(f) This Agreement, the Warrant Agreement and the Representative's
Warrant Agreement have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The Company has full power and lawful authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any third party or any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issuance and sale of the Securities or the securities to be
issued pursuant to the Representative's Warrant Agreement, except such as may
be required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company nor
any subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the
Company or each subsidiary is subject, nor will such action result in any
material violation of the provisions of the articles of incorporation or bylaws
as amended of the Company or each subsidiary, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the disclosures stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material
leases and subleases under which the Company or each subsidiary is the lessor
or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone, adverse to
rights of the Company or each subsidiary as lessor, sublessor, lessee, or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or each subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and the Company and each
subsidiary owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) Arsement, Redd & Morella, L.L.C. and McGladrey & Pullen, LLP,
each of whom have given their report on certain financial statements filed and
to be filed with the Commission as
4
<PAGE> 5
part of the Registration Statement, and which are included in the Prospectus,
are with respect to the Company, each independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present
fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The Company's internal
accounting controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material
respects with generally accepted accounting principles applied on a basis which
is consistent during the periods involved. During the preceding five (5) year
period, nothing has been brought to the attention of the Company's management
that would result in any reportable condition relating to the Company's
internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for
in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has material licenses, permits and other governmental
authorizations currently required for the conduct
5
<PAGE> 6
of its business or the ownership of its property as described in the Prospectus
and is in all material respects in compliance therewith and owns or possesses
adequate right to use all material patents, patent applications, trademarks,
service marks, trade-names, trademark registrations, service mark
registrations, copyrights, and licenses necessary for the conduct of such
business and has not received any notice of conflict, with the asserted rights
of others in respect thereof. To the best of the Company's knowledge, none of
the activities or business of the Company or any subsidiary are in violation
of, or cause the Company or any subsidiary to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality,
the violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of
operations, or net worth of the Company and any subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the several
Underwriters hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus
or Schedule I attached hereto, no holders of Common Stock or of any other
securities of the Company have the right to include such Common Stock or other
securities in the Registration Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in
any partnership, joint venture, association or other entity except as disclosed
in the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
6
<PAGE> 7
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims,
damages or liabilities, joint or several, which shall include, but not be
limited to, all costs to defend against any such claim, so long as such claim
arises out of agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representative in writing, and, to the knowledge of the
Company, no beneficial owner of the Company's unregistered securities has any
direct or indirect affiliation or association with any NASD member except as
disclosed to the Representative in writing and except as set forth in
Underwriters' counsel's response letter to the NASD. The Company will advise
the Representative and the NASD if any five percent (5%) or greater shareholder
of the Company or any subsidiary is or becomes an affiliate or associated
person of an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department
of Labor, or any other governmental agency responsible for the enforcement of
such federal, state or local laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any subsidiary pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or to the knowledge of the Company,
threatened against or involving the Company or any subsidiary or any
predecessor entity. No question concerning representation exists respecting
the employees of the Company or any subsidiary and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or any subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any
subsidiary, if any.
(aa) Except as set forth on Schedule II attached hereto, neither the
Company nor any subsidiary maintains, sponsors nor contributes to, nor is it
required to contribute to, any program or
7
<PAGE> 8
arrangement that is an "employee pension benefit plan" an "employee welfare
benefit plan", or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(i) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any
subsidiary maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of
the Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which
either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at
or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any
of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or
practice in connection with any such activity;
(ii) engaging in any type of business practice;
or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than sixty (60) days either of their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
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(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(ac) Each of the officers and directors of the Company has reviewed
the sections in the Prospectus relating to their biographical data and equity
ownership position in the Company, and all information contained therein is
true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the Company, an
aggregate of 1,000,000 Shares at $____ per Share and 1,000,000 Warrants at
$____ per Warrant, (the public offering price less ten percent (10%)), at the
place and time hereinafter specified, in accordance with the number of Shares
and/or Warrants set forth opposite the names of the Underwriters in Schedule A
attached hereto plus any additional Securities which such Underwriters may
become obligated to purchase pursuant to the provisions of Section 9 hereof.
The Securities shall consist of 1,000,000 Shares and 1,000,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $__.00 per Share and $.10 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of First London Securities Corporation, 2600 State Street, Dallas,
Texas 75204 (or at such other place as may be designated by the Representative)
at 10:00 a.m., Eastern Time, on such date after the Effective date as the
Representative shall designate, but not later than ten (10) business days
(holidays excepted) following the first date that any of the Securities are
released to you, such time and date of payment and delivery for the Securities
being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
to purchase all or any part of an aggregate of an additional 150,000 Shares and
150,000 Warrants at the same price per Share and Warrant as the Underwriters
shall pay for the Securities being sold pursuant to the provisions of
subsection (a) of this Section 2 (such additional Securities being referred to
herein as the "Option Securities"). This Option may be exercised within 30 days
after the Effective Date upon notice by the Underwriters (or the
Representative, individually) to the Company advising as to the amount of
Option Securities as to which the Option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered,
provided, however, that this Option
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<PAGE> 10
may be exercised only for equal amounts of Shares and Warrants. Such time and
date shall be determined by the Underwriters (or the Representative,
individually) but shall not be later than ten (10) full business days after the
exercise of the Option, nor in any event prior to the Closing Date, and such
time and date is referred to herein as the "Option Closing Date". Delivery of
the Option Securities against payment therefor shall take place at the offices
of the Representative. The Option granted hereunder may be exercised only to
cover over allotments in the sale by the Underwriters of the Securities
referred to in subsection (a) above. In the event the Company declares or pays
a dividend or distribution on its Common Stock, whether in the form of cash,
shares of Common Stock or any other consideration, prior to the Option Closing
Date, such dividend or distribution shall also be paid on the Option Closing
Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date and the Option closing date at the offices of
the Representative, and such certificates shall be registered in such names and
denominations as you may request. Time shall be of the essence and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities
by the Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by
such Underwriter or Underwriters. Any such payment by the Representative shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder. It is also understood that the Representative
individually, rather than all of the Underwriters, may (but shall not be
obligated to) purchase the Option Securities referred to in subsection (b) of
this Section 2, but only to cover over allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement is declared effective by the Commission.
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<PAGE> 11
3. Covenants of the Company. The Company covenants and agrees with
the several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to
the later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary or advisable in connection with the distribution of the
Securities and as mutually agreed to by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Definitive Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriters or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion
of counsel for the Company or counsel for the Underwriters, should be set forth
in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to
be delivered to a purchaser of the Securities, or in case it shall be necessary
to amend or supplement the Prospectus to comply with law or with the Act and
the Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state any material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they are made, not
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<PAGE> 12
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be
attached to the Prospectus shall be without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale
under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be reasonably required for that purpose and to comply with
such laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Securities. The Company will, from time to
time, prepare and file such statements and reports as are or may be reasonably
required to continue such qualification in effect for so long a period as the
Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and up to
$50,000 of the out-of-pocket expenses of the Representative (less any amounts
previously advanced by the Company to the Representative), if the offering for
any reason is terminated. For the purposes of this sub-paragraph, the
Representative shall be deemed to have assumed such expenses when they are
billed or incurred, regardless of whether such expenses have been paid. The
Representative shall not be responsible for any expenses of the Company or
others, or for any charges or claims relative to the proposed public offering
whether or not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from
time to time until the Effective Date of the Registration Statement, as many
copies of any Preliminary Prospectus filed with the Commission prior to the
Effective Date of the Registration Statement as the Underwriters may reasonably
request. The Company will deliver to the Underwriters on the Effective Date of
the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented as the
several Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial
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<PAGE> 13
or other) mailed to security holders; (iii) as soon as they are available, a
copy of all non-confidential documents, including annual reports, periodic
reports and financial statements, furnished to or filed with the Commission
under the Act and the 1934 Act; (iv) copies of each press release, news item
and article with respect to the Company's affairs released by the Company; and
(v) such other information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The Nasdaq Small Cap Market or a
listing on a national market, and will use its best efforts to maintain such
listing for at least five (5) years from the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the
1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriters and the Company
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
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<PAGE> 14
(l) On the Closing Date the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement and Warrant Certificates filed, as an
exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representative, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities (except to a transferee who agrees to be bound by this provision)
for a period of six (6) months with regard to all securities of each beneficial
owner, and twelve (12) months with regard to 50% of all securities of each
beneficial owner, from the Effective Date (the "lock-up period"), (except in
the case of Lee Sanders and Paul Lubomirski, which period shall be 24 months
with regards to 90% of all securities of each such person) without the prior
written consent of the Representative. Any of such securities which are
originally registered in a name of a original beneficial owner and are
subsequently registered under a different name will be subject to the twelve
(12) month lock-up period.
(o) The Company shall pay to the Representative upon the exercise
of the Warrants, the fee provided in Section 12 of Redeemable Warrant
Agreement, which Section may not be changed without the prior written consent
of the Representative.
(p) Prior to the Closing Date, the Company shall at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and
such other manuals as the Representative may designate, such listings to
contain the information required by such manuals and the Uniform Securities
Act. The Company hereby agrees to use its best efforts to maintain such listing
for a period of not less than five (5) years unless the Company's securities
otherwise qualify for a secondary market trading exemption. The Company shall
take such action as may be reasonably requested by the Representative to obtain
a secondary market trading exemption in such states as may be reasonably
requested by the Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common
Stock at a price less than the initial per share public offering price.
(r) During the twelve month period commencing on the Closing Date,
the Company will not, without the prior written consent of the Representative,
issue any additional securities of the Company except for securities issued in
connection with an acquisition or merger by the Company or for the issuance of
Common Stock upon the exercise of Warrants or other currently outstanding
securities of the Company (including, but not limited to, securities issuable
pursuant to the terms of the Bridge Notes).
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<PAGE> 15
(s) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or similar
disclosure document to be filed by the Company hereunder, or any amendment or
supplement thereto. For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report and the filing of quarterly financial information to
stockholders.
(u) The Company shall retain Continental Stock Transfer & Trust
Company as the transfer agent for the securities of the Company, or such other
transfer agent as you may agree to in writing. In addition, the Company shall
direct such transfer agent to furnish the Representative with weekly transfer
sheets as to each of the Company's securities as prepared by the Company's
transfer agent and copies of lists of stockholders and warrantholders as
reasonably requested by the Underwriter, for a five (5) year period commencing
from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representative on a weekly basis at the expense of the
Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Representative shall designate and the Company may
reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of four
(4) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. In
addition, at the request of First London Securities Corporation, the Company
shall nominate for election one (1) designee of First London Securities
Corporation for a period of five (5) years from the Effective Date.
(y) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement or a new Registration Statement to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to each of the Underwriters and each dealer as many copies of each such
Prospectus as such Underwriter or such dealer may reasonably request. Such
post-effective amendments or new Registration Statements shall also register
the Representative's Warrants and all the securities underlying the
Representative's Warrants. The Company shall not call for redemption of any of
the Warrants unless a Registration
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<PAGE> 16
Statement covering the securities underlying the Warrants or Representative's
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption. In addition, the Representative's
Warrants shall not be redeemable during the first year after the Effective Date
without the written consent of the Representative.
(z) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange, Nasdaq National Market or the
American Stock Exchange, the Company shall deliver to the Representative a
written certificate of an officer of the Company detailing those states in
which the Shares and Warrants of the Company may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Certificate"). The initial Secondary Market Trading Certificate shall
be delivered to the Representative on the Closing Date, and the Company shall
continue to update such opinion and deliver same to the Representative on a
timely basis, but in any event at the beginning of each fiscal year, for a five
(5) year period, if required.
4. Conditions of Underwriters Obligations. The obligations of the
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date
hereof and as of the Closing Date and the Option Closing Date, to the
continuing accuracy of, and compliance with, the representations and warranties
of the Company herein, to the accuracy of statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of
its obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date or Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceeding for that purpose shall have been initiated or
pending, or shall be threatened, or to the knowledge of the Company,
contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
securities or "blue sky" laws of any jurisdiction (whether or not a
jurisdiction which you shall have specified) shall be threatened or to the
knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission and any
such authorities, and to the satisfaction of counsel to the Underwriters; and
(v) after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy thereof was
first submitted to the Underwriters and the Underwriters did not object
thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company
or any subsidiary, whether or not arising from transactions in the ordinary
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<PAGE> 17
course of business, in each case other than as set forth in or contemplated by
the Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in the
Registration Statement and Prospectus; and (iv) the Registration Statement and
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and shall in all material respects conform to
the requirements thereof, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several
Underwriters, dated as of each Closing Date, from Bracewell & Patterson,
L.L.P., counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation, with all requisite corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and each
subsidiary as a whole;
(ii) the authorized capital stock of the Company; all shares of
the Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have been
duly authorized, validly issued, are fully paid and non-assessable and
conform in all material respects to the description thereof contained in
the Prospectus; the outstanding shares of Common Stock of the Company
and other securities have not been issued in violation of the preemptive
rights of any shareholder and the
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<PAGE> 18
shareholders of the Company do not have any preemptive rights or, to
such counsel's knowledge, except as described in the Prospectus, other
rights to subscribe for or to purchase securities of the Company, nor,
to such counsel's knowledge, are there any restrictions upon the voting
or transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities issuable pursuant to the Representative's Warrant Agreement
conform in all material respects to the respective descriptions thereof
contained in the Prospectus; the Common Stock, the Shares, the Warrants,
the shares of Common Stock to be issued upon exercise of the Warrants
and the securities issuable pursuant to the Representative's Warrant
Agreement, have been duly authorized and, when issued, delivered and
paid for in accordance with the terms of the governing instrument or
agreement, will be duly authorized, validly issued, fully paid, non-
assessable, free of preemptive rights and no personal liability will
attach to the ownership thereof; to such counsel's knowledge, all prior
sales by the Company of the Company's securities have been made in
compliance with or under an exemption from registration under the Act
and applicable state securities laws and no shareholders of the Company
have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Representative's Warrants, and to such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement and
the Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement and the Representative's
Warrant Agreement by the Representative and of the Warrant Agreement by
the Company's transfer agent, are the valid and legally binding
obligations of the Company, enforceable in accordance with their terms,
except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from
time to time in effect which affect creditors' rights generally and
general principles of equity; and (b) no opinion is expressed as to the
enforceability of the indemnity provisions or the contribution
provisions contained in this Agreement, the Representative's Warrant
Agreement or the Warrant Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in valid
and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any material action, suit, proceeding, inquiry,
arbitration or investigation against the Company or any subsidiary or
any of the officers or directors of the Company or any subsidiary which
might materially and adversely affect the condition (financial or
otherwise), business prospects, net worth, or properties of the Company
or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement, and the
incurrence of the obligations herein and
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therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a violation of, or constitute a
default under (a) the Articles of Incorporation, as amended, or By-Laws,
as amended, of the Company and each subsidiary; (b) to such counsel's
knowledge, any material obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness
or in any material contract, indenture, mortgage, loan agreement, lease,
joint venture or other agreement or instrument to which the Company or
any subsidiary is a party or by which it or any of its properties is
bound; or (c) to the best of such counsel's knowledge, any material
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for that purpose have been instituted or are pending
before, or threatened by, the Commission; the Registration Statement and
the Prospectus (except for the financial statements and other financial
data contained therein, or omitted therefrom, as to which such counsel
need express no opinion) comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations;
and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Representative's Warrants or the Securities underlying
the Representative's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such
counsel to the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative and they
are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which
they are made, not misleading (except, in the case of both the Registration
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<PAGE> 20
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) To their knowledge there is no litigation instituted or
threatened against the Company or any subsidiary or any officer or
director of the Company or any subsidiary of a character required to be
disclosed in the Registration Statement which is not disclosed therein;
to their knowledge there are no contracts which are required to be
summarized in the Prospectus which are not so summarized; and to their
knowledge there are no material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement of
any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its operations,
except as reflected in or contemplated by the Registration Statement and
the Prospectus and except as so reflected or contemplated since such
date, there has not been any material transaction entered into by the
Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the Company
has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and municipal tax return or the payment
of any federal, state or municipal taxes; they know of no proposed re-
determination or reassessment of taxes, adverse to the Company or any
subsidiary, and the Company and each subsidiary has paid or provided by
adequate reserves for all known tax liabilities except such delinquency
that will not have a material adverse affect on the Company;
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<PAGE> 21
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement and
the Warrant Agreement, the consummation of the transactions herein or
therein contemplated, and the fulfillment of the terms hereof or
thereof, will not result in a breach by the Company of any terms of, or
constitute a default under, its Articles of Incorporation or By-Laws,
any indenture, mortgage, lease, deed or trust, bank loan or credit
agreement or any other material agreement or undertaking of the Company
or any subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any right and/or obligations by succession or
otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial position
of the Company as of the dates thereof all in conformity with generally
accepted principles of accounting applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent, for
borrowed money, or (ii) entered into any material transaction other than
in the ordinary course of business. The Company has not declared, paid
or made any dividend or distribution of any kind on its capital stock;
(xi) The officers and directors of the Company and each
subsidiary have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company,
and all information contained therein is true and accurate; and
(xii) Based upon written representation from the officers and
directors of the Company, none of the officers and directors of the
Company and each subsidiary, except as disclosed in the Prospectus,
during the past five years, have been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which
either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at
or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
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(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any
of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or
practice in connection with any such activity;
(ii) engaging in any type of business practice;
or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than sixty (60) days either of their right to engage in any
activity described in paragraph (3) (i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g)
(1) The Underwriters shall have received from Arsement, Redd &
Morella, LLC, independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on the
Closing Date, in form and substance satisfactory to the Underwriters, stating
with respect to the financial statements and schedules prepared by each such
auditor, that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
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<PAGE> 23
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and Regulations
and instructions of the Commission with respect to Registration
Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information of
the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other
item appearing in the Company's financial statements as to which
the Underwriters may request advice, in each case as compared
with amounts shown in the balance sheet as of the date of the
financial statement in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses
have occurred or will occur;
(b) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or
loss before extraordinary items or net income or loss, or any
other material change in such other items appearing in the
Company's financial statements as to which the Underwriters may
request advice, in each case as compared with the corresponding
period in the preceding year, except in each case for increases,
changes or decreases which the Prospectus discloses have occurred
or will occur; and
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement.
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<PAGE> 24
Such letter shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(2) The Underwriters shall have received from McGladrey &
Pullen, LLP,independent auditors to Casper Air Service ("CAS"), or Arsement,
Redd, & Morella, LLC, independent auditors to the Company, certificates or
letters, one dated and delivered on the Effective Date and one dated and
delivered on the Closing Date, in form and substance satisfactory to the
Underwriters, stating with respect to the financial statements and schedules
prepared by such auditor, that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules of CAS included
in the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information of
CAS (with an indication of the date of the latest available unaudited
interim financial statements), inquiries of officers of the Company who
have responsibility for financial and accounting matters and other
specified inquiries and procedures, nothing has come to their attention
as a result of the foregoing inquiries and procedures that causes them
to believe that:
(a) any material modifications should be made to the financial
statements and schedules described above for them to be in
conformity with generally accepted accounting principles;
(b) the financial statements and schedules described above do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
rules and regulations; and
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to CAS set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting
records, including work sheets, of CAS and excluding any questions
requiring an interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an
examination in accordance with
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<PAGE> 25
generally accepted auditing standards) set forth in the letter and found
them to be in agreement.
Any changes, increases or decreases in the items set forth in such
letters which, in the judgment of the several Underwriters, are materially
adverse with respect to the financial position or results of operations of the
CAS shall be deemed to constitute a failure of the Company to comply with the
conditions of the obligations to the several Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending, or, to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and
any reasonable request on the part of the Commission for additional
information shall have been complied with to the satisfaction of counsel
to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Bracewell & Patterson, L.L.P.,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, which opinion
shall be substantially the same in scope and substance as the opinion
furnished to you at the Closing Date pursuant to Section 4 (e) hereof,
except that such opinion, where appropriate, shall cover the Option
Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, substantially
the same in scope and substance as the certificate furnished to you at
the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you from
each of Arsement, Redd & Morella, L.L.C. and McGladrey & Pullen, LLP,
independent auditors to the Company, dated the Option Closing Date and
addressed to the several Underwriters confirming the information in
their letter referred to in Section 4(g) hereof and stating that nothing
has come to their attention during the period from the ending date of
their review referred to in said letter to a date not more than five
business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing
Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been
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<PAGE> 26
furnished with all such documents, certificates, and opinions as you may
request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Common Stock and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the several
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Representative of any NASD affiliations of any of its
officers, directors, or stockholders or their affiliates in accordance with
paragraph 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance satisfactory
to counsel for the Underwriter, a written Secondary Market Trading Certificate
detailing those states in which the Shares and Warrants may be traded in non-
issuer transactions under the Blue Sky laws of the fifty (50) states after the
Effective Date, in accordance with paragraph 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled
at, or at any time prior to, the Closing Date and/or the Option Closing Date by
the Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or on
such later time or date as the Company and the Representative may agree
in writing; and
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<PAGE> 27
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated or
threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the Option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless
each Underwriter and each person, if any, who controls the Underwriter within
the meaning of the 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 reasonable costs of defense and investigation and all
attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the 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 (i) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, 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 cases to the
extent, but only to the extent, that any such losses, claim, damages or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriters specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the Company
shall have no liability under this section if such untrue statement or omission
made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus
is not delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the 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 attorneys' fees)
to which the Company or any such director, nominee, officer or controlling
person may become subject under the 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 the Registration Statement,
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any Preliminary Prospectus, the Prospectus, or any 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, in each case to the extent, but
only to the extent, that such untrue statements or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you specifically for use in the
preparation thereof. Notwithstanding the foregoing, the Underwriters shall
have no liability under this Section if such untrue statement or omission made
in a Preliminary Prospectus is cured in the Prospectus and the Prospectus is
not delivered to the person or persons alleging the liability upon which
indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all such Underwriters and controlling persons,
which firm shall be designated in writing by you). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying party.
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7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes
claim for indemnification pursuant to Section 6 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 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any Underwriter, then the Company and each person who
controls the Company, in the aggregate, and any such Underwriter 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 reasonable costs of defense and investigation and
all reasonable attorneys, fees) in either such case (after contribution from
others) in such proportions that all such Underwriters are responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount per Share
appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company, or
the Underwriter and the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree (a) that it would not be just
and equitable if the respective obligations of the Company and the Underwriters
to contribute pursuant to this Section 7 were to be determined by pro rata or
per capita allocation of the aggregate damages (even if the Underwriters and
their controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims,
damages or liabilities for which the Underwriters are responsible. No person
ultimately determined to be guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is nor ultimately determined to be guilty of such fraudulent
misrepresentation. As used in this paragraph, the term "Underwriter" includes
any officer, director, or other person who controls the Underwriter within the
meaning of Section 15 of the Act, and the word "Company" includes any officer,
director, or person who controls the Company within the meaning of Section 15
of the Act. If the full amount of the contribution specified in this paragraph
is not permitted by law, then the Underwriter and each person who controls the
Underwriter shall be entitled to contribution from the Company, its officers,
directors and controlling persons to the full extent permitted by law. This
foregoing agreement shall in no way affect the contribution liabilities of any
persons having liability under Section 11 of the Act other than the Company and
the Underwriter. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in
light of all factors of importance to such party.
29
<PAGE> 30
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and
the Prospectus, as amended or supplemented; the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and up
to $30,000 of the legal fees of counsel to the Underwriters who are responsible
to assist the Company in connection with the filing of applications to register
the Securities under the state securities or blue sky laws; the cost of
printing or photocopying and furnishing to the several Underwriters copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers Agreement, the Agreement Among Underwriters,
Underwriters Questionnaire, Underwriters Power of Attorney and the Blue Sky
Memorandum; the cost of printing the certificates evidencing the Securities;
the cost of preparing and delivering to the Underwriters and its counsel bound
volumes containing copies of all documents and appropriate correspondence filed
with or received from the Commission and the NASD and all closing documents;
and the fees and disbursements of the transfer agent for the Company's
securities. The Company shall pay any and all taxes (including any original
issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriters hereunder. The Company will also
pay all costs and expenses incident to the furnishing of any amended Prospectus
or of any supplement to be attached to the Prospectus.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which $20,000.00 has been advanced to the Representative and
will be credited to such allowance. In the event the over allotment option is
exercised, the Company shall pay to the Representative at the Option Closing
Date an additional amount equal to three percent (3%) of the gross proceeds
received upon exercise of the over allotment option.
(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company,
from the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters 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 attorneys, fees, to which the Representative or such
other Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall
for any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take
30
<PAGE> 31
up and pay for the number of Securities set forth opposite their respective
names in Schedule A hereto upon tender of such Securities in accordance with
the terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than ten percent (10%) of the total number of Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Securities which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters
do not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non-business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven (7)
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 which
may thereby be made necessary; and (ii) the respective numbers of Securities to
be purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting 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 Securities
as aforesaid, then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
31
<PAGE> 32
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 9
shall not in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering by the Underwriters of any of the
Securities. The time of the public offering shall mean the time after the
effectiveness of the Registration Statement when the Securities are first
generally offered by you to the other Underwriters and Selected Dealers. This
Agreement may be terminated by you at any time before it becomes effective as
provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18
shall remain in effect notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7,
8, 13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to
the Closing Date, and the Option referred to in Section 2(b) hereof, if
exercised, may be canceled at any time prior to the Option Closing Date, by you
if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Securities agreed to
be purchased hereunder by reason of: (i) the Company having sustained a
material adverse loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on the New York
Stock Exchange or the American Stock Exchange having been suspended or limited;
(iii) material governmental restrictions having been imposed on trading in
securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by Federal or New York or Florida state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred which is reasonably believed
likely by the Representative to have a material adverse impact on the business,
financial condition or financial statements of the Company or the market for
the securities offered hereby; (vi) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) any material adverse change having occurred,
since the respective dates as of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business; (ix) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representative, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged
32
<PAGE> 33
or consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; or (xi) the Company shall not have complied in all
material respects with any term, condition or provisions on their part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreement. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $100, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreement annexed
as an exhibit to the Registration Statement, Representative's Warrants to
purchase up to an aggregate of 100,000 Shares and 100,000 Warrants, in such
denominations as the Representative shall designate. In the event of conflict
in the terms of this Agreement and the Representative's Warrant Agreement, the
language of the form of Representative's Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, the Company or any of its officers or directors or any
controlling person and will survive delivery of and payment for the Securities
and the termination of this Agreement.
14. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
If to the Underwriters: Douglas Nichols, President
First London Securities Corporation 2600
State Street Dallas, Texas 75204
Copy to: Richard F. Dahlson
Jackson Walker, L.L.P.
901 Main Street, Suite 6000 Dallas, Texas
75202-3797
If to the Company: Lee Sanders, President
Aviation Group, Inc.
700 North Pearl Street
Suite 2170
Dallas, TX 75201
33
<PAGE> 34
Copy to: Daryl B. Robertson
Bracewell & Patterson, L.L.P. 500 North
Akard 4000 Lincoln Plaza Dallas, Texas
75201
15. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, any person controlling the Company or of the Underwriters,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas applicable to contracts made
and to be performed entirely within the State of Texas. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue only
in the State District Court of Dallas, County, Texas or the United States
District Court for the Northern District of Texas. A party to this Agreement
named as a Defendant in any action brought in connection with this Agreement in
any court outside of the above named designated county or district shall have
the right to have the venue of said action changed to the above designated
county or district or, if necessary, have the case dismissed, requiring the
other party to re-file such action in an appropriate court in the above
designated county or federal district.
17. 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 such counterparts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative
act as the sole Underwriter ("Underwriter") in connection with the underwriting
of the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Representative shall
instead be received by the Underwriter; and (iii) the provisions of section
nine (9) of this Agreement shall not apply.
34
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
Aviation Group, Inc.
BY:
--------------------------------
Lee Sanders, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:
--------------------------------
Douglas Nichols, President
For itself and as
Representative of the several
Underwriters
35
<PAGE> 36
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER SHARES
- ----------- ------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . .
1,000,000
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER WARRANTS
- ----------- --------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . .
1,000,000
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
AVIATION GROUP, INC.
<PAGE> 2
TABLE OF CONTENTS
TO
AMENDED AND RESTATED
BYLAWS
OF
AVIATION GROUP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
OFFICES AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. (a) Registered Office and Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Corporate Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. (a) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. (a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Consent of Shareholders in Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Meetings by Conference Telephone or Similar
Communications Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. (a) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Presiding Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. (a) Business Which May Be Transacted at Annual Meetings . . . . . . . . . . . . . . . . . . . . . 4
(b) Business Which May Be Transacted at Special Meetings . . . . . . . . . . . . . . . . . . . . 4
8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. (a) Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Registered Shareholders - Exceptions - Stock Ownership
Presumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. Shareholders' Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C>
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. Directors - Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11A. Staggered Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. (a) Powers of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Interested Director Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
14. Acceptance of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
15. Regular Meetings - Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
16. Special Meetings - Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
17. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
18. Meetings by Conference Telephone or Similar
Communications Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
19. Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
20. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
21. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
21A. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
22. Indemnification and Expenses; Liability of Directors
and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
23. Executive and Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
24. Compensation of Directors and Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . 11
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
25. (a) Officers - Who Shall Constitute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Other Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
26. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
27. Salaries and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
28. Delegation of Authority to Hire, Discharge, and
Designate Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
29. The Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
30. The President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
31. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
32. The Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
33. The Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
34. Duties of Officers May Be Delegated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
35. Payment for Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
36. Certificates for Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
37. Transfers of Shares - Transfer Agent - Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . 16
38. (a) Fixing Record Dates for Meetings, Distributions, Etc. . . . . . . . . . . . . . . . . . . . 17
(b) Fixing Record Dates for Consents to Action . . . . . . . . . . . . . . . . . . . . . . . . 17
39. Lost, Destroyed, or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
40. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C>
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
41. Fixing of Capital - Transfers of Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
42. Distributions or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
43. Creation of Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
44. Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
45. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
46. Directors' Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
47. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
AVIATION GROUP, INC.
OFFICES AND RECORDS
1. (a) Registered Office and Registered Agent. The location
of the registered office and the name of the registered agent of the
corporation in the State of Texas shall be as stated in the articles of
incorporation or as shall be determined from time to time by the board of
directors and on file in the appropriate office of the State of Texas pursuant
to applicable provisions of law. Unless otherwise permitted by law, the
address of the registered office of the corporation and the address of the
business office of the registered agent shall be identical.
(b) Corporate Offices. The corporation may have such
corporate offices anywhere within or without the State of Texas as the board of
directors from time to time may determine or the business of the corporation
may require. The "principal place of business" or "principal business office"
or "executive office" of the corporation may be fixed and so designated from
time to time by the board of directors, but the location or residence of the
corporation in Texas shall be deemed for all purposes to be in the county in
which its registered office in Texas is maintained.
2. (a) Books and Records. The corporation shall keep books
and records of account and minutes of the proceedings of the corporation's
shareholders, board of directors and each committee of the board of directors.
The corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, if any, books
and records in which shall be kept a record of the original issuance of shares
and a record of each transfer of those shares that have been presented to the
corporation for registration of transfer. Such share transfer records shall
contain the names and addresses of all past and current shareholders of the
corporation, the number, the series, and the class of the shares owned by them
respectively, the amount of shares paid, and by whom, and the transfer of such
shares with the date of transfer. Any books, records, minutes and share
transfer records may be in written form or in any other form capable of being
converted into written form within a reasonable time.
(b) Inspection of Records. Any person who shall have
been a shareholder of the corporation for at least six (6) months immediately
preceding his demand, or shall be the registered holder of at least five
percent (5%) of all the
<PAGE> 6
outstanding shares of the corporation, upon written demand stating the purpose
thereof, shall have the right to examine, in person or by agent, accountant, or
attorney, at any reasonable time or times, for any proper purpose, the
corporation's relevant books and records of account, minutes, and share
transfer records, and to make extracts therefrom. No shareholder shall use,
permit to be used, or acquiesce in the use by others of any information so
obtained to the detriment competitively of the corporation, nor shall he
furnish or permit to be furnished any information so obtained to any competitor
of the corporation. The corporation as a condition precedent to any
shareholder's inspection of the records of the corporation may require the
shareholder to indemnify the corporation, in such manner and for such amount as
may be determined by the board of directors, against any loss or damage which
may be suffered by it arising out of or resulting from any unauthorized
disclosure made or permitted to be made by such shareholder of information
obtained in the course of such inspection.
SEAL
3. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation and the words: "Corporate Seal - Texas."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any manner reproduced.
SHAREHOLDERS' MEETINGS
4. Place of Meetings. All meetings of the shareholders shall be
held at the principal business office of the corporation in Texas, except such
meetings as the board of directors to the extent permissible by law expressly
determines shall be elsewhere, in which case such meetings may be held, upon
notice thereof as hereinafter provided, at such other place or places, within
or without the State of Texas, as the board of directors shall have determined,
and as shall be stated in such notice; and, unless specifically prohibited by
law, any meeting may be held at any place and time, and for any purpose, if
consented to in writing by all of the shareholders entitled to vote thereat.
5. (a) Annual Meetings. An annual meeting of shareholders
shall be held on a date designated by the corporation's President which date
shall be not later than the last day of November of each year beginning in
1997, or at such other date as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, when they shall
elect a board of directors and transact such other business as may properly be
brought before the meeting.
(b) Special Meetings. Special meetings of the
shareholders may be held for any purpose or purposes and may be called by the
chairman of the board, by the president, by the secretary, by the board of
directors, or by the holders of, or by any officer or shareholder upon the
written request of the holders of not less than ten percent
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(10%) of all outstanding shares entitled to vote at any such meeting, and shall
be called by any officer directed to do so by the board of directors.
The "call" and the "notice" of any such meeting shall be
deemed to be synonymous.
(c) Consent of Shareholders in Lieu of Meeting. Any
action required to be taken or which may be taken at a meeting of the
shareholders may be taken without a meeting, without prior notice, and without
a vote, if a consent or consents in writing, setting forth the action so taken,
shall have been signed by all the shareholders entitled to vote with respect to
the subject matter thereof. The secretary shall file such consents with the
minutes of the meetings of the shareholders.
(d) Meetings by Conference Telephone or Similar
Communications Equipment. Subject to the requirements for notices of meetings,
unless otherwise restricted by the articles of incorporation or these bylaws or
by law, shareholders may participate in and hold a meeting of shareholders by
means of conference telephone or similar communications equipment whereby all
persons participating in the meeting can hear each other, and participation in
a meeting in this manner shall constitute presence in person at such meeting,
except where a person participates in a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
6. (a) Notice.
(i) Written or printed notice of each meeting of the
shareholders, whether annual or special, stating the place, day and hour of the
meeting, and in the case of a special meeting, the purpose or purposes thereof,
shall be delivered or given to each shareholder entitled to vote thereat,
either personally or by mail, by or at the direction of the president, the
secretary, or the officer or person calling the meeting, not less than ten (10)
nor more than sixty (60) days before the date of the meeting, unless, as to a
particular matter, other or further notice is required by law, in which case
such other or further notice shall be given.
(ii) Any notice of a shareholders' meeting sent by
mail shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid addressed to the shareholder at his address as it
appears on the share transfer records of the corporation.
(iii) Any notice required to be given to the
shareholders under this Section 6(a) shall also be given to The Pacific Stock
Exchange Incorporated and to The Nasdaq Stock Market if, as, when, and for so
long as, any capital stock of the corporation is listed on such exchanges or
quoted on the Nasdaq Stock Exchange.
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(b) Waiver of Notice. Whenever any notice is required to
be given under the provisions of these bylaws, of the articles of
incorporation, or of any law, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
To the extent provided by law, attendance of a shareholder at
any meeting shall constitute a waiver of notice of such meeting.
(c) Presiding Officials. Every meeting of the
shareholders, for whatever object, shall be convened by the president, or by
the officer or any of the persons who called the meeting by notice as above
provided, but it shall be presided over by the officers specified in Sections
29, 30 and 31 of these bylaws; provided, however, that the shareholders at any
meeting, by a majority vote in amount of shares represented thereat, and
notwithstanding anything to the contrary contained elsewhere in these bylaws,
may select any persons of their choosing to act as chairman and secretary of
such meeting or any session thereof.
7. (a) Business Which May Be Transacted at Annual Meetings.
At each annual meeting of the shareholders, the shareholders shall elect a
board of directors to hold office until the next succeeding annual meeting or
until their successors shall have been elected and qualified and they may
transact such other business as may be desired, whether or not the same was
specified in the notice of the meeting, unless the consideration of such other
business without its having been specified in the notice of the meeting as one
of the purposes thereof is prohibited by law.
(b) Business Which May Be Transacted at Special Meetings.
Business transacted at all special meetings of the shareholders shall be
confined to the purposes stated in the notices of such meetings, unless the
transaction of other business is consented to by the holders of all the
outstanding shares of stock of the corporation entitled to vote thereat.
8. Quorum. Unless otherwise provided by law or by the articles
of incorporation, the holders of a majority of the outstanding shares entitled
to vote, represented in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of the shareholders. Unless otherwise
provided by law or by the articles of incorporation, once a quorum is present
at a meeting of shareholders, the shareholders represented in person or by
proxy at the meeting may conduct such business as may be properly brought
before the meeting until it is adjourned, and the subsequent withdrawal from
the meeting of any shareholder or the refusal of any shareholder represented in
person or by proxy to vote shall not affect the presence of a quorum at the
meeting. Unless otherwise provided by law or by the articles of incorporation,
the shareholders represented in person or by proxy at a meeting of shareholders
at which a quorum is not
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<PAGE> 9
present may adjourn the meeting until such time and to such place as may be
determined by a vote of the holders of a majority of the shares represented in
person or by proxy at that meeting. At any subsequent session of the meeting
at which a quorum is present in person or by proxy any business may be
transacted which could have been transacted at the initial session of the
meeting if a quorum had been present.
9. (a) Proxies. At any meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote in person or by
proxy executed in writing by such shareholder. A telegram, telex, cablegram,
or similar transmission by the shareholder, or a photographic, photostatic,
facsimile, or similar reproduction of a writing executed by a shareholder,
shall be treated as an execution in writing for these purposes. No proxy shall
be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy. A proxy shall be revocable unless the proxy
form conspicuously states that the proxy is irrevocable and the proxy is
coupled with an interest.
(b) Voting. Each shareholder shall have one vote for
each share of stock entitled to vote under the provisions of the articles of
incorporation and which is registered in his name on the books of the
corporation, and in the election of directors shall have for each such share
one vote for one candidate for each directorship to be filled, cumulative
voting not being permitted.
No person shall be admitted to vote on any shares of the
corporation belonging or hypothecated to the corporation.
(c) Registered Shareholders - Exceptions - Stock
Ownership Presumed. The corporation may regard the person in whose name any
shares issued by the corporation are registered in the share transfer records
of the corporation at any particular time as the owner of those shares at that
time for purposes of voting those shares, receiving distributions thereon or
notices in respect thereof, transferring those shares, exercising rights of
dissent with respect to those shares, exercising or waiving any preemptive
right with respect to those shares, entering into agreements with respect to
those shares in accordance with applicable law, or giving proxies with respect
to those shares, and the term "shareholder" as used in these bylaws means one
who is a holder of shares so registered in the share transfer records of the
corporation.
10. Shareholders' Lists. A complete list of the shareholders
entitled to vote at each meeting of the shareholders, or any adjournments
thereof, arranged in alphabetical order, with the address of and the number of
voting shares held by each, shall be prepared at least ten (10) days before
each such meeting by the officer or agent of the corporation having charge of
the share transfer records of the corporation, and, for a period of ten (10)
days prior to the meeting, shall be kept on file at the registered office or
principal place of business of the corporation and shall at any time during the
usual hours for business be subject to inspection by any shareholder. Such
list or a duplicate thereof also shall be
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<PAGE> 10
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. Subject to the provisions of Section 38 hereof, the original list or
share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such share transfer records or to vote at any
meeting of shareholders.
Failure to comply with the foregoing shall not affect the validity of
any action taken at any such meeting.
DIRECTORS
11. Directors - Number. Unless and until changed by the board of
directors as hereinafter provided, the number of directors to constitute the
board of directors shall be the same number as that provided for the first
board in the articles of incorporation. Directors need not be residents of the
state of Texas or shareholders unless the articles of incorporation at any time
so require. The board of directors shall have the power to change the number
of directors by resolution adopted by a majority of the whole board, provided
that any notice required by law of any such change is duly given, but no
decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. At each annual meeting of shareholders the
shareholders shall elect directors to hold office until the next succeeding
annual meeting. Unless removed in accordance with provisions of these bylaws
or the articles of incorporation, each director shall hold office for the term
for which he is elected and until his successor shall have been elected and
qualified.
At any meeting of shareholders called expressly for that purpose any
director or the entire board of directors may be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors, subject to any further restrictions on
removal that may be contained in these bylaws.
11A. Staggered Board. Commencing with the special meeting of
shareholders held in February, 1997, in lieu of electing the whole number of
directors annually, the directors, shall be divided, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as is reasonably possible, with the term of office of the first class
("Class I") to expire at the annual meeting of shareholders to be held in 1997,
the term of office of the second class ("Class II") to expire at the annual
meeting of shareholders to be held in 1998, and the term of office of the third
class ("Class III") to expire at the annual meeting of shareholders to be held
in 1999, with each director to hold office until his or her successor shall
have been duly elected and qualified unless earlier removed. At each annual
meeting of shareholders, commencing with the annual meeting of shareholders to
be held in 1997, (i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of shareholders after their election, with each
director to hold office until his or her successor shall have been duly
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<PAGE> 11
elected and qualified unless earlier removed, and (ii) if authorized by a
resolution of the board of directors, directors may be elected to fill any
vacancy on the board of directors, regardless of how such vacancy shall have
been created. The initial Class III director shall be Lee Sanders. The
initial director or directors in each class shall be determined by the election
of shareholders at the special meeting of the shareholders held in February,
1997. Notwithstanding that a lesser percentage may be permitted from time to
time by applicable law, no provision of this Section 11A may be altered,
amended or repealed in any respect, nor may any provision inconsistent
therewith be adopted, unless such alteration, amendment, repeal or adoption is
approved by the affirmative vote of the holders of at least 80 percent of the
combined voting stock of the corporation voting together as a single class at a
meeting of shareholders called by the action of the board of directors.
12. (a) Powers of the Board. The powers of the corporation
shall be exercised by or under the authority of, and the business and affairs
of the corporation shall be managed under the direction of, the board of
directors of the corporation, acting as a board. The board shall have and is
vested with all and unlimited powers and authorities, except as may be
expressly limited by law, the articles of incorporation or these bylaws, to do
or cause to be done any and all lawful things for and on behalf of the
corporation, to exercise or cause to be exercised any or all of its powers,
privileges, and franchises, and to seek the effectuation of its objects and
purposes.
(b) Interested Director Transactions. Unless otherwise
provided by law, the articles of incorporation, or these bylaws, no contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(1) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the board of directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
shareholders; or
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(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved, or ratified by
the board of directors, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board of directors or of a
committee which authorizes the contract or transaction.
13. Offices. The directors may have one or more offices, and keep
the books of the corporation (except share transfer records and such other
books and records as may by law be required to be kept at a particular place)
at such place or places within or without the State of Texas as the board of
directors may from time to time determine.
14. Acceptance of Election. Each director, upon his election,
shall qualify by accepting the office of director, and his attendance at, or
his written approval of the minutes of, any meeting of the newly-elected
directors shall constitute his acceptance of such office; or he may execute
such acceptance by a separate writing, which shall be placed in the minute
book.
15. Regular Meetings - Notice. Regular meetings of the board may
be held without notice at such times and places either within or without the
State of Texas as shall from time to time be fixed by resolution adopted by the
full board of directors. Any business may be transacted at a regular meeting.
16. Special Meetings - Notice. Special meetings of the board may
be called at any time by the chairman of the board, the president, any vice
president, or the secretary, or by any one or more of the directors. The place
may be within or without the State of Texas as designated in the notice.
Written or printed notice of each special meeting of the board,
stating the place, day, and hour of the meeting and to the extent, if any,
required by the articles of incorporation or by law, the purpose or purposes
thereof, shall be mailed to each director at least three (3) days before the
day on which the meeting is to be held, or shall be delivered to him personally
or sent to him by telegram at least two (2) days before the day on which the
meeting is to be held. If mailed, such notice shall be deemed to be delivered
when it is deposited in the United States mail with postage thereon prepaid and
addressed to the director at his residence or usual place of business. If
given by telegraph, such notice shall be deemed to be delivered when it is
delivered to the telegraph company, addressed to the director at his residence
or usual place of business as indicated on the records of the corporation, with
the cost of transmission prepaid. The notice may be given by any officer
having authority to call the meeting or by any director.
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<PAGE> 13
"Notice" and "call" with respect to such meetings shall be deemed to
be synonymous.
17. Waiver of Notice. Whenever any notice is required to be given
to any director under the provisions of these bylaws, the articles of
incorporation, or of any law, a waiver thereof in writing signed by such
director, whether before or after the time stated therein, shall be equivalent
to the giving of such notice. To the extent provided by law, attendance of a
director at any meeting shall constitute a waiver of notice of such meeting.
18. Meetings by Conference Telephone or Similar Communications
Equipment. Subject to the requirements for notice of meetings, unless
otherwise restricted by the articles of incorporation or these bylaws or by
law, members of the board of directors of the corporation, or members of any
committee designated by the board, may participate in and hold a meeting of
such board or committee by means of conference telephone or similar
communications equipment whereby all persons participating in a meeting in this
manner can hear each other, and participation in a meeting in this manner shall
constitute presence in person at such meeting, except when a person
participates in a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
19. Action Without a Meeting. Any action which is required to be
or may be taken at a meeting of the directors, or of the executive committee or
any other committee of the directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all of the
members of the board or of the committee, as the case may be. Such consent
shall have the same force and effect as a unanimous vote at a meeting duly
held. The secretary shall file such consents with the minutes of the meetings
of the board of directors or of the committee as the case may be.
20. Quorum. At all meetings of the board a majority of the full
board of directors shall, unless a greater number as to any particular matter
is required by law, the articles of incorporation or these bylaws, constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum, except as may be
otherwise specifically provided by law, the articles of incorporation or these
bylaws, shall be the act of the board of directors.
21. Vacancies. Unless otherwise provided in the articles of
incorporation or by law, vacancies on the board of directors may be filled by
the affirmative vote of a majority of the remaining directors, although less
than a quorum, or by a sole remaining director, or by election at an annual or
special meeting of shareholders called for that purpose. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office. Any directorship to be filled by reason of an increase in the number
of directors may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose, or by the board of directors
for a term of office continuing only
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until the next election of one or more directors by the shareholders; provided
that the board of directors may not fill more than two such directorships
during the period between any two successive annual meetings of shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series of
shares are entitled to elect one or more directors by the provisions of the
articles of incorporation, any vacancies in such directorships and any newly
created directorship for such class or series to be filled by reason of an
increase in the number of such directors may be filled by the affirmative vote
of a majority of the directors elected by such class or series then in office
or by a sole remaining director so elected, or by the vote of the holders of
the outstanding shares of such class or series, and such directorship shall not
in any case be filled by the vote of the remaining directors or the holders of
the outstanding shares as a whole unless otherwise provided in the articles of
incorporation.
21A. Removal. At any meeting of shareholders called expressly for
that purpose, any director or the entire board of directors may be removed,
with or without cause, by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors. Whenever the holders of any
class or series of shares or any such group are entitled to elect one or more
directors by the provisions of the Articles of Incorporation, only the holders
of shares of that class or series or group shall be entitled to vote for or
against the removal of any director elected by the holders of shares of that
class or series or group.
22. Indemnification and Expenses; Liability of Directors and
Officers. The corporation shall (i) indemnify any person who is or was a
director, officer, employee, or agent of the corporation, or while a director,
officer, employee, or agent of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise, to the fullest extent that a
corporation may or is required to grant indemnification to a director under the
Texas Business Corporation Act as now written or as hereafter amended, and (ii)
shall pay or reimburse reasonable expenses (including court costs and
attorneys' fees) incurred by any such person who was, is, or is threatened to
be named defendant or respondent in a proceeding (including any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in any such action,
suit, or proceeding, and any inquiry or investigation that could lead to such
an action, suit, or proceeding), in advance of the final disposition of the
proceeding, to the fullest extent that a corporation may or is required to
advance such expenses to a director under the Texas Business Corporation Act as
now written or as hereafter amended. The corporation may indemnify and advance
expenses to any person to such further extent as permitted by law.
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The corporation may purchase and maintain insurance on behalf of any
person who holds or who has held any position named hereinabove as allowed
under the Texas Business Corporation Act, as now written or as hereafter
amended.
Except as otherwise provided by the Texas Business Corporation Act, as
now written or as hereafter amended, with respect to directors and
shareholders, no person shall be liable to the corporation for any loss,
damage, liability, or expense suffered by it on account of any action taken or
omitted to be taken by him as a director or officer of the corporation or of
any other corporation which he serves as a director or officer at the request
of the corporation, if such person (i) exercised the same degree of care and
skill as a prudent man would have exercised under the circumstances in the
conduct of his own affairs, or (ii) took or omitted to take such action in
reliance upon advice of counsel for the corporation, or for such other
corporation, or upon statements made or information furnished by directors,
officers, employees, or agents of the corporation, or of such other
corporation, which he had no reasonable grounds to disbelieve.
23. Executive and Other Committees. The board of directors, by
resolution or resolutions adopted by a majority of the full board of directors,
may designate from among its members an executive committee and one or more
other committees, each of which committees, to the extent provided in said
resolution or resolutions, shall have and may exercise all the authority of the
board of directors in the management of the corporation, except to the extent
expressly prohibited by the Texas Business Corporation Act; provided, however,
that the designation of any such committee and the delegation thereto of
authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed upon it or him by law.
Each committee so designated shall keep regular minutes of its
proceedings, which minutes shall be recorded in the minute book of the
corporation. The secretary or an assistant secretary of the corporation may
act as secretary for any such committee if such committee so requests.
24. Compensation of Directors and Committee Members. Directors
and members of all committees shall not receive any stated salary for their
services as such, unless authorized by resolution of the board. Also, by
resolution of the board, a fixed sum and expenses of attendance, if any, may be
allowed for attendance at each regular or special meeting of the board of
directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
OFFICERS
25. (a) Officers - Who Shall Constitute. The officers of the
corporation shall consist of a chairman of the board, a president, one or more
vice presidents, a
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secretary, a treasurer, one or more assistant secretaries, and one or more
assistant treasurers. The board shall elect a president and a secretary at its
first meeting after each annual meeting of the shareholders. The board then,
or from time to time, also may elect one or more of the other prescribed
officers as it shall deem advisable, but need not elect any officers other than
a president and a secretary. The board may, if it desires, elect or appoint
additional officers as may be deemed necessary, and may further identify or
describe any one or more of the officers of the corporation.
The officers of the corporation need not be members of the
board of directors. Any two or more offices may be held by the same person.
An officer shall be deemed qualified when he enters upon the
duties of the office to which he has been elected or appointed and furnishes
any bond required by the board; but the board also may require his written
acceptance and promise faithfully to discharge the duties of such office.
(b) Term of Office. Each officer of the corporation
shall hold his office at the pleasure of the board of directors or for such
other period as the board may specify at the time of his election or
appointment, or until his death, resignation, or removal by the board,
whichever first occurs. In any event, each officer of the corporation who is
not reelected or reappointed at the annual election of officers by the board
next succeeding his election or appointment shall be deemed to have been
removed by the board, unless the board provides otherwise at the time of his
election or appointment.
(c) Other Agents. The board from time to time also may
appoint such other agents for the corporation as it shall deem necessary or
advisable, each of whom shall serve at the pleasure of the board or for such
period as the board may specify, and shall exercise such powers, have such
titles and perform such duties as shall be determined from time to time by the
board or by an officer empowered by the board to make such determinations.
26. Removal. Any officer or agent or member of a committee
elected or appointed by the board of directors, and any employee, may be
removed or discharged by the board whenever in its judgment the best interests
of the corporation would be served thereby, but such removal or discharge shall
be without prejudice to the contract rights, if any, of the person so removed
or discharged. Election or appointment of an officer or agent or member of a
committee shall not of itself create contract rights.
27. Salaries and Compensation. Salaries and compensation of all
elected officers of the corporation shall be fixed, increased, or decreased by
the board of directors, but this power, except as to the salary or compensation
of the chairman of the board and the president, unless prohibited by law, may
be delegated by the board to the chairman of the board, the president, or a
committee. Salaries and compensation of all appointed
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<PAGE> 17
officers and agents, and of all employees of the corporation, may be fixed,
increased, or decreased by the board of directors, but until action is taken
with respect thereto by the board of directors, the same may be fixed,
increased or decreased by the president or by such other officer or officers as
may be empowered by the board of directors to do so.
28. Delegation of Authority to Hire, Discharge, and Designate
Duties. The board from time to time may delegate to the chairman of the board,
the president or other officer or executive employee of the corporation,
authority to hire, discharge, fix, and modify the duties, salary or other
compensation of employees of the corporation under their jurisdiction, and the
board may delegate to such officer or executive employee similar authority with
respect to obtaining and retaining for the corporation the services of
attorneys, accountants, and other experts.
29. The Chairman of the Board. If a chairman of the board be
elected, he shall, except as otherwise provided for in Section 6(c) of these
bylaws, preside at all meetings of the shareholders and directors at which he
may be present and shall have such other duties, powers, and authority as may
be prescribed elsewhere in these bylaws. The board of directors may delegate
such other authority and assign such additional duties to the chairman of the
board, other than those conferred by law exclusively upon the president, as it
may from time to time determine, and, to the extent permissible by law, the
board may designate the chairman of the board as the chief executive officer of
the corporation with all of the powers otherwise conferred upon the president
of the corporation under Section 30 of these bylaws, or it may, from time to
time, divide the responsibilities, duties, and authority for the general
control and management of the corporation's business and affairs between the
chairman of the board and the president. If the chairman of the board is
designated as the chief executive officer of the corporation, notice thereof
shall be given to the extent and in the manner as may be required by law.
30. The President. Unless the board otherwise provides, the
president shall be the chief executive officer of the corporation with such
general executive powers and duties of supervision and management as usually
are vested in the office of the chief executive officer of a corporation, and
he shall carry into effect all directions and resolutions of the board. Except
as otherwise provided for in Section 6(c) of these bylaws, the president, in
the absence of the chairman of the board or if there be no chairman of the
board, shall preside at all meetings of the shareholders and directors.
The president may execute all bonds, notes, debentures, mortgages, and
other contracts requiring a seal, under the seal of the corporation, may cause
the seal to be affixed thereto, and may execute all other instruments for and
in the name of the corporation.
Unless the board otherwise provides, the president, or any person
designated in writing by him, may (i) attend meetings of shareholders of other
corporations to represent
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<PAGE> 18
this corporation thereat and to vote or take action with respect to the shares
of any such corporation owned by this corporation in such manner as he or his
designee may determine, and (ii) execute and deliver waivers of notice and
proxies for and in the name of this corporation with respect to shares of any
such corporation owned by this corporation.
He shall, unless the board otherwise provides, be an ex officio member
of all standing committees.
He shall have such other or further duties and authority as may be
prescribed elsewhere in these bylaws or from time to time by the board of
directors.
If a chairman of the board be elected and designated as the chief
executive officer of the corporation, as provided in Section 29 of these
bylaws, the president shall perform such duties as may be specifically
delegated to him by the board of directors or are conferred by law exclusively
upon him, and in the absence, disability, or inability or refusal to act of the
chairman of the board, the president shall perform the duties and exercise the
powers of the chairman of the board.
31. Vice Presidents. In the absence, disability, or inability or
refusal to act of the president, any vice president may perform the duties and
exercise the powers of the president, until the board otherwise provides. Vice
presidents shall perform such other duties as the board shall from time to time
prescribe.
32. The Secretary and Assistant Secretaries. The secretary shall
attend all sessions of the board and, except as otherwise provided for in
Section 6(c) of these bylaws, all meetings of the shareholders, shall prepare
minutes of all proceedings at such meetings, and shall preserve them in a
minute book of the corporation. He shall perform similar duties for the
executive and other standing committees when requested by the board or any such
committee.
He shall see that all books, records, lists, and information, or
duplicates, required to be maintained at the registered or other office of the
corporation in Texas, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the corporation and, when
duly authorized to do so, shall affix it to any instrument requiring a
corporate seal, and, when so affixed, he shall attest the seal by his
signature.
He shall perform such other duties and have such other responsibility
and authority as may be prescribed elsewhere in these bylaws or from time to
time by the board of directors or the chief executive officer of the
corporation, under whose direct supervision he shall be.
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<PAGE> 19
He shall have the general duties, powers, and responsibilities of a
secretary of a corporation.
Any assistant secretary, in the absence, disability, or inability or
refusal to act of the secretary, may perform the duties and exercise the powers
of the secretary until the board otherwise provides. Assistant secretaries
shall perform such other duties and have such other authority as the board may
from time to time prescribe.
33. The Treasurer and Assistant Treasurers. The treasurer shall
have responsibility for the safekeeping of the funds and securities of the
corporation, shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
keep, or cause to be kept, all other books of account and accounting records of
the corporation. He shall deposit or cause to be deposited all moneys and
other valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors or by any officer
of the corporation to whom such authority has been granted by the board.
He shall disburse, or permit to be disbursed, the funds of the
corporation as may be ordered, or authorized generally, by the board, and shall
render to the chief executive officer of the corporation and the directors,
whenever they may require it, an account of all his transactions as treasurer
and of those under his jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these bylaws or
from time to time by the board of directors.
He shall have the general duties, powers, and responsibility of a
treasurer of a corporation, and shall, unless otherwise provided by the board,
be the chief financial and accounting officer of the corporation.
If required by the board, he shall give the corporation a bond in a
sum and with one or more sureties satisfactory to the board for the faithful
performance of the duties of his office and for the restoration to the
corporation, in the case of his death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control which belong to the corporation.
Any assistant treasurer, in the absence, disability, or inability or
refusal to act of the treasurer, may perform the duties and exercise the powers
of the treasurer until the board otherwise provides. Assistant treasurers
shall perform such other duties and have such other authority as the board may
from time to time prescribe.
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<PAGE> 20
34. Duties of Officers May Be Delegated. If any officer of the
corporation be absent or unable to act, or for any other reason that the board
may deem sufficient, the board may delegate, for the time being, some or all of
the functions, duties, powers, and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board of directors
concurs.
SHARES OF STOCK
35. Payment for Shares of Stock. The corporation shall not issue
shares of stock except for money paid, labor done, or property actually
received. No note or obligation given by any shareholder, whether secured by
deed of trust, mortgage, or otherwise, shall be considered as payment of any
part of the share or shares issued, and no loan of money for the purposes of
such payment shall be made by the corporation. Shares may not be issued until
the full amount of consideration for such shares has been paid to the
corporation.
36. Certificates for Shares of Stock. The certificates for shares
of stock of the corporation shall be numbered and shall be in such form as may
be prescribed by the board of directors in conformity with law. The issuance
of shares shall be entered in the share transfer records of the corporation as
they are issued. Such entries shall show the name and address of the person,
firm, partnership, corporation, or association to whom each certificate is
issued. Each certificate shall have printed, typed, or written thereon the
name of the person, firm, partnership, corporation, or association to whom it
is issued and the number of shares represented thereby. It shall be signed by
an officer of the corporation, and may be sealed with the seal of the
corporation, which signature and seal may be facsimiles. In case such officer
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if such
officer were such officer at the date of its issuance.
37. Transfers of Shares - Transfer Agent - Registrar. Transfers
of shares of stock shall be made in the share transfer records of the
corporation only by the person named in the stock certificate, or by his
attorney lawfully constituted in writing, and upon surrender of the certificate
therefor. The share transfer records shall be in the possession of the
secretary or of a transfer agent for the corporation. The corporation, by
resolution of the board, may from time to time appoint a transfer agent and, if
desired, a registrar, under such arrangements and upon such terms and
conditions as the board deems advisable, but until and unless the board
appoints some other person, firm, or corporation as its transfer agent (and
upon the revocation of any such appointment, thereafter until a new appointment
is similarly made) the secretary of the corporation shall be the transfer agent
of the corporation without the necessity of any formal action of the board, and
the secretary, or any person designated by him, shall perform all of the duties
thereof.
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<PAGE> 21
38. (a) Fixing Record Dates for Meetings, Distributions, Etc.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or entitled to receive
any distribution or dividend (other than a purchase or redemption by the
corporation of any of its own shares), or in order to make a determination of
shareholders for any other proper purpose (other than determining shareholders
entitled to consent to action by shareholders proposed to be taken without a
meeting of shareholders), the board of directors of the corporation may provide
that the share transfer records shall be closed for a stated period, which
shall not exceed sixty (60) days. If the share transfer records shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such records shall be closed for at least
ten (10) days immediately preceding such meeting. In lieu of closing the share
transfer records, the board of directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case
to be not more than sixty (60) days and, in the case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the share transfer records are not closed and no record date is fixed by the
board of directors for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive a
distribution or dividend (other than a repurchase or redemption by the
corporation of any of its own shares), the date on which notice of the meeting
is mailed or the date on which the resolution of the board of directors
declaring such distribution or dividend is adopted, as the case may be, shall
be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as herein provided, such determination shall apply to any
adjournment thereof, except where the determination has been made through the
closing of share transfer records and the stated period of closing has expired.
(b) Fixing Record Dates for Consents to Action. Unless a
record date shall have previously been fixed or determined pursuant to this
section, whenever action by shareholders is proposed to be taken by consent in
writing without a meeting of shareholders, the board of directors may fix a
record date for the purpose of determining shareholders entitled to consent to
that action, which record date shall not precede, and shall not be more than
ten (10) days after, the date upon which the resolution fixing the record date
is adopted by the board of directors. If no record date has been fixed by the
board of directors and the prior action of the board of directors is not
required by law, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation by delivery to its registered office, its
principal place of business, or an officer or an agent of the corporation
having custody of the books in which proceedings of meetings of shareholders
are recorded. Delivery shall be by hand or by certified or registered mail,
return receipt requested. Delivery to the corporation's principal place of
business shall be addressed to the president or the principal executive officer
of the corporation. If no record date shall have been
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<PAGE> 22
fixed by the board of directors and prior action of the board of directors is
required by law, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of
business on the date on which the board of directors adopts a resolution taking
such prior action.
39. Lost, Destroyed, or Stolen Certificates. The board of
directors may direct a new certificate to be issued in lieu of any theretofore
issued by the corporation that is alleged to have been lost, destroyed, or
wrongfully taken, if before the corporation has notice that the shares
represented by such certificate have been acquired by a bona fide purchaser,
the owner of such shares submits to the corporation an affidavit in form and
substance satisfactory to the corporation's counsel, of the fact of loss,
destruction, or wrongful taking by the person alleging the certificate to have
been lost, destroyed, or wrongfully taken. When authorizing such issuance of a
new certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost,
destroyed, or wrongfully taken certificate, or his legal representative, to
give the corporation a bond in such sum and form, and with such surety or
sureties, as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, destroyed, or wrongfully taken, or may require both such conditions or
any other reasonable conditions or requirements; provided, however, that a new
certificate may be issued without requiring a bond when in the judgment of the
board it is proper to do so.
40. Regulations. The board of directors shall have power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, conversion, and registration of certificates
for shares of stock of the corporation, that are not inconsistent with the laws
of Texas, the articles of incorporation, or these bylaws.
GENERAL
41. Fixing of Capital - Transfers of Surplus. Except as may be
specifically otherwise provided in the articles of incorporation or by law, the
board of directors is expressly empowered to exercise all authority conferred
upon it or the corporation by any law or statute, and in conformity therewith,
relative to:
(i) determining what part of the consideration received
for shares of the corporation shall be stated capital;
(ii) increasing stated capital;
(iii) transferring surplus to stated capital;
(iv) determining the consideration to be received by the
corporation for its shares; and
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<PAGE> 23
(v) determining all similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
shareholders, required to be taken or given pursuant to law, shall be duly
taken or given in connection therewith.
42. Distributions or Dividends. Distributions or dividends upon
the outstanding shares of the corporation, subject to the provisions of the
articles of incorporation and of any applicable law, may be declared by the
board of directors at any meeting. Distributions or dividends may be paid in
cash, in property, or in shares of the corporation's stock.
Liquidating distributions or dividends or distributions or dividends
representing paid-in surplus or a return of capital shall be made only when and
in the manner permitted by law.
43. Creation of Reserves. Before the payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the board of directors from time to time deems
proper as a reserve fund or funds to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for any other purpose deemed by the board to be conducive to the interests of
the corporation, and the board may abolish any such reserve in the manner in
which it was created.
44. Depositories. The moneys of the corporation shall be
deposited in the name of the corporation in such bank or banks or other
depositories as the board of directors shall designate, and shall be drawn out
only by check signed by persons designated by resolution adopted by the board
of directors. The board of directors may by resolution authorize an officer or
officers of the corporation to designate any bank or banks or other
depositories in which moneys of the corporation may be deposited, and to
designate the persons who may sign checks drawn on any particular account or
accounts of the corporation, whether created by direct designation of the board
of directors or by an authorized officer or officers as aforesaid.
45. Fiscal Year. The board of directors shall have power to fix
and from time to time change the fiscal year of the corporation. In the
absence of action by the board of directors, the fiscal year of the corporation
shall end each year on the date which the corporation treated as the close of
its first fiscal year, until such time, if any, as the fiscal year shall be
changed by the board of directors.
46. Directors' Annual Statement. The board of directors may
present at each annual meeting, and when called for by vote of the shareholders
shall present to any
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<PAGE> 24
annual or special meeting of the shareholders, a full and clear statement of
the business and condition of the corporation.
47. Amendments. The bylaws of the corporation may from time to
time be altered, amended or repealed, or new bylaws may be adopted, in the
manner provided by law and the articles of incorporation, if any provision be
made therein.
CERTIFICATE
The undersigned secretary of Aviation Group, Inc., a Texas
corporation, hereby certifies that the foregoing amended and restated bylaws
are the bylaws of said corporation adopted by the board of directors of said
corporation effective on the date hereof.
DATED as of May 12, 1997.
/s/ DENA LOOPER
----------------------------------------
Dena Looper, Secretary
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<PAGE> 1
EXHIBIT 4.2
COMMON STOCK PAR VALUE $.01
NUMBER SHARES
C
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 053667 10 1
NEW YORK, NEW YORK AND JERSEY CITY, NEW JERSEY SEE REVERSE FOR CERTAIN
DEFINITIONS
[AVIATION GROUP, INC. LOGO]
THIS IS TO CERTIFY THAT
is the owner of
CERTIFICATE OF STOCK
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Aviation Group, Inc. 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 the provisions of the
Certificate of Incorporation of the Corporation (copies of which are on file
with the Transfer Agent), to all of which the holder by acceptance hereof
assents. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ DENA LOOPER /s/ LEE SANDERS [CORPORATE SEAL]
SECRETARY PRESIDENT
<PAGE> 2
AVIATION GROUP, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the statement of designations, preferences, and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request should be addressed to the
Secretary of the Corporation or to the Transfer Agent.
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:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - __________Custodian______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________
(State)
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 common 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 ___________________
Signature:
________________________________________________________________________________
Notice: The signature to this assignment must correspond with the name as
written upon the face of the certificate in evey particular, without alteration
or enlargement or any change whatever.
Signature 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-16.
<PAGE> 1
EXHIBIT 4.3
AVIATION GROUP, INC.
REDEEMABLE WARRANT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of ________________, 1997,
is between AVIATION GROUP, INC., a Texas corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant
Agent").
WHEREAS, in connection with (i) an offering to the public of up to
1,150,000 shares of the Company's Common Stock, $0.01 par value (the "Common
Stock"), and 1,150,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"), and (ii) the issuance to First London Securities Corporation (the
"Representative") or its designees of warrants (the "Representative's
Warrants") to purchase up to (x) 100,000 additional shares of Common Stock and
(y) 100,000 warrants that are identical in terms and conditions to the Warrants
except as to their exercise price (the "Underlying Warrants"), the Company may
issue up to 1,250,000 Warrants (including the Underlying Warrants) evidencing
the right to purchase an aggregate of 1,250,000 shares of Common Stock as
constituted on the date hereof as contemplated by the Prospectus of the Company
dated ______________, 1997 (the "Definitive Prospectus"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, exercise, and redemption of the
Warrants;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as agent of the
Company for the Warrants, and the Warrant Agent hereby accepts such appointment
and agrees to perform the same in accordance with the terms and conditions set
forth in this Agreement.
SECTION 2. WARRANTS AND FORM OF WARRANT CERTIFICATES.
(a) Each Warrant (including each Underlying Warrant)
shall entitle the registered holder of the certificate representing such
Warrant to purchase upon the exercise thereof one share of Common Stock,
subject to the adjustments provided for in Section 9 hereof, at any time until
5:00 p.m., New York City time, on ____________, 2002 (five years after the date
of the Definitive Prospectus), unless earlier redeemed pursuant to Section 11
hereof. The Underlying Warrants shall be identical to the Warrants in all
respects as to their terms and conditions, except that the Underlying Warrants
shall have a higher exercise price as specified in Section 9(d) hereof. The
terms "Warrant"
<PAGE> 2
or "Warrants" when used in this Agreement (other than in Sections 2(c), 3,
9.1(d), 9.6 and 20) shall be deemed to refer also to an Underlying Warrant or
the Underlying Warrants.
(b) Each Representative's Warrant entitles the
registered holder of the certificate representing such Representative's Warrant
to purchase upon the exercise thereof one share of Common Stock, subject to
adjustments provided in Section 8 of the Representative's Warrant Agreement
referred to below, and one Underlying Warrant at any time after 9:00 a.m., New
York City time, on ________________, 1998 (one year from the date of the
Definitive Prospectus) until 5:00 p.m., New York City time, on
________________, 2002 (five years after such date), in accordance with a
Representative's Warrant Agreement, dated the date hereof (the
"Representative's Warrant Agreement").
(c) The certificates for the Warrants and Underlying
Warrants shall be in registered form only. The text of the Warrant certificate
and the form of election to exercise a warrant on the reverse side thereof
shall be substantially in the form of Exhibit A attached hereto. The text of
the Underlying Warrant certificate and the form of election to exercise a
warrant on the reverse side thereof shall be substantially in the form of
Exhibit B attached hereto. The certificates for the Warrants and Underlying
Warrants may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants or
Underlying Warrants may be listed, or to conform to usage.
(d) Each Warrant certificate shall be dated by the
Warrant Agent as of the date of issuance thereof (whether upon initial issuance
or upon transfer or exchange), and shall be executed on behalf of the Company
by the manual or facsimile signature of its President or a Vice President,
under its corporate seal, affixed or in facsimile, and attested to by the
manual or facsimile signature of its Secretary or an Assistant Secretary. In
case any officer of the Company who shall have signed any Warrant certificate
shall cease to be such officer of the Company prior to the issuance thereof,
such Warrant certificate may nevertheless be issued and delivered with the same
force and effect as though the person who signed the same had not ceased to be
such officer of the Company. Any such Warrant certificate may be signed on
behalf of the Company by persons who, at the actual date of execution of such
Warrant certificate, are the proper officers of the Company, although at the
nominal date of such Warrant certificate any such person shall not have been
such officer of the Company.
SECTION 3. EXERCISE OF WARRANTS, DURATION AND WARRANT PRICE.
(a) Subject to the provisions of this Agreement, each
registered holder of one or more Warrant (or Underlying Warrant) certificates
shall have the right, which may be exercised as provided in such Warrant (or
Underlying Warrant) certificates, to purchase from the Company (and the Company
shall issue and sell to such registered holder) the number of shares of Common
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<PAGE> 3
Stock to which the Warrants or Underlying Warrants represented by such
certificates are at the time entitled hereunder.
(b) Each Warrant or Underlying Warrant not exercised by
its expiration date shall become void, and all rights thereunder and all rights
in respect thereof under this Agreement shall cease on such date.
(c) A Warrant or Underlying Warrant may be exercised by
the surrender of the certificate representing such Warrant or Underlying
Warrant to the Company, at the office of the Warrant Agent, or at the office of
a successor to the Warrant Agent, with the subscription form set forth on the
reverse thereof duly executed and properly endorsed with the signatures
properly guaranteed, and upon payment in full to the Warrant Agent for the
account of the Company of the respective Warrant Price (as hereinafter defined)
for the number of shares of Common Stock as to which the Warrant or Underlying
Warrant is exercised. Such Warrant Price shall be paid in full in cash, or by
certified check or bank draft payable in United States currency to the order of
the Warrant Agent.
(d) The prices per share of Common Stock at which the
Warrants or Underlying Warrants may be exercised (the "Warrant Prices") shall
be $______ for the Warrants and $_____ for the Underlying Warrants. Said
prices are subject to adjustment in accordance with Section 9 hereof, taking
into account prior adjustments.
(e) Subject to the further provisions of this Section 3
and of Section 6 hereof, upon surrender of Warrant or Underlying Warrant
certificates and payment of the Warrant Price for the Warrant or Underlying
Warrant, as the case may be, the Company shall issue and cause to be delivered,
with all reasonable dispatch to or upon the written order of the registered
holder of such Warrants or Underlying Warrants and in such name or names as
such registered holder may designate, subject to applicable securities laws, a
certificate or certificates for the number of securities so purchased upon the
exercise of such Warrants or Underlying Warrants, together with cash, as
provided in Section 10 of this Agreement, in respect of any fraction of a share
or security otherwise issuable upon such surrender. All shares of Common Stock
issued upon the exercise of a Warrant or Underlying Warrant shall be validly
issued, fully paid and nonassessable and shall be listed on any and all
national securities exchanges or approved for quotation on the level of
National Association of Securities Dealers Automatic Quotation System
("Nasdaq") upon which any other shares of the Common Stock or securities
otherwise issuable are then listed or traded.
(f) Certificates representing such securities 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 the surrender of such Warrants or Underlying Warrants and payment of
the respective Warrant Price; provided, however, that if, at the date of
surrender of such Warrants or Underlying Warrants and payment of such Warrant
Price, the transfer books for the Common Stock or other securities purchasable
upon the exercise of such Warrants or Underlying Warrants shall be closed, the
certificates for the securities in respect of which such Warrants or Underlying
Warrants are then exercised shall be issuable as of the date on which such
books shall next
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<PAGE> 4
be opened and until such date the Company shall be under no duty to deliver any
certificate for such securities. The rights of purchase represented by each
Warrant or Underlying Warrant certificate shall be exercisable, at the election
of the registered holder thereof, either as an entirety or from time to time
for part of the number of securities specified therein and, in the event that
any Warrant or Underlying Warrant certificate is exercised in respect of less
than all of the securities specified therein at any time prior to the
expiration date of the Warrant or Underlying Warrant certificate, a new Warrant
or Underlying Warrant certificate or certificates will be issued to such
registered holder for the remaining number of securities specified in the
Warrant or Underlying Warrant certificate so surrendered.
SECTION 4. COUNTERSIGNATURE AND REGISTRATION.
(a) The Warrant Agent shall maintain books (the
"Warrant Register") for the registration and the registration of transfer of
the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent
shall issue and register the Warrants in the names of the respective holders
thereof in such denominations and otherwise in accordance with instructions
delivered to the Warrant Agent by the Company. The Warrant certificates shall
be countersigned manually or by facsimile by the Warrant Agent (or by any
successor to the Warrant Agent then acting as such under this Agreement) and
shall not be valid for any purpose unless so countersigned. Warrant
certificates may be so countersigned, however, by the Warrant Agent and
delivered by the Warrant Agent, notwithstanding that the persons whose manual
or facsimile signatures appear thereon as proper officers of the Company shall
have ceased to be such officers at the time of such countersignature or
delivery.
(b) Prior to due presentment for registration of
transfer of any Warrant certificate, the Company and the Warrant Agent may deem
and treat the person in whose name such Warrant certificate shall be registered
upon the Warrant Register (the "registered holder") as the absolute owner of
such Warrant certificate and of each Warrant represented thereby
(notwithstanding any notation of ownership or other writing on the Warrant
certificate made by anyone other than the Company or the Warrant Agent), for
the purpose of any exercise thereof, of any distribution or notice to the
holder thereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. TRANSFER AND EXCHANGE OF WARRANTS.
(a) The Warrant Agent shall register the transfer, from
time to time, of any outstanding Warrant upon the Warrant Register, upon
surrender of the certificate evidencing such warrant for transfer, properly
endorsed with signatures properly guaranteed and accompanied by appropriate
instructions for transfer. Upon any such transfer, a new Warrant certificate
representing an equal aggregate number of Warrants shall be issued to the
transferee and the surrendered Warrant certificate shall be canceled by the
Warrant Agent. The Warrant certificates so canceled shall be delivered by the
Warrant Agent to the Company from time to time upon request. Notwithstanding
the foregoing, no transfer or exchange may be made except in compliance with
applicable securities laws.
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<PAGE> 5
(b) Warrant certificates may be surrendered to the
Warrant Agent, together with a written request for exchange, and thereupon the
Warrant Agent shall issue in exchange therefor one or more new Warrant
certificates as requested by the registered holder of the Warrant certificate
or certificates so surrendered, representing an equal aggregate number of
Warrants.
(c) The Warrant Agent shall not be required to effect
any registration of transfer or exchange which will result in the issuance of a
Warrant certificate for a fraction of a Warrant. No service charge shall be
made for any exchange or registration of transfer of Warrant certificates.
(d) The Warrant Agent is hereby authorized to
countersign and to deliver, in accordance with the terms of this Agreement, the
new Warrant certificates required to be issued pursuant to the provisions
hereof, and the Company, whenever required by the Warrant Agent, will supply
the Warrant Agent with certificates duly executed on behalf of the Company for
such purpose.
SECTION 6. PAYMENT OF TAXES.
The Company will pay any documentary stamp taxes attributable to the
initial issuance of the shares of Common Stock issuable upon the exercise of
Warrants; provided, however, the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock in a name
other than the registered holder of Warrants in respect of which such shares
are issued, and in such case neither the Company nor the Warrant Agent shall be
required to issue or deliver any certificate for shares of Common Stock or any
Warrant certificate until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANTS.
In case any of the Warrant certificates shall be mutilated, lost,
stolen or destroyed, the Company may in its discretion issue, and the Warrant
Agent shall countersign and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant certificate, or in lieu of and
substitution for the Warrant certificate lost, stolen or destroyed, a new
Warrant certificate representing an equal aggregate number of Warrants, but
only upon receipt of evidence satisfactory to the Company and the Warrant Agent
of such loss, theft or destruction of such Warrant certificate and reasonable
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrant certificates shall also comply with such other reasonable
conditions and pay such reasonable charges as the Company or the Warrant Agent
may prescribe.
SECTION 8. RESERVATION OF COMMON STOCK.
(a) There have been reserved, and the Company shall at
all times keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of the rights
of purchase represented by the Warrants and the Representative's Warrants then
outstanding or issuable upon exercise, and the transfer agent for the Common
Stock
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<PAGE> 6
and every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of any of the rights of purchase aforesaid are
hereby irrevocably authorized and directed at all times to reserve such number
of authorized and unissued shares as shall be requisite for such purpose.
(b) Prior to the issuance of any shares of Common Stock
upon exercise of the Warrants, the Company shall secure the listing of such
shares on any and all national securities exchanges or approved for quotation
on the level of Nasdaq upon which any of the other shares of the Common Stock
are then listed or quoted. So long as any unexpired Warrants remain
outstanding, the Company will file such post-effective amendments to the
Registration Statement or supplements to the Prospectus filed pursuant to the
Securities Act of 1933, as amended (the "Act"), with respect to the Warrants
(or such other registration statements or post-effective amendments or
supplements) as may be necessary to permit trading in the Warrants and to
permit the Company to deliver to each person exercising a Warrant a Prospectus
meeting the requirements of Section 10(a)(3) of the Act, and otherwise
complying therewith; and the Company will, from time to time, furnish the
Warrant Agent with such Prospectuses in sufficient quantity to permit the
Warrant Agent to deliver such a Prospectus to each holder of a Warrant upon the
exercise thereof. Such registration and Prospectus delivery will not be
required if in the opinion of counsel to the Company, such registration and
Prospectus delivery are not required under the federal securities law or if the
Company receives a letter from the staff of the Securities and Exchange
Commission (the "Commission") stating that it would not take any enforcement
action if such registration is not effected. The Company hereby undertakes to
obtain appropriate or necessary approvals or registrations under state "blue
sky" securities laws; however, it is understood and agreed that,
notwithstanding the Company's best efforts, it may be unable to obtain any such
appropriate or necessary approvals or registrations. With respect to any such
securities laws, however, Warrants may not be exercised by, or shares of Common
Stock issued to, any registered holder in any state in which such exercise
would be unlawful. The Company will keep a copy of this Agreement on file with
the transfer agent for the Common Stock and with every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants.
(c) The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such transfer agent stock certificates
required to honor outstanding Warrants. The Company will supply such transfer
agent with duly executed certificates for such purpose and will itself provide
or otherwise make available any cash as provided in Section 10 of this
Agreement. All Warrant certificates surrendered in the exercise of the rights
thereby evidenced shall be canceled by the Warrant Agent and shall thereafter
be delivered to the Company, and such canceled Warrant certificates shall
constitute sufficient evidence of the number of shares of Common Stock which
have been issued upon the exercise of such Warrants. Promptly after the
expiration date of the Warrants, the Warrant Agent shall certify to the Company
the aggregate number of such Warrants which expired unexercised, and after the
expiration date of the Warrants, no shares of Common Stock shall be subject to
reservation in respect of such Warrants.
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<PAGE> 7
SECTION 9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES OF COMMON
STOCK.
The number and kind of securities purchasable upon the exercise of the
Warrants and Underlying Warrants and the respective Warrant Prices thereof
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
9.1 ADJUSTMENTS.
(a) If the Company (i) pays a dividend in Common Stock
or makes a distribution in Common Stock, (ii) subdivides its outstanding Common
Stock into a greater number of shares, (iii) combines its outstanding Common
Stock into a smaller number of shares, or (iv) issues, by reclassification of
its Common Stock, other securities of the Company, then the number of shares of
Common Stock purchasable upon exercise of a Warrant immediately prior thereto
will be adjusted so that the holder of a Warrant will be entitled to receive
the kind and number of shares of Common Stock or other securities of the
Company that such holder would have owned or would have been entitled to
receive immediately after the happening of any of the events described above,
had the Warrant been exercised immediately prior to the happening of such event
or any record date with respect thereto. Any adjustment made pursuant to this
subsection 9.1(a) will become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants, or convertible securities containing the right to subscribe
for or purchase Common Stock, then the Company shall reserve, and the Warrant
holder shall be entitled to receive upon the exercise of such Warrant, for each
Share issuable upon exercise of such Warrant, the amount of indebtedness or
assets or the number of rights, options, warrants, or convertible securities
that such Warrantholder would have received had the Warrantholder been the
holder of such Share on the record date established by the Company for the
determination of holders of Common Stock entitled to receive such distribution,
or, if no such record date shall have been established, then on the date of
such distribution. Notwithstanding the above, in the event that any of the
provisions of this subsection 9.1(b) do not comply with the Conduct Rules of
the National Association of Securities Dealers, as such rules exist on the date
of this Agreement (the "Conduct Rules"), then such provisions shall be deemed
to be null and void, but only to the extent that such provisions do not comply
with the Conduct Rules, in which case the Warrantholder will be entitled to
receive the maximum amount of indebtedness or assets of the Company and/or that
number of rights, options, warrants, or convertible securities that the
Warrantholder may receive without violating the Conduct Rules.
(c) No adjustment in the number of shares purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of shares purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which
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<PAGE> 8
by reason of this subsection 9.1(c) are not required to be made immediately
shall be carried forward and taken into account in any subsequent adjustment.
(d) Whenever the number of shares purchasable upon the
exercise of the Warrants and Underlying Warrants is adjusted, as herein
provided, the respective Warrant Prices for shares payable upon exercise of the
Warrants and Underlying Warrants shall be adjusted by multiplying the
respective Warrant Prices for the Warrants and the Underlying Warrants
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of shares purchasable upon the exercise of the Warrants or
the Underlying Warrants, as the case may be, immediately prior to such
adjustment and of which the denominator shall be the number of shares so
purchasable immediately thereafter.
(e) Whenever the number of shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall
cause to be promptly 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 shares purchasable upon the
exercise of the Warrants after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was
made.
(f) For the purpose of this subsection 9.1, 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 or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a result
of an adjustment made pursuant to this Section 9, the Warrantholder shall
become entitled to purchase any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so purchasable
upon exercise of the Warrants shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the shares contained in this Section 9.
(g) The adjustments set forth in this Section 9.1 shall
be applied with respect to each unissued Underlying Warrant, as if such
Underlying Warrant were issued and outstanding, notwithstanding the fact that
at the time any event occurs giving rise to adjustment under this Section 9.1,
such Underlying Warrant had not yet been issued pursuant to the
Representative's Warrant to which such Underlying Warrant relates.
9.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
subsection 9.1, 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.
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<PAGE> 9
9.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the
Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Warrant Price in effect immediately prior to
such action to purchase, upon exercise of the Warrants, the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had the Warrants (and each underlying security) been exercised
immediately prior to such action. In the event of a merger described in Section
368(a)(2)(E) of the Internal Revenue Code of 1954, as amended, in which the
Company is the surviving corporation, the right to purchase shares of Common
Stock under the Warrants shall terminate on the date of such merger and
thereupon the Warrants shall become null and void, but only if the controlling
corporation shall agree to substitute for the Warrants its warrant which
entitles the holder thereof to purchase upon its exercise the kind and amount
of shares and other securities and property which it would have owned or been
entitled to receive had the Warrants been exercised immediately prior to such
merger. Any such agreements referred to in this subsection 9.3 shall provide
for adjustments, which shall be as nearly equivalent as may be practicable to
the adjustments provided for in Section 9 hereof. The provisions of this
subsection 9.3 shall similarly apply to successive consolidations, mergers,
sales, or conveyances.
9.4 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any
action that would cause an adjustment reducing the Warrant Price below the then
par value of the Common Stock issuable upon exercise of the Warrants or
Underlying Warrants, the Company will take any corporate action which 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 at such adjusted
Warrant Price.
9.5 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a
firm of independent public accountants of recognized regional or national
standing (which may be any such firm regularly employed by the Company) to make
any computation required under this Section 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of any computation made
under this Section 9.
9.6 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the respective Warrant Prices or the number of securities
issuable upon exercise of the Warrants or the Underlying Warrants, Warrant or
Underlying Warrant certificates theretofore or thereafter issued may continue
to express the same price and number of securities as are stated in the similar
Warrant or Underlying Warrant certificates initially issuable pursuant to this
Agreement. However, the Company may, at any time in its sole discretion (which
shall be conclusive), make any change in the form of Warrant or Underlying
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant or Underlying Warrant certificate thereafter
issued, whether upon registration of, transfer of, or in exchange or
substitution for, an outstanding Warrant or Underlying Warrant certificate, may
be in the form so changed.
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<PAGE> 10
9.7 NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS OF WARRANTS.
If, at any time prior to the expiration of a Warrant and prior to its exercise,
any one or more of the following events shall occur:
(a) any action that would require an adjustment
pursuant to subsection 9.1 or 9.3 hereof; or
(b) 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 must give notice in writing of such event to the registered
holders of the Warrants, as provided in Section 18 hereof, at least 20 days to
the extent practicable, prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled
to any relevant dividend, distribution, subscription rights or other rights or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice must specify such record
date or the date of closing the transfer books, as the case may be. Failure to
mail or receive such notice or any defect therein will not affect the validity
of any action taken with respect thereto.
SECTION 10. FRACTIONAL INTERESTS.
The Company is not required to issue fractional shares of Common Stock
on the exercise of a Warrant. If any fraction of a share of Common Stock would,
except for the provisions of this Section 10, be issuable on the exercise of a
Warrant (or specified portion thereof), the Company will in lieu thereof pay an
amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" means
(i) if the Common Stock is traded in the over-the-counter market and is not
listed for quotation on the Nasdaq National Market or the Nasdaq SmallCap
Market nor on any national or regional securities exchange, the average of the
per share closing bid prices of the Common Stock on the 30 consecutive trading
days immediately preceding the date in question, as reported by Nasdaq or an
equivalent generally accepted reporting service, or (ii) if the Common Stock is
listed for quotation on the Nasdaq National Market or the Nasdaq SmallCap
Market or on a national or regional securities exchange, the average for the 30
consecutive trading days immediately preceding the date in question of the
daily per share closing prices of the Common Stock as quoted by the Nasdaq
National Market or the Nasdaq SmallCap Market or on the principal stock
exchange on which it is listed, as the case may be, whichever is the higher.
For purposes of clause (i) above, if trading in the Common Stock is not
reported by Nasdaq, the bid price referred to in said clause shall be the
lowest bid price as reported on the OTC Bulletin Board or in the "pink sheets"
published by National Quotation Bureau, Incorporated. 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 as quoted by the Nasdaq National
Market or the Nasdaq SmallCap Market or on the national or regional securities
exchange on which the Common Stock is then listed.
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SECTION 11. REDEMPTION.
(a) The then outstanding Warrants may be redeemed, at
the option of the Company, at $.0.05 per share of Common Stock purchasable upon
exercise of such Warrants, at any time after the average Daily Market Price per
share of the Common Stock for a period of any 15 consecutive trading days
ending on the 10th day prior to the date of the notice given pursuant to
Section 11(b) hereof has equaled or exceeded $_______, and prior to expiration
of the Warrants; provided, however, that the Company may not redeem any
Warrants at any time that a current registration statement under the Act
covering the securities purchasable under the Warrants is not then in effect.
The Daily Market Price of the Common Stock will be determined by the Company in
the manner set forth in Section 11(e) as of the end of each trading day (or, if
no trading in the Common Stock occurred on such day, as of the end of the
immediately preceding trading day in which trading occurred) and verified to
the Warrant Agent before the Company may give notice of redemption. All
outstanding Warrants must be redeemed if any are redeemed, and any right to
exercise an outstanding Warrant shall terminate, at 5:00 p.m. (New York City
time) on the date fixed for redemption. A trading day means a day in which
trading of securities occurred on the national securities exchange on which the
Common Stock is listed or on Nasdaq. Any redemption of the Warrants prior to
the first anniversary of the date of the Definitive Prospectus shall require
the prior written consent of the Representative.
(b) The Company may exercise its right to redeem the
Warrants only by giving the notice set forth in the following sentence. If the
Company exercises its right to redeem, it shall give notice to the Warrant
Agent and the registered holders of the outstanding Warrants by mailing or
causing the Warrant Agent to mail to such registered holders a notice of
redemption, first class, postage prepaid, at their addresses as they shall
appear on the records of the Warrant Agent. Any notice mailed in the manner
provided herein will be conclusively presumed to have been duly given whether
or not the registered holder actually receives such notice. An affidavit of
the Warrant Agent or the Secretary or Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(c) The notice of redemption must specify the
redemption price, the date fixed for redemption (which must be at least 30 days
after such notice is mailed), the place where the Warrant certificates must be
delivered and the redemption price paid, and that the right to exercise the
Warrant will terminate at 5:00 P.M. (New York City time) on the date fixed for
redemption.
(d) Appropriate adjustment shall be made to the
redemption price and to the minimum Daily Market Price prerequisite to
redemption set forth in Section 11(a) hereof, in each case on the same basis as
provided in Section 9 hereof with respect to adjustment of the Warrant Price.
(e) For purposes of this Agreement, the term "Daily
Market Price" means (i) if the Common Stock is traded in the over-the-counter
market and not quoted on the Nasdaq National Market or the Nasdaq SmallCap
Market nor on any national or regional securities exchange, the closing bid
price of the Common Stock on the trading day in question, as reported by Nasdaq
or an equivalent generally accepted reporting service, or (ii) if the Common
Stock is quoted on the Nasdaq
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National Market or the Nasdaq SmallCap Market or on a national or regional
securities exchange, the daily per share closing price of the Common Stock as
quoted on the Nasdaq National Market or the Nasdaq SmallCap Market or on the
principal stock exchange on which it is listed on the trading day in question,
as the case may be, whichever is the higher. For purposes of clause (i) above,
if trading in the Common Stock is not reported by Nasdaq, the bid price
referred to in said clause shall be the lowest bid price as quoted on the OTC
Bulletin Board or reported in the "pink sheets" published by National Quotation
Bureau, Incorporated. 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 or the Nasdaq SmallCap Market or on
the national or regional securities exchange on which the Common Stock is then
listed.
(f) At 5:00 p.m. (New York City time) on the redemption
date, each Warrant will be automatically converted into the right to receive
the redemption price and the Warrant Agent will no longer honor any purported
exercise of a Warrant. On or before the redemption date, the Company will
deposit with the Warrant Agent sufficient funds for the purpose of redeeming
all of the other outstanding unexercised Warrants. All such funds shall be
maintained by the Warrant Agent in an interest-bearing, segregated account.
Funds remaining in such account on the date three years from the redemption
date will be returned to the Company. Any Warrants thereafter submitted to the
Warrant Agent for redemption will be forwarded for redemption by the Warrant
Agent to the Company and the Warrant Agent will have no further responsibility
with respect thereto.
(g) In case the Company shall exercise its right to
redeem the Warrants, the Company shall deliver or cause to be delivered to the
Representative a notice of the redemption telephonically and confirmed in
writing together with a list of the registered holders of the Warrants
(including their respective addresses and number of Warrants owned) to whom
such notice of redemption has been given.
SECTION 12. SOLICITATION OF WARRANT HOLDERS.
The Representative may, at its option, solicit exercises of the
Warrants. Upon the exercise of any Warrants if the Representative solicited
the exercise of such Warrant, the Company shall be obligated to, and shall
promptly, remit to the Representative a sales commission equal to six percent
(6%) of the Warrant Price of such exercised Warrants unless (1) the payment of
such amount with respect to such Warrant violates the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or the regulations promulgated
thereunder or the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") or applicable state securities or "blue sky"
laws or regulations, (2) the Daily Market Price of the Common Stock on the
subject exercise date is lower than the Warrant Price, (3) the Warrants are
held in a discretionary account, (4) the Warrants are exercised in an
unsolicited transaction, in any of which events the Representative shall not be
entitled to payment of such amount by the Company, or (5) the Warrants are held
by an affiliate or associate of the Representative. The Company shall not be
obligated to pay any amounts pursuant to this Section 12 during any week that
such amounts payable are less than $1,000 and the Company's obligation to make
such payments shall be suspended until the amounts payable aggregate to at
least
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$1,000, and provided further, that, in any event, any such payment (regardless
of amount) shall be made not less frequently than monthly. In addition, the
Company shall not be obligated to pay any amounts pursuant to this Section 12
unless the Warrantholder designates in writing that the Representative is to
receive such commission.
SECTION 13. RIGHTS AS WARRANT HOLDERS.
Nothing contained in this Agreement or in any of the Warrants shall
be construed as conferring upon the holders thereof, as such, any of the rights
of stockholders of the Company, including, without limitation, the right to
receive dividends or other distributions, to exercise any preemptive rights, to
vote or to consent or to receive notice as stockholders in respect of the
meetings of stockholders or the election of directors of the Company or any
other matter. Anything herein to the contrary notwithstanding, the Company
shall cause copies of all financial statements and reports, proxy statements
and other documents as it shall send generally to its stockholders to be sent
by the same class mail as sent to its stockholders, postage prepaid, on the
date of the mailing to such stockholders, to each registered holder of Warrants
at his or her address appearing on the Warrant Register as of the record date
for the determination of the stockholders entitled to such documents.
SECTION 14. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
The Warrant Agent must account promptly to the Company with respect to
Warrants exercised, and must promptly pay to the Company all monies received by
it upon the exercise of such Warrants, and agrees to keep copies of this
Agreement available for inspection by holders of Warrants during normal
business hours.
SECTION 15. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement and any of the Warrant certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrant
certificates so countersigned; and in case at that time any of the Warrant
certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants represented by such Warrant certificates shall have
the full force provided in the Warrant certificates and in this Agreement. Any
such successor Warrant Agent shall promptly give notice of its succession as
Warrant Agent to the Company and to the registered holder of each Warrant
certificate.
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<PAGE> 14
If at any time the name of the Warrant Agent is changed and at such
time any of the Warrant certificates have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrant certificates so countersigned; and if at that time any of the
Warrant certificates have not been countersigned, the Warrant Agent may
countersign such Warrant certificates either in its prior name or in its
changed name; and in all such cases the Warrants represented by such Warrant
certificates will have the full force provided in the Warrant certificates and
in this Agreement.
SECTION 16. DUTIES OF WARRANT AGENT.
The Warrant Agent hereby undertakes the duties and obligations imposed
by this Agreement upon the following terms and conditions, all of which bind
the Company and the holders of Warrants by their acceptance thereof:
(a) The statements of fact and recitals contained
herein and in the Warrants shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(b) The Warrant Agent will not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
holder of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent will incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all expenses,
taxes (other than income taxes) and governmental charges and other charges
incurred by the Warrant Agent in the execution of this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this
Agreement, except as a result of the Warrant Agent's negligence, willful
misconduct or bad faith.
(f) The Warrant Agent will be under no obligation to
institute any action, suit or legal proceeding or to take any other action on
behalf of the Company or any registered holder,
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<PAGE> 15
but this provision will not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper. All rights of action under
this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production thereof
at any trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent must be brought in its name as
Warrant Agent, and any recovery of judgment must be for the ratable benefit of
all the registered holders of the Warrants, as their respective rights or
interests may appear.
(g) The Warrant Agent and any stockholder, director,
officer or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Warrant Agent under this Agreement. Nothing herein precludes the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(h) The Warrant Agent will act hereunder solely as
agent and not in a ministerial capacity, and its duties will be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this
Agreement, except for its own negligence, willful misconduct or bad faith.
(i) Any request, direction, election, order or demand
of the Company will be sufficient if evidenced by an instrument signed in the
name of the Company by its President, a Vice President or chief financial
officer (unless other evidence in respect thereof is herein specifically
prescribed); and any resolution of the Board of Directors may be evidenced to
the Warrant Agent by a copy thereof certified by the Secretary or an Assistant
Secretary of the Company.
SECTION 17. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its duties under
this Agreement by giving the Company at least 30 days prior notice in writing,
and by mailing notice in writing to the registered holders at their addresses
appearing on the Warrant Register, of such resignation, specifying a date when
such resignation shall take effect. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company and by like mailing of notice to
the registered holders of the Warrants. If the Warrant Agent resigns or is
removed or otherwise becomes incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company fails to make such appointment
within 30 days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or by the registered holder of a Warrant (who shall, with such notice, submit
his Warrant certificate for inspection by the Company), then the registered
holder of any Warrant may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Any successor Warrant Agent,
whether appointed by the Company or by such a court, must be registered and
otherwise authorized to serve as a transfer agent pursuant to the Securities
Exchange Act of 1934, as amended. If at any time the Warrant Agent ceases to be
eligible in accordance with the provisions of this Section 16, it will resign
immediately in the manner and with the effect specified in this Section 16.
After acceptance
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<PAGE> 16
in writing of the appointment, the successor Warrant Agent will be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent will deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for this purpose. Upon request of
any successor Warrant Agent, the Company will make, execute, acknowledge and
deliver any and all instruments in writing for more fully and effectually
vesting in and confirming to such successor Warrant Agent all such powers,
rights, duties and responsibilities. Failure to file or mail any notice
provided in this Section 16, however, or any defect therein, will not affect
the legality or validity of the resignation or removal of the Warrant Agent or
the appointment of the successor Warrant Agent, as the case may be.
SECTION 18. IDENTITY OF TRANSFER AGENT.
Following the appointment of any transfer agent for the Common Stock
or of any subsequent transfer agent for shares of the Common Stock or other
shares of the Company's capital stock issuable upon the exercise of the rights
of purchase represented by the Warrants, the Company will file with the Warrant
Agent a statement setting forth the name and address of such transfer agent.
SECTION 19. NOTICES.
All notices, requests and other communications pursuant to this
Agreement must be in writing and will be sufficiently given or made when
delivered or mailed by first class mail, postage prepaid, addressed as follows:
(a) if to the Company, to (until another address is
filed in writing by the Company with the Warrant Agent):
Aviation Group, Inc.
700 North Pearl Street, #2170
Dallas, Texas 75201
(214) 922-8100
ATTENTION: President
(b) if to the Warrant Agent, to (until another address
is filed in writing by the Warrant Agent with the Company):
Continental Stock Transfer & Trust Company
2 Broadway Street
New York, New York 10004
(212) _______-____________
ATTENTION: ________________
(c) if to the registered holder of a Warrant, to the
address of such holder as shown in the Warrant Register.
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<PAGE> 17
SECTION 20. SUPPLEMENTS AND AMENDMENTS.
The Company and the Warrant Agent may from time to time supplement or
amend this Agreement without the approval of any holders of Warrants or
Underlying Warrants in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the Warrants or Underlying Warrants, or which shall not adversely affect
the interests of the holders of Warrants or Underlying Warrants (including
extending the redemption or expiration date). This Agreement may also be
modified, supplemented or altered in any respect with the consent in writing of
the registered Holders representing not less than 50% of the Warrants then
outstanding (including, for this purpose the Underlying Warrants), except that
(i) no change in the number or nature of the securities purchasable upon the
exercise of any Warrant or Underlying Warrant, or any increase in the Warrant
Price therefor, shall be made without the consent in writing of the registered
holder of the Warrant or Underlying Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed, and (ii) any
such modification, supplement or alteration that adversely affects the
interests of holders of the Underlying Warrants may not be made without the
written consent of the Representative.
SECTION 21. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent or the registered holders of the
Warrants will bind and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 22. GOVERNING LAW.
This Agreement will be deemed to be a contract made under the laws of
the State of Texas and for all purposes will be construed in accordance with
the laws of said State.
SECTION 23. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement will be construed to give to any person or
corporation other than the Company, the Warrant Agent, the Representative and
the registered holders of the Warrants any legal or equitable right, remedy or
claim under this Agreement. This Agreement is for the sole and exclusive
benefit of the Company, the Warrant Agent, the Representative and the
registered holders of the Warrants.
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<PAGE> 18
SECTION 24. COUNTERPARTS.
This Agreement may be executed in counterparts and each of such
counterparts will for all purposes be deemed to be an original, and all such
counterparts will together constitute but one and the same instrument.
SECTION 25. DESCRIPTIVE HEADINGS.
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and do not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
AVIATION GROUP, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:____________________________________
Name:__________________________________
Title:_________________________________
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<PAGE> 19
EXHIBIT A
FORM OF REDEEMABLE WARRANT
REDEEMABLE WARRANT TO PURCHASE
___________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., NEW YORK CITY TIME,
ON __________________ _____, 2002
AVIATION GROUP, INC.
Warrant No. ________
This certifies that, for value received ________________________, the
registered holder hereof or assigns (the "Holder"), is entitled to purchase
from AVIATION GROUP, INC., a Texas corporation (the "Company"), at any time
before 5:00 p.m., New York City time, on _______________ ____, 2002, at the
purchase price per share of $______ (the "Warrant Price"), the number of shares
of Common Stock, par value $0.01 per share, of the Company set forth above (the
"Shares"). The number of shares of Common Stock purchasable upon exercise of
the Warrant evidenced hereby and the Warrant Price is subject to adjustment
from time to time as set forth in the Warrant Agreement referred to below.
This Warrant may be redeemed, at the option of the Company, at $0.05
per share of Common Stock purchasable upon exercise hereof, at any time after
the average Daily Market Price (as defined in Section 11 of the Warrant
Agreement) per share of the Common Stock for a period of any 15 consecutive
trading days ending on the 10th day prior to the date of the notice given
pursuant to Section 11(b) thereof has equaled or exceeded $________, and prior
to expiration of this Warrant; provided, however, that the Company may not
redeem this Warrant at any time that a current registration statement under the
Securities Act of 1933, as amended, covering the securities purchasable under
this instrument, is not then in effect. The Holder's right to exercise this
Warrant terminates at 5:00 p.m. (New York City time) on the date fixed for
redemption in the notice of redemption delivered by the Company in accordance
with the Warrant Agreement. Any redemption of this Warrant prior to
____________, 1998 shall require the prior written consent of First London
Securities Corporation.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and guaranteed and simultaneous payment of the Warrant Price
(subject to adjustment) at the principal office in New York, New York, of
Continental Stock Transfer & Trust Company (the "Warrant Agent"). Payment of
such price may be made at the option of the Holder in cash or by certified
check or bank draft, all as provided in the Warrant Agreement.
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<PAGE> 20
The Warrants evidenced hereby are part of a duly authorized issue of
Warrants and are issued under and in accordance with the Warrant Agreement
dated as of _________________, 1997, between the Company and the Warrant Agent
(the "Warrant Agreement") and are subject to the terms and provisions contained
in such Warrant Agreement, to all of which the Holder of this Warrant
certificate by acceptance hereof consents. A copy of the Warrant Agreement may
be obtained for inspection by the Holder hereof upon written request to the
Warrant Agent. Any conflicts between the terms and provisions of this Warrant
and the terms and provisions of the Warrant Agreement shall be controlled by
the terms and provisions of the Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there will
be issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby that have not been exercised. This Warrant certificate may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants. The Warrants evidenced hereby are not
transferable except in the manner and subject to the limitations set forth in
the Warrant Agreement.
The number of shares of Common Stock issuable upon exercise of this
Warrant are subject to adjustment as provided in Section 9 of the Warrant
Agreement.
The Holder hereof may be treated by the Company, the Warrant Agent and
all other persons dealing with this Warrant certificate as the absolute owner
hereof for all purposes and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding, and until any
transfer is entered on such books, the Company may treat the Holder hereof as
the owner for all purposes.
Dated:_________________ AVIATION GROUP, INC.
By:_____________________________________
President
ATTEST:
________________________________________
Secretary
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<PAGE> 21
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
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<PAGE> 22
PURCHASE FORM
Mailing Address:
AVIATION GROUP, INC.
700 North Pearl Street, #2170
Dallas, Texas 75201
(214) 922_8100
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, ______________ Shares of Common Stock provided for therein, and
requests that certificates for such Shares be issued in the name of:
______________________________________________________________________________
______________________________________________________________________________
(Please Print or Type Name, Address and Social Security Number)
and, if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant certificate for the balance of the Shares
purchasable under the within Warrant certificate be registered in the name of
the undersigned Holder or his or her Assignee as below indicated and delivered
to the address stated below.
Dated:___________________
Name of Holder or
Assignee:_______________________________________________________________________
(Please Print)
Address:________________________________________________________________________
Signature:______________________________________________________________________
NOTE: The above signature must correspond with the name as it appears upon the
face of the within Warrant certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
Signature Guaranteed:__________________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 23
ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANTS).
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
(Name and Address of Assignee Must be Printed or Typewritten)
________________________________________________________________________________
the within Warrants, hereby irrevocably constituting and appointing
_________________________ Attorney to transfer said Warrants on the books of
the Company, with full power of substitution in the premises.
Dated:___________________
_____________________________________
Signature of Registered Holder
NOTE: The signature on this Assignment must correspond with the name as it
appears upon the face of the within Warrant certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:__________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 24
EXHIBIT B
FORM OF UNDERLYING WARRANT
REDEEMABLE WARRANT TO PURCHASE
___________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., NEW YORK CITY TIME,
ON __________________ _____, 2002
AVIATION GROUP, INC.
Warrant No. ________
This certifies that, for value received _______________________________
the registered holder hereof or assigns (the "Holder"), is entitled to purchase
from AVIATION GROUP, INC., a Texas corporation (the "Company"), at any time
before 5:00 p.m., New York City time, on _______________ ____, 2002, at the
purchase price per share of $______ (the "Warrant Price"), the number of shares
of Common Stock, par value $0.01 per share, of the Company set forth above (the
"Shares"). The number of shares of Common Stock purchasable upon exercise of
the Warrant evidenced hereby and the Warrant Price is subject to adjustment
from time to time as set forth in the Warrant Agreement referred to below.
This Warrant may be redeemed, at the option of the Company, at $0.05
per share of Common Stock purchasable upon exercise hereof, at any time after
the average Daily Market Price (as defined in Section 11 of the Warrant
Agreement) per share of the Common Stock for a period of any 15 consecutive
trading days ending on the 10th day prior to the date of the notice given
pursuant to Section 11(b) thereof has equaled or exceeded $________, and prior
to expiration of this Warrant; provided, however, that the Company may not
redeem this Warrant at any time that a current registration statement under the
Securities Act of 1933, as amended, covering the securities purchasable under
this instrument, is not then in effect. The Holder's right to exercise this
Warrant terminates at 5:00 p.m. (New York City time) on the date fixed for
redemption in the notice of redemption delivered by the Company in accordance
with the Warrant Agreement. Any redemption of this Warrant prior to
____________, 1998 shall require the prior written consent of First London
Securities Corporation.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and guaranteed and simultaneous payment of the Warrant Price
(subject to adjustment) at the principal office in New York, New York, of
Continental Stock Transfer & Trust Company (the "Warrant Agent"). Payment of
such price may be made at the option of the Holder in cash or by certified
check or bank draft, all as provided in the Warrant Agreement.
The Warrants evidenced hereby are part of a duly authorized issue of
Warrants and are issued under and in accordance with the Warrant Agreement
dated as of _________________, 1997,
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<PAGE> 25
between the Company and the Warrant Agent (the "Warrant Agreement") and are
subject to the terms and provisions contained in such Warrant Agreement, to all
of which the Holder of this Warrant certificate by acceptance hereof consents.
A copy of the Warrant Agreement may be obtained for inspection by the Holder
hereof upon written request to the Warrant Agent. Any conflicts between the
terms and provisions of this Warrant and the terms and provisions of the
Warrant Agreement shall be controlled by the terms and provisions of the
Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there will
be issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby that have not been exercised. This Warrant certificate may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants. The Warrants evidenced hereby are not
transferable except in the manner and subject to the limitations set forth in
the Warrant Agreement.
The number of shares of Common Stock issuable upon exercise of this
Warrant are subject to adjustment as provided in Section 9 of the Warrant
Agreement.
The Holder hereof may be treated by the Company, the Warrant Agent and
all other persons dealing with this Warrant certificate as the absolute owner
hereof for all purposes and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding, and until any
transfer is entered on such books, the Company may treat the Holder hereof as
the owner for all purposes.
Dated:______________________ AVIATION GROUP, INC.
By:____________________________________
President
ATTEST:
_______________________________________
Secretary
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<PAGE> 26
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
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<PAGE> 27
PURCHASE FORM
Mailing Address:
AVIATION GROUP, INC.
700 North Pearl Street, #2170
Dallas, Texas 75201
(214) 922_8100
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, ______________ Shares of Common Stock provided for therein, and
requests that certificates for such Shares be issued in the name of:
________________________________________________________________________________
________________________________________________________________________________
(Please Print or Type Name, Address and Social Security Number)
and, if said number of Shares shall not be all the Shares
purchasable hereunder, that a new Warrant certificate for the balance of the
Shares purchasable under the within Warrant certificate be registered in the
name of the undersigned Holder or his or her Assignee as below indicated and
delivered to the address stated below.
Dated:___________________
Name of Holder or
Assignee:_______________________________________________________________________
(Please Print)
Address:________________________________________________________________________
Signature:______________________________________________________________________
NOTE: The above signature must correspond with the name as it appears upon the
face of the within Warrant certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
Signature Guaranteed:__________________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 28
ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANTS).
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
________________________________________________________________________________
(Name and Address of Assignee Must be Printed or Typewritten)
the within Warrants, hereby irrevocably constituting and appointing ____________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises.
Dated:___________________
________________________________________
Signature of Registered Holder
NOTE: The signature on this Assignment must correspond with the name as it
appears upon the face of the within Warrant certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:__________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 1
EXHIBIT 4.9
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of _______________, 1997, is by and
between Aviation Group, Inc. (the "Company"), and FIRST LONDON SECURITIES
CORPORATION (the "Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to that certain
underwriting agreement dated as of the date hereof by and between the Company
and the Representative (the "Underwriting Agreement"), to act as the
representatives of the Underwriters in connection with the Company's proposed
public offering (the "Public Offering") of 1,000,000 shares of the Company's
Common Stock at $____ per share (the "Common Stock IPO Price") and 1,000,000
Redeemable Common Stock Purchase Warrants (the "Public Warrants") at $____ per
warrant (the "Warrant IPO Price"); and
WHEREAS, the Company proposes to sell to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder" or "Holders"), 100,000 warrants
("Common Stock Representative Warrants") to purchase 100,000 shares of the
Company's Common stock (the "Shares") and 100,000 warrants ("Warrant
Representative Warrants") to purchase 100,000 Common Stock Purchase Warrants
("Underlying Warrants") exercisable to purchase 100,000 shares of the Company's
Common Stock. The "Common Stock Representative Warrants" and the "Warrant
Representative Warrants" are collectively referred to as the "Warrants". The
"Shares" and the "Underlying Warrants" are collectively referred to as the
"Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as
representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Purchase of Warrants and Period.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-22727) (the "Registration Statement") and declared
effective by the Securities and Exchange Commission (the "SEC" or "Commission")
on _____________, 1997 (the "Effective Date"). This Agreement, relating to the
purchase of the Warrants, is entered into pursuant to the Underwriting
<PAGE> 2
Agreement between the Company and the Representative, as representative of the
Underwriters, in connection with the Public Offering.
The Company agrees to issue and sell, and the Representative agrees to
purchase, the Warrants for an aggregate purchase price of One Hundred Dollars
($100.00) on the Closing Date. Pursuant to the Warrants, the Holders have the
right to purchase from the Company, at any time during the period commencing
one year from the Effective Date and expiring four (4) years thereafter (the
"Expiration Time"), up to 100,000 Shares at an initial exercise price (subject
to adjustment as provided in Article 8 hereof) of $____ per share (165% of the
Common Stock IPO Price) and/or 100,000 Underlying Warrants at an initial
exercise price of $____ per warrant (165% of the Warrant IPO Price) (the
"Purchase Price"), subject to the terms and conditions of this Agreement.
The Shares and the Underlying Warrants constituting the Warrant
Securities shall bear the same terms and conditions as such securities
described under the caption "Description of Securities" in the Registration
Statement, and as designated in the Company's Articles of Incorporation and any
amendments thereto. The Underlying Warrants shall be governed by the terms of
the Redeemable Warrant Agreement executed in connection with the Company's
public offering (the "Warrant Agreement"), and the Holders shall have certain
contingent registration rights under the Securities Act of 1933, as amended
(the "Act"), for the Shares, the Underlying Warrants, and the shares of Common
Stock underlying the Underlying Warrants, as more fully described in paragraph
Article 7 of this Representative's Warrant Agreement. In the event of any
extension of the expiration date or reduction of the exercise price of the
Public Warrants, the same such changes to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire no
later than five (5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the
Common Stock Representative Warrants and/or the Warrant Representative
Warrants by surrendering the Warrant Certificate, together with a
Subscription in the form of Exhibit "A" attached thereto, duly
executed by such Holder to the Company, at any time prior to the
Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the
order of the Company in the amount of the aggregate purchase price
(the "Aggregate Price"), subject to any adjustments provided for in
this Agreement. The aggregate price hereunder for each Holder shall
be equal to the exercise price as set forth in
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<PAGE> 3
Article 6 hereof multiplied by the number of Underlying Warrants or
Shares that are the subject of each Holder's Warrant (as adjusted as
hereinafter provided).
(ii) Except as provided in (iii) below, the Holder hereof
may effect a cashless exercise of the Common Stock Representative
Warrants by delivering the Warrant Certificate to the Company together
with a Subscription in the form of Exhibit "B" attached thereto, duly
executed by such Holder, in which case no payment of cash will be
required. Upon such cashless exercise, the number of Shares to be
purchased by each Holder hereof shall be determined by dividing: (i)
the number obtained by multiplying the number of Shares that are the
subject of each Holder's Warrant Certificate by which the then Market
Value (as hereinafter defined) exceeds the per share Exercise Price;
by (ii) the per share Exercise Price. In no event shall the Company
be obligated to issue any fractional securities and, at the time it
causes a certificate or certificates to be issued, it shall pay the
Holder in lieu of any fractional securities or shares to which such
Holder would otherwise be entitled, by Company check, in an amount
equal to such fraction multiplied by the Market Value. The Market
Value shall be determined on a per Share basis as of the close of the
business day preceding the exercise, which determination shall be made
as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on the Nasdaq
National Market or Small-Cap Market, the average closing sale price
quoted on such exchange or the Nasdaq National Market or Small-Cap
Market which is published in The Wall Street Journal for the ten (10)
trading days immediately preceding the date of exercise, or if no
trade of the Common Stock shall have been reported during such period,
the last sale price so quoted for the next day prior thereto on which
a trade in the Common Stock was so reported; or (b) if the Common
Stock is not so listed, admitted to trading or included, the average
of the closing highest reported bid and lowest reported ask price as
quoted on the National Association of Securities Dealer's OTC Bulletin
Board or in the "pink sheets" published by the National Daily
Quotation Bureau for the first day immediately preceding the date of
exercise on which the Common Stock is traded.
(iii) If at the time of exercise of the Common Stock
Representative Warrants, the Market Value does not exceed the Exercise
Price or the sale of the Registrable Securities (as defined below) is
covered by a current and effective registration statement under the
Securities Act of 1933, as amended (the "Act"), then the Holder may
not utilize the cashless exercise option set forth in (ii) above.
3.2 Partial Exercise. The securities referred to in Section 3.1
above also may be exercised from time to time in part by surrendering the
Warrant Certificate in the manner specified in Section 3.1 hereof, except that
with respect to a cash exercise, the Purchase Price payable shall be equal to
the number of securities being purchased hereunder multiplied by the per
security Purchase Price, subject to any adjustments provided for in this
Agreement. Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the Holder hereof a new Warrant Certificate or Warrants of
like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of
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<PAGE> 4
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for
the shares of Common Stock and/or other securities shall be made forthwith (and
in any event within three (3) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Articles 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in
a name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present President,
Chairman or Vice Chairman of the Board of Directors or Chairman or Vice
Chairman of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the
date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, except (a) to
officers of the Representative or to officers and partners of the other
Underwriters or Selected Dealers participating in the Public Offering; (b) by
will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative Warrant
shall be $____ per share (165% of the Common Stock IPO Price). The initial
exercise price of each Warrant Representative Warrant shall be $____ per
Underlying Warrant (165% of the Warrant IPO Price). The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof. The Warrant Representative Warrants are exercisable during
the four (4) year period commencing one year from the Effective Date.
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<PAGE> 5
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
(a) The Shares and the shares of Common Stock issuable upon
exercise of the Underlying Warrants (collectively the "Registrable Securities")
have been registered under the Act pursuant to the Registration Statement. Upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares, the Underlying Warrants and/or the shares of Common Stock issuable upon
exercise of the Underlying Warrants shall bear the following legend in the event
there is no current registration statement effective with the Commission at such
time as to such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption
from registration under such Act and applicable state securities laws
is available.
(b) In the event that, for any reason whatsoever, the Company
fails to maintain the effectiveness of the Registration Statement for a period
of five (5) years from the Effective Date, the Holders of any Registrable
Securities shall have, commencing with the date of such failure to maintain
effectiveness, the registration rights ("Registration Rights") set forth in
Sections 7.2 and 7.3 below; provided, however, as to any particular Registrable
Securities, once issued, such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to such securities is
effective or has become effective under the Securities Act and such securities
have been disposed of in accordance with such Registration Statement, (b) such
securities shall have ceased to be outstanding, or (c) such securities shall
have been sold pursuant to Rule 144 (or any successor rule) under the Act.
7.2 Piggyback Registration.
(a) Subject to Section 7.1(b) above, if at any time commencing
after the Effective Date of the Public Offering and expiring five (5) years
thereafter, the Company prepares and files a registration statement under the
Act (the "Registration Document") as to any of its securities under the Act
(other than under a registration statement pursuant to Form S-8 or Form S-4 or
small business issuer equivalent), it will give written notice by registered
mail, at least thirty (30) days prior to the filing of each such Registration
Document, to the Representative and to all other Holders of the Registrable
Securities of its intention to do so. If the Representative and/or other
Holders of the
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<PAGE> 6
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Document, the Company shall afford the
Representative and such Holders of such Registrable Securities the opportunity
to have any Registrable Securities registered under such Registration Document.
(b) Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
(c) If the registration of which the Company gives notices for a
registered public offering involving an underwriting, the Company shall so
advise the Representative and all other Holders as part of the written notice
given pursuant to Section 7.2(a) hereof. The right of the Representative or
any other Holder to registration pursuant to this Section 7.2 shall be
conditioned upon such person's participation in such underwriting and the
inclusion of their Registrable Securities in the underwriting to the extent
hereinafter provided. The Representative and/or all other holders proposing to
distribute their Registrable Securities through such underwritings shall enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of this Section 7.2, if the representative of the underwriter or
underwriters advises the Company in writing that marketing factors require the
elimination or limitation of the number of Registrable Securities to be
underwritten, the representative may prohibit or limit the number of
Registrable Securities to be included in the registration and underwriting.
The Company shall so advise the Representative and all other Holders of
Registrable Securities requesting registration, and the number of Registrable
Securities that are entitled to be included in the registration and
underwriting shall be allocated among the Representative and such other Holders
requesting registration, in each case, in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities which they had requested to
be included in such registration at the time of filing the registration
statement.
7.3 Demand Registration.
(a) Subject to Section 7.1(b) above, at any time commencing one
(1) year after the Effective Date of the Public Offering, and expiring four (4)
years thereafter, the Holders of Registrable Securities representing more than
50% of such securities at that time outstanding shall have the right (which
right is in addition to the registration rights under Section 7.2 hereof),
exercisable by written notice to the Company, to have the Company prepare and
file with the Commission at the sole expense of the Company, on one occasion, a
registration statement and/or such other documents, including a prospectus,
and/or any other appropriate disclosure document as may be reasonably necessary
in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Registrable
Securities for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and any other Holders of any of
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<PAGE> 7
the Registrable Securities who notify the Company within ten (10) days after
being given notice from the Company of such request (a "Demand Registration").
A Demand Registration shall not be counted as a Demand Registration hereunder
until such Demand Registration has been declared effective by the SEC and
maintained continuously effective for a period of at least nine months or such
shorter period when all Registrable Securities included therein have been sold
in accordance with such Demand Registration, provided that a Demand
Registration shall be counted as a Demand Registration hereunder if the Company
ceases its efforts in respect of such Demand Registration at the request of the
majority Holders making the demand for a reason other than a material and
adverse change in the business, assets, prospects or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3 at any time commencing one (1) year after
the Effective Date of the Public Offering, and expiring four (4) years
thereafter, the Holders of any Registrable Securities representing more than
50% of such securities shall have the right, exercisable by written request to
the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement or any other appropriate disclosure
document so as to permit a public offering and sale for nine (9) consecutive
months (or such longer period of time as permitted by the Act) by any such
Holder of Registrable Securities; provided, however, that the provisions of
Section 7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this
Section 7.3 shall:
(i) specify the number of Registrable Securities which
the Holders intend to offer and sell and the minimum price at which
the Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
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<PAGE> 8
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company
will promptly notify each seller of such Registrable Securities and confirm
such advice in writing, (i) when such registration statement becomes effective,
(ii) when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement
to such registration statement or any prospectus relating thereto or for
additional information.
The Company shall furnish to each seller of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including each preliminary
prospectus and summary prospectus) in conformity with the requirements of the
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, and fees and expenses of Holder's counsel and the Holder's pro-rata
portion of the selling discount or commissions), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder will pay all
costs, fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(c). If the Company shall fail to comply with the
provisions of Section 7.3(a), the Company shall, in addition to any other
equitable or other relief available to the Holder, be liable for any or all
special and consequential damages sustained by the Holder requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be reasonably necessary to keep such
registration statement effective until the earlier of nine months or the date
on which all Registrable Securities registered thereunder have been sold, and
to comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or sellers of
Registrable Securities set forth in such registration statement. If at any
time the SEC should institute or threaten to institute any proceedings for the
purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering
and sale under the securities or blue sky laws of such states as reasonably are
required by the Holder, provided that
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<PAGE> 9
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction. The Company shall use its good faith
reasonable efforts to cause such Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder of the Registrable
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20 (a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement but
only to the same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Representative as contained in
the Underwriting Agreement.
(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of the Holders
of the Registrable Securities to be sold pursuant to a registration statement,
and their successors and assigns, shall severally, and not jointly, indemnify
the Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 (a) of
the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from written information
furnished by such Holder, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the same
effect as the provisions contained in the Underwriting Agreement pursuant to
which the Representative has agreed to indemnify the Company, except that the
maximum amount which may be recovered from each Holder pursuant to this
paragraph or otherwise shall be limited to the amount of net proceeds received
by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Warrants or Underlying Warrants prior
to the filing of any registration statement or the effectiveness thereof.
(g) The Company shall use reasonable efforts to furnish to each
Holder participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(or, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement) , and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such
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<PAGE> 10
registration statement (and the prospectus included therein) and, in the case
of such accountants' letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities; provided, however, that failure to provide such
opinion or letter, or the provision of any such opinion or letter in a form not
satisfactory to such Holder or underwriter, notwithstanding the Company's
reasonable efforts, shall not give rise to any action, at law or in equity, for
damages or injunctive or other relief, but rather shall only entitle such
Holder to withdraw his or its Registrable Securities from such registration
statement.
(h) Subject to the execution of a confidentiality agreement in a
form satisfactory to the Company, the Company shall deliver promptly to each
Holder participating in the offering requesting the correspondence and
memoranda described below and the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
as may be reasonably necessary to satisfy any of Holder's obligations under
applicable law.
(i) With respect to a registration statement filed pursuant to
Section 7.3, the Company, if requested, shall enter into an underwriting
agreement with the managing underwriter, reasonably satisfactory to the
Company, selected for such underwriting by Holders holding a majority of the
Registrable Securities requested to be included in such underwriting. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type. The Holders, if required by the
underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(j) Notwithstanding the provisions of Section 7.2 or Section 7.3
of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to Section 7.2 or Section 7.3
hereof if, within thirty (30) days after its receipt of a request to register
such Registrable Securities (i) counsel for the Company delivers an opinion to
the Holders requesting registration of such Registrable Securities, in form and
substance satisfactory to counsel to such Holder, to the effect that the entire
number of Registrable Securities proposed to be sold by such Holder may
otherwise be sold, in the manner proposed by such Holder, without registration
under the Securities Act, or (ii) the SEC shall have issued a no-action
position, in form and substance satisfactory to counsel for the Holder
requesting registration of such Registrable Securities, to the
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effect that the entire number of Registrable Securities proposed to be sold by
such Holder may be sold by it, in the manner proposed by such Holder, without
registration under the Securities Act.
(k) After completion of the Public Offering, the Company shall
not, directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would
be entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within
the definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassification.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into
a greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the number of Shares purchasable upon the exercise of Common Stock
Representative Warrants in effect immediately prior to such action shall be
adjusted so that each Holder of a Common Stock Representative Warrant
thereafter upon the exercise thereof shall be entitled to receive the number
and kind of shares of the Company which such Holder would have owned
immediately following such action had such Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of shares of
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Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such reorganization, consolidation, merger, conveyance,
sale or transfer. Such supplemental Warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 8.1
and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or
simultaneously with the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing, receiving, or leasing such assets or other appropriate
corporation or entity shall assume, by written instrument executed and
delivered to the Holders, the obligation to deliver to the Holders, such shares
of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase, and to perform the other
obligations of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or successively
whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants distribute to its stockholders any assets, property,
rights, evidences of indebtedness or securities (other than a distribution made
as a cash dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdictions of incorporation of
the Company and other than distributions covered by Sections 8.1 or 8.2 above),
whether issued by the Company or by another, the Holders of the unexercised
Warrants shall thereafter be entitled, in addition to the shares of Common
Stock or other securities and property receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such distribution as if the
Warrants had been exercised immediately prior to such distribution. At the
time of any such distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this subsection or an
adjustment to the Exercise Price, which shall be effective as of the day
following the record date for such distribution.
8.4 Adjustment in Exercise Price
Whenever the number of Shares purchasable upon the exercise of the
Common Stock Representative Warrants is adjusted, as herein provided, the
Exercise Price payable upon exercise of the Common Stock Representative
Warrants shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the number of
Shares purchasable upon the exercise of the Common Stock Representative Warrant
immediately prior to such adjustment, and which the denominator shall be the
number of Shares so purchasable immediately thereafter.
If, as a result of an adjustment made pursuant to this Section, the
Holder of a Warrant shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors of the Company
(whose determination shall be conclusive) shall determine the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
12
<PAGE> 13
8.5 No Adjustment of Number of Shares in Certain Cases.
No adjustment in the number of Shares purchasable pursuant to the
Common Stock Representative Warrants shall be required unless such adjustment
would require an increase or decrease of at least 1% in the number of Shares
then purchasable upon the exercise of the Common Stock Representative Warrants
or, if the Common Stock Representative Warrants are not then exercisable, the
number of Shares purchasable upon the exercise of the Common Stock
Representative Warrants on the first date thereafter when the Common Stock
Representative Warrants become exercisable; provided, however, that any
adjustments which by reason of this Section 8.5 are not required to be made
immediately shall be carried forward and taken into account in any subsequent
adjustment.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants, the
Company, at its expense, may cause independent certified public accountants of
recognized standing selected by the Company (who may be the independent
certified public accountants then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to any Holder of the
Warrants at the Holder's address as shown on the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based including, but
not limited to, a statement of (i) the Exercise Price at the time in effect,
and (ii) the number of additional securities and the type and amount, if any,
of other property which at the time would be received upon exercise of the
Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement.
8.8 Statement on Warrant Certificates.
Irrespective of any adjustments in the exercise price or number of
securities issuable upon exercise, Warrant Certificates theretofore or
thereafter issued may continue to express the same number of securities as are
stated in the similar Warrant Certificates initially issuable pursuant to this
Agreement. However, the Company, at any time in its sole discretion may make
any appropriate change in the form of Warrant Certificate to take into account
any such adjustments.
13
<PAGE> 14
8.9 Notice of Adjustment.
Immediately upon any adjustment of the Exercise Price and the number
of Shares pursuant to this Section 8, the Company shall send written notice
thereof to each Holder of Common Stock Representative Warrants (by first class
mail, postage prepaid), which notice shall state the Exercise Price resulting
from such adjustment, and any increase or decrease in the number of Shares to
be acquired upon exercise of the Warrants, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
Such notice may be in the form of the accountant's certificate mailed under
Section 8.6 above.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrant, nor shall
it be required to issue script or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests may be
eliminated, at the Company's option, by rounding any fraction up to the nearest
whole number of shares of Common Stock or other securities, properties or
rights, or in lieu thereof paying cash equal to such fractional interest
multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants to be listed and quoted (subject to official notice of
issuance) on all securities exchanges
14
<PAGE> 15
and systems on which the Common Stock and/or the Public Warrants may then be
listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders, for the
election of directors or any other matter, or as having any rights whatsoever
as a stockholder of the Company. If, however, at any time prior to the
expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of
the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit B to the Warrant
Agreement. The Warrant Agreement may not be modified, supplemented or altered
in any manner that adversely affects the interests of the holders of the
Underlying Warrants without the
15
<PAGE> 16
written consent of the Representative in accordance with the provisions of
Section 20 of the Warrant Agreement.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or
to such other address as the Company may designate by notice to the
Holders.
Lee Sanders, President
Aviation Group, Inc.
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
With a copy to: Daryl B. Robertson
Bracewell & Patterson, L.L.P.
500 North Akard Street
4000 Lincoln Plaza
Dallas, Texas 75201
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement
to the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
16
<PAGE> 17
17. Termination.
This Agreement shall terminate at the close of business on
____________, 2002. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Texas and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the State District Court in Dallas, County,
Texas or the United States District Court for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 14 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder of the Warrant Certificates or Registrable
Securities.
17
<PAGE> 18
22. 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
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By:
------------------------------------
Lee Sanders, President
Attest:
- -----------------------------------
, Secretary
- ------------------------
FIRST LONDON SECURITIES CORPORATION
By:
------------------------------------
Douglas Nichols, President
18
<PAGE> 19
EXHIBIT A
<PAGE> 20
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., EASTERN TIME ON _____________, 2002
NO. W-______
___________ Common Stock ___________ Warrant
Representative Representative
Warrants Warrants
This Warrant Certificate certifies that ___________________, or
registered assigns, is the registered holder of _____________ Common Stock
Representative Warrants and/or ________ Warrant Representative Warrants of
Aviation Group, Inc. (the "Company"). Each Common Stock Representative Warrant
permits the Holder hereof to purchase initially, at any time from _________,
1998 ("Purchase Date") until 5:30 p.m. Eastern Time on ____________, 2002
("Expiration Date"), one (1) share of the Company's Common Stock at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $____ per share (165% of the public offering price). Each Warrant
Representative Warrant permits the Holder hereof to purchase initially, at any
time from the Purchase Date until four (4) years from the Purchase Date, one
(1) Underlying Warrant at the Exercise Price of $____ per Underlying Warrant
(165% of the public offering price).
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants shall be effected by surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of _____, 1997, between the Company
and First London Securities Corporation (the "Representative's Warrant
Agreement"). Payment of the Exercise Price shall be made by certified check or
official bank check in New York Clearing House funds payable to the order of
the Company in the event there is no cashless exercise pursuant to Section
3.1(ii) of the Representative's Warrant Agreement. The Common Stock
<PAGE> 21
Representative Warrants and the Warrant Representative Warrants are
collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Representative's Warrant
Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferees) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
2
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ____________________, 1997
AVIATION GROUP, INC.
By:
------------------------------------
Lee Sanders, President
(Seal)
Attest:
- ----------------------------------
, Secretary
- -----------------------
3
<PAGE> 23
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Aviation Group, Inc.
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Common Stock Representative Warrants
and/or __________ Warrant Representative Warrants of Aviation Group, Inc. (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ Shares and/or
_____________ Underlying Warrants of the Company, and herewith makes payment of
$____________ therefor, and requests that the certificates for such securities
be issued in the name of, and delivered to, ___________________________________
whose address is ____________________________________, all in accordance with
the Representative's Warrant Agreement and the Warrant Certificate.
Dated:
------------------
---------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
---------------------------------------
---------------------------------------
(Address)
<PAGE> 24
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Aviation Group, Inc.
700 North Pearl Street
Suite 2170
Dallas, Texas 75201
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Common Stock Representative Warrants
and/or _________________ Warrant Representative Warrants of Aviation Group,
Inc. (the "Company"), which Warrant is being delivered herewith, hereby
irrevocably elects the cashless exercise of the purchase right provided by the
Representative's Warrant Agreement and the Warrant Certificate for, and to
purchase thereunder, Shares of the Company in accordance with the formula
provided at Section Three (3) of the Representative's Warrant Agreement. The
undersigned requests that the certificates for such Shares be issued in the
name of, and delivered to, _______________________whose address is, ___________
____________________ all in accordance with the Warrant Certificate.
Dated:
----------------------
---------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
---------------------------------------
---------------------------------------
(Address)
<PAGE> 25
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED_____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
- --------------------------- ---------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
---------------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
<PAGE> 1
EXHIBIT 5.1
[BRACEWELL & PATTERSON, L.L.P. LETTERHEAD]
May 21, 1997
Aviation Group, Inc.
700 North Pearl, Suite 2170
Dallas, Texas 75201
Re: Registration Statement of Aviation Group, Inc.
Gentlemen:
We refer to the Registration Statement of Aviation Group, Inc., a Texas
corporation (the "Company"), filed with the Securities and Exchange Commission
on Form SB-2 (File no. 333-22727) and the Prospectus contained therein (the
"Prospectus"), for the purpose of registering, under the Securities Act of 1933
as amended, the following securities:
1. Up to 1,150,000 shares of Common Stock, $.01 par value per share (the
"Common Stock") of the Company to be sold in the initial public
offering (the "Initial Public Offering") of the Company described in
the Prospectus (the "IPO Shares");
2. 1,150,000 Redeemable Common Stock Purchase Warrants (the "IPO
Warrants") to purchase up to 1,150,000 shares of Common Stock, which
IPO Warrants are to be issued in the Initial Public Offering and
governed by the terms of the Redeemable Warrant Agreement between the
Company and Continental Stock Transfer & Trust Company (the "Warrant
Agreement");
3. Up to 100,000 warrants (the "Representative's Warrants") to purchase
up to 100,000 shares of Common Stock and 100,000 Underlying Warrants
(as hereinafter defined), which Representative's Warrants are to be
sold by the Company to First London Securities Corp., as
representative of the underwriters (the "Representative"), or its
designees and governed by the terms of the Representative's Warrant
Agreement between the Company and the Representative (the
"Representative's Warrant Agreement");
<PAGE> 2
Aviation Group, Inc.
May 21, 1997
Page 2
4. Up to 100,000 warrants (the "Underlying Warrants") to purchase up to
100,000 shares of Common Stock, which Underlying Warrants may be
issued by the Company to the holders of the Representative's Warrants,
if and to the extent such holders exercise their Representative's
Warrants to purchase Underlying Warrants, and governed by the Warrant
Agreement and the Representative's Warrant Agreement;
5. Up to 100,000 shares of Common Stock that may be issued by the Company
to the holders of the Representative's Warrants, if and to the extent
such holders exercise such Representative's Warrants to purchase
shares of Common Stock (the "Representative's Warrant Shares");
6. Up to 100,000 shares of Common Stock that may be issued by the Company
to the holders of the Underlying Warrants, if and to the extent such
holders exercise such Underlying Warrants (the "Underlying Warrant
Shares");
7. 600,250 outstanding shares of Common Stock (the "Shareholders'
Shares") previously issued to certain selling shareholders of the
Company (the "Selling Shareholders");
8. Up to 280,000 shares of Common Stock that may be issued by the Company
to the holders of outstanding warrants (the "Outstanding Warrants"),
if and to the extent such holders exercise such Outstanding Warrants
(the "Outstanding Warrant Shares");
9. Up to 283,100 shares of Common Stock that may be issued by the Company
to the holders of outstanding convertible or exchangeable notes (the
"Notes"), if and to the extent such holders convert or exchange such
Notes (the "Note Shares");
10. Up to 109,595 shares of Common Stock that may be issued by the Company
upon the consummation of the acquisition by the Company of Casper Air
Service, a Wyoming corporation ("CAS"), if and when such consummation
occurs (the "CAS Shares") pursuant to the terms and conditions of the
Stock Purchase Agreement dated April 18, 1997 between the Company, CAS
and CAS's shareholders; and
11. Up to 31,250 shares that may be issued by the Company to the holders
of outstanding 10% Bridge Notes of the Company (the "Bridge Notes"),
if and when the Company
<PAGE> 3
Aviation Group, Inc.
May 21, 1997
Page 3
pays in full the Bridge Notes after completion of the Initial Public
Offering (the "Bridge Note Shares").
We have examined copies, certified and otherwise identified to our
satisfaction, of the Articles of Incorporation and Bylaws of the Company, as
amended to date, and minutes of applicable meetings of the shareholders and
Board of Directors of the Company, together with such other corporate records,
certificates of public officials and of officers of the Company we have deemed
relevant for the purposes of this opinion. Based upon the foregoing and having
due regard to the legal considerations which we deem relevant, it is our
opinion that:
(a) The Shareholders' Shares have been legally issued and are
fully paid and nonassessable shares of the Company's Common
Stock.
(b) All corporate actions necessary to authorize the issuance by
the Company of the IPO Shares, the IPO Warrants, the
Representative's Warrants, the Underlying Warrants, the
Representative's Warrant Shares, the Underlying Warrant
Shares, the Outstanding Warrant Shares, the Note Shares, the
CAS Shares and the Bridge Note Shares have been duly and
validly taken.
(c) Assuming (i) that all relevant corporate actions heretofore
taken by the Company remain in full force and effect and (ii)
that the IPO Shares, the IPO Warrants and the Representative's
Warrants are issued, sold and delivered as contemplated by,
and for the consideration stated in, the Registration
Statement and in accordance with the terms and conditions of
the corporate authorization and, with respect to the IPO
Warrants or the Representative's Warrants, the terms of the
Warrant Agreement or Representative's Warrant Agreement,
respectively, such IPO Shares, IPO Warrants and
Representative's Warrants will be legally issued, fully paid
and nonassessable.
(d) Assuming (i) that all relevant corporate actions heretofore
taken by the Company remain in full force and effect, (ii)
that the Underlying Warrants, the Representative's Warrant
Shares, the Underlying Warrant Shares, the Outstanding Warrant
Shares, the Note Shares, the CAS Shares and the Bridge Note
Shares are issued, sold and delivered as contemplated by, and
for the consideration stated in, the Registration Statement
and in accordance with the
<PAGE> 4
Aviation Group, Inc.
May 21, 1997
Page 4
terms and conditions of the governing agreement or instrument,
and (iii) that the Registration Statement is maintained
continuously in effect with respect to such securities during
all periods that the Company may be required to issue such
securities under the terms of the governing agreement or
instrument, such securities will be legally issued, fully paid
and nonassessable.
We hereby consent to the reference to us under the caption "Legal Matters" in
the Prospectus. We also consent to the inclusion in the Registration Statement
of this opinion as Exhibit 5 thereto.
Very truly yours,
/s/ BRACEWELL & PATTERSON, L.L.P.
Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 10.21
SECOND AMENDED AND RESTATED NOTE
$282,925.47 May 13, 1997
For value received, PRIDE AVIATION, INC. ("Borrower"), in solido,
promises to pay to the order of JERRY R. WEBB ("Lender") the principal sum of
TWO HUNDRED EIGHTY-TWO THOUSAND NINE HUNDRED TWENTY-FIVE AND 47/100
($282,925.47) DOLLARS at the principal office of Lender, at 920 Pierremont,
Suite 105, Shreveport, Louisiana 71106, or at such other place as the holder
hereof may from time to time designate in writing, together with interest, at
the rate and in accordance with the terms and provisions set forth below.
RATE
The simple interest rate on this promissory note ("Note") is eighteen
percent (18%) per annum from date until paid. Interest shall be calculated on
the principal amount outstanding from time to time for actual days elapsed on
the basis of a 365 day year.
PAYMENT PROVISION
Interest shall be payable monthly with the first such interest payment
being due and payable on May 20, 1997, and the remaining interest installments
shall be due and payable on the 20th day of each succeeding and consecutive
calendar month thereafter for a period of twelve (12) consecutive calendar
months. The entire principal balance, and accrued and unpaid interest, shall
be due and payable one (1) year from the date hereof.
SECURITY
This Note is executed and delivered by Borrower pursuant to that
certain Loan Agreement ("Agreement") dated as of May 17, 1993 between Borrower
and Sunbelt Business Capital, Inc. ("Sunbelt"), which Agreement was assigned by
Sunbelt to Sunbelt Business Capital, L.L.C. on January 17, 1996, and
subsequently assigned by Sunbelt Business Capital, L.L.C. to Lender by
Notarial Assignment on May 13, 1997 by that certain Partial Redemption of
Stock, Assignment of Assets and Liabilities, and Subscription of Stock. The
obligations evidenced by this Note are secured by the security interests
granted in the Security Agreement referred to in the Agreement and each
existing collateral pledge, and each other existing security agreement executed
by the Borrower in favor of Sunbelt Business Capital, L.L.C. and assigned to
Lender. If future obligations are evidenced by this Note, they are secured by
existing security rights unless they are expressly excluded in the security
agreements granting same.
<PAGE> 2
GENERAL PROVISIONS
This Note shall be in default and shall immediately become due and
payable at Lender's option without demand, notice, or putting in default if the
makers, endorsers, guarantors, or sureties, or any of them should (1) fail to
timely pay or perform any obligation of this Note, or (2) cause or permit to
occur any Event of Default as defined and set forth in the Agreement.
The Borrower and each endorser, surety and guarantor of this Note
hereby waive presentment for payment, demand, notice of dishonor and protest,
and consent that the time of payment may be extended one or more times without
notice thereof, and in the event of non-payment at maturity or any other
default described in the previous paragraph, agree, in solido, to pay all
reasonable attorney's fees incurred in the collection of this Note, or any
portion thereof including interest, which fees are hereby fixed at 10% of the
amount to be collected.
REPLACEMENT NOTE
This Note is executed and delivered in further amendment, replacement
and substitution of that certain Note dated May 17, 1993, as amended by that
certain Amended and Restated Note, dated March 1, 1996, both of which were
executed by Borrower and made payable to Sunbelt Business Capital, Inc. and
Sunbelt Business Capital, L.L.C. in the principal amounts of $400,000.00 (the
"Original Note") and $155,067.55 (the "First Amended and Restated Note")
respectively. This Note does not constitute a novation of the Original Note
nor of the Amended and Restated Note.
PRIDE AVIATION, INC.
By: /s/ PAUL LUBOMIRSKI
-------------------------------------
Name: Paul Lubomirski
-----------------------------------
Title: President/General Manager
----------------------------------
<PAGE> 1
EXHIBIT 10.22
AVIATION GROUP, INC.
AGENCY AGREEMENT
January 19, 1996
RAS Securities Corp.
2 Broadway
New York, New York 10004-2801
Gentlemen:
Aviation Group, Inc., a Texas corporation (the "Company"), proposes to
offer for sale in a private placement ("Offering"), a minimum of an aggregate
of 300,000 Units and a maximum of 500,000 Units (the "Units") at a purchase
price of $3.00 per Unit. Each Unit shall consist of one share (collectively
the "Shares") of the Company's common stock $.01 par value per share ("Common
Stock"). The Units shall be offered without registration under the Securities
Act of 1933 as amended (the "Securities Act") and shall be granted certain
registration rights as more fully set forth in the Offering Documents (as
defined below). Units will be offered to "qualified investors" as described in
the Offering Documents, on a "best efforts" basis, in accordance with Section
3(b) and/or 4(2) of the Securities Act and Rules 505 and 506 of Regulation D
("Reg D") promulgated thereunder. This is to confirm our agreement concerning
your acting as our exclusive placement agent (the "Placement Agent" or "RAS")
in connection with such sale of the Units.
The Company has prepared and has delivered to the Placement Agent copies of
a confidential private offering memorandum, dated January 15, 1996, relating
to, among other things, the Company, the Units, and the terms of the sale of
the Units. Such confidential private offering memorandum, including all
exhibits thereto and documents delivered therewith, are referred to herein as
the "Offering Documents" unless such confidential private offering memorandum
or any such exhibits or documents shall be supplemented or amended in
accordance with this Agreement, in which event the term "Offering Documents"
shall refer to such confidential private offering memorandum and such exhibits
and documents as so supplemented or amended from and after the time of delivery
to the Placement Agent of such supplement or amendment.
1. Appointment of Placement Agent: The Offering
1.1 Appointment of Placement Agent. You are hereby appointed
exclusive Placement Agent of the Company during the offering period herein
specified ("Offering Period") for the purpose of assisting the Company in
finding qualified investors ("Subscribers"). The
<PAGE> 2
Offering Period shall commence on January 15, 1996 and shall continue through
5:00 p.m. Dallas, Texas time on January 31, 1996; provided, however, that the
Offering Period may be extended for an additional period not to exceed ninety
(90) days by the mutual agreement of the Company and Placement Agent without
notice to any Subscriber. The Units shall be offered on a "best efforts
300,000 Units or none" basis for the Offering Period. If a minimum of 300,000
Units are not sold prior to the end of the Offering Period, the Offering will
be terminated and all funds received from Subscribers will be returned, without
interest and without any deduction. After 300,000 Units have been sold, the
Offering will continue with respect to the remaining 200,000 Units on a "best
effort" basis for the balance of the Offering Period. The day that the
Offering Period terminates is hereinafter referred to as the "Termination
Date." You hereby accept such agency and agree to assist the Company in finding
qualified Subscribers. Your agency hereunder is not terminable by the Company
except upon termination of the Offering or upon expiration of the Offering
Period in accordance with the terms of this Agreement.
1.2 Offering Documents. The Company shall provide the
Placement Agent with a sufficient number of copies of the Offering Documents
for delivery to potential Subscribers and such information, documents and
instruments which the Placement Agent deems reasonably necessary to comply with
the rules, regulations and judicial and administrative interpretations
respecting compliance with the state and federal statutes applicable to the
Offering. Each subscriber who desires to purchase Units shall be required to
deliver to the Placement Agent one copy of a subscription agreement in the form
annexed to the Offering Documents (a "Subscription Agreement"), including the
investor questionnaire, and a check in the amount necessary to purchase the
number of Units such Subscriber desires to purchase. The Placement Agent shall
not have any obligation to independently verify the accuracy or completeness of
any information contained in any Subscription Agreement or the authenticity,
sufficiency, or validity of any check delivered by any Subscriber in payment
for Units.
1.3 Escrow Agent. The Placement Agent has established an
account with Continental Stock Transfer & Trust Company (the "Bank") entitled
"Aviation Group, Inc., Escrow Account" ("Account"). The Placement Agent shall
deliver each check received from a Subscriber to the Bank for deposit in the
Account and shall deliver a copy of the executed Subscription Agreement
received from such Subscriber to the Company. Any funds collected by the
Company from Subscribers shall be promptly remitted by the Company to such
escrow account and the Company shall promptly forward all originally executed
Subscription Agreements and related documents relating thereto to the Placement
Agent. The Company shall notify the Placement Agent promptly (but no later
than 5 days following the Company's receipt of copies of the executed
subscription documents) of the acceptance or rejection of any subscription. It
is expressly understood that the escrow requirements contained herein shall
only pertain to the first 300,000 Units sold.
2. Closing. Subject to the conditions set forth in Section 5 hereof, the
initial closing date (the "Closing Date") will occur within (7) seven business
days following the acceptance by the Company of subscriptions for the minimum
number of 300,000 Units offered hereby or as soon thereafter as funds have
cleared the banking system in the normal course of business and,
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<PAGE> 3
in any event, will occur on or before the Termination Date. Subject to the
conditions set forth in Section 5 hereof, if the minimum number of 300,000
Units have been subscribed for prior to the Termination Date, then the
remaining 200,000 Units will be offered by the Placement Agent on a "best
efforts" basis and will be issued on one or more additional closing dates (an
"Additional Closing Date") as subscriptions are received and accepted until the
earlier of the date by which all such Units have been sold or the Termination
Date. Each such closing (a "Closing") shall take place at the offices of the
Placement Agent in New York or at an alternate location mutually agreeable to
the Company and the Placement Agent.
3. Compensation. On each of the Closing Date and any Additional Closing
Date, as the case may be, the Company shall cause to be paid to the Placement
Agent by certified or official check or wire (i) a commission equal to ten
percent (10%) of the purchase price of the aggregate principal amount of Units
being sold on such closing date, whether solicited by the Placement Agent or
not, and (ii) a non-accountable expense allowance equal to 3% of the gross
proceeds of the Units being sold and delivered on such closing date, whether
solicited by the Placement Agent or not, (the "expense allowance"). In
addition to the foregoing commissions and expense allowance, the Company shall
be responsible for the fees and expenses identified in Section 8 hereof, which
shall not be deemed to be commissions or part of the expense allowance. As
additional compensation, the Placement Agent shall be granted on the Closing
Date, with the right of assignment in whole or in part, warrants (the
"Warrants") to purchase an amount of Common Stock equal to 200,000 shares if
the maximum number of shares offered in the Offering are sold, 120,000 shares
if the minimum number of shares offered in the Offering are sold and a pro rata
number of shares between 200,000 and 120,000 if the number of shares sold in
the Offering exceed the minimum offered but are less than the maximum offered.
The Warrants shall be exercisable for a three year period commencing the
Termination Date and shall have an aggregate exercise price of $200,000 with
the right of cashless exercise. The Common Stock underlying the Warrants
("Warrant Shares") shall be afforded the same registration rights granted the
Shares pursuant to the terms of the Offering except that once registered such
Warrant Shares shall not be restricted in any manner and shall bear no legend
evidencing any restriction on the sale thereof.
4. Representations and Warranties of the Company. The Company
represents and warrants as follows:
4.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation (except
where the failure to so qualify would not have a material adverse effect on the
business of the Company) for the transaction of business 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. The
Company has all requisite corporate power and authority and all necessary
consents, authorizations, approvals, orders, licenses and permits of and from
any governmental authority or agency or any court or other tribunal necessary
to own or hold its properties and conduct its business as described in the
Offering Documents.
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<PAGE> 4
4.2 Authorized Capital. The Company has an authorized and
outstanding capitalization as set forth in the Offering Documents, and all of
the issued and outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable. None of the
holders of such outstanding shares of Common Stock is subject to personal
liability solely by reason of being such a holder. The offers and sales of all
the Company's outstanding securities were at all relevant times either
registered under the Securities Act and the applicable state securities or Blue
Sky laws, or exempt from such registration.
4.3 No Preemptive Rights: Options. There is no commitment, plan,
or arrangement to issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for capital stock of the Company, except as
may be described in the Offering Documents. There is outstanding no security
or other instrument which by its terms is convertible into or exchangeable for
any class of capital stock of the Company, except as may be described in the
Offering Documents. Except as described in the Offering Documents no holder of
any of the Company's securities has any rights, "demands," "piggyback" or
otherwise, to have such securities registered or to demand the filing of a
registration statement. The Company has reserved for issuance a sufficient
number of shares of Common Stock to be issued to holders of its warrants and
options.
4.4 Financial Statements: Operating Business. The Company's
financial and operational history, its present condition, financial and
otherwise, and its prospects are substantially as represented by the Company to
the Placement Agent. The financial statements of Tri-Star Airline Services,
Inc., Tri-Star Aircraft Services, Inc. and Pride Aviation, Inc. (the
"Subsidiaries") included in the Offering Documents ("Financials") fairly
present the financial position and results of operations of the Subsidiaries at
the dates thereof and for the periods covered thereby. The Financials have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, are correct and complete
and are in accordance with the books and records of the Subsidiaries. The
Subsidiaries have no liabilities or obligations, contingent, direct, indirect
or otherwise except (i) as set forth in the Financials (ii) as incurred in the
ordinary course of business since the date of the last Financials, or (iii) as
disclosed in the Offering Documents. At the present time, the Company has no
assets other than its Stock in Tri-Star Airline Services, Inc. and Tri-Star
Aircraft Services, Inc. and no material liabilities.
4.5 No Material Adverse Changes. Except as otherwise stated in the
Offering Documents, since the date of the Financials there has not been any
change in the condition, financial or otherwise, of the Subsidiaries which
could have a material adverse effect upon the operations, business, properties
or assets of the Subsidiaries.
4.6 Taxes. The Company has filed all federal tax returns and all
state and municipal and local tax returns (whether relating to income, sales,
franchise, withholding, real or personal property or other types of taxes)
required to be filed under the laws of the United States and applicable states,
and has paid in full all taxes which have become due pursuant to
4
<PAGE> 5
such returns or claimed to be due by any taxing authority or otherwise due and
owing; provided, however, that the Company has not paid any tax, assessment,
charge, levy or license fee that it contests in good faith and by proper
proceedings and adequate reserves for the accrual of same are maintained if
required by generally accepted accounting principles.
4.7 Finder's Fees: Other Arrangements. The Company is not
obligated to pay a finder's fee to anyone in connection with the introduction
of the Company to the Placement Agent or pay for any other arrangements,
agreements or understanding that may affect the Placement Agent's compensation.
The Company has not paid any monies or other compensation or issued any
securities to any member of the National Association of Securities Dealer Inc.
("NASD") or to any affiliate or associate of such a member during the prior
twelve months (except for payments to the Placement Agent hereunder).
4.8 No Pending Actions. Except as set forth in the Offering
Documents, there are no actions, suits, proceedings, claims or hearings of any
kind or nature or, to the best of the knowledge and belief of the Company, any
investigations or inquiries, before or by any court, governmental authority,
tribunal or instrumentality (or to the best of the knowledge and judgment of
the Company, any state of facts which would give rise thereto), pending or
threatened against the Company, or involving the properties of the Company,
which may have a material adverse effect upon the operations, business,
properties, or assets of the Company. The Company is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment, or
decree, except as may be described in the Offering Documents or such as in the
aggregate do not now have and will not in the future have a material adverse
effect upon the operations, business, properties, or assets of the Company.
4.9 Private Offering Exemption: Offering Documents. The Offering
Documents conform in all material respects with the requirements of Reg D and
with the requirements of all other applicable published rules and regulations
of the Securities and Exchange Commission ("Commission") currently in effect
relating to "private offerings." The Offering Documents, at all times during
the period from the date hereof through the last Additional Closing Date do not
and will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statement therein, in the light of
the circumstances under which they were made, not misleading.
4.10 Due Authorization. The Company has full right, power and
authority to enter into this Agreement and the Warrant Agreement to be executed
with respect to the Warrants in the form annexed hereto as Exhibit 4.10 (the
"Warrant Agreement") and to issue the Units and to perform all of its
obligations hereunder and thereunder as contemplated hereby and thereby. All
necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of this
Agreement and the Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and is enforceable as to the Company in accordance
with its terms (subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally and to general
equitable principles). The Warrant Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will be a legal, valid
and binding obligation of the Company enforceable against it in accordance with
its terms (subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability
5
<PAGE> 6
of creditors' rights generally and to general equitable principles). No
consent, authorization, approval, order, license, certificate, or permit of or
from, or registration, qualification, declaration, or filing with, any federal,
state, local, foreign, or other governmental authority or any court or other
tribunal is required by the Company for the execution, delivery, or performance
by the Company of this Agreement or the Warrant Agreement, or the consummation
of the transactions contemplated hereby and thereby, except the filing of a
Notice of Sales of Securities on Form D pursuant to Regulation D and such
consents, authorizations, approvals, registrations, and qualifications as may
be required under securities or "blue sky" laws in connection with the
issuance, sale, and delivery of the Units or the Warrant Shares pursuant to
this Agreement. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Company
is a party, or to which any of its properties or assets are subject, is
required for the execution, delivery, or performance of this Agreement or the
Warrant Agreement, or the consummation of the transactions contemplated hereby
or thereby; which has not been or will not be obtained prior to the Closing or
any Additional Closing, if any, and the execution, delivery, and performance of
this Agreement and the Warrant Agreement, and the consummation of the
transactions contemplated hereby and thereby, will not violate, result in
breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
understanding, (except for any such violation, breach or conflict which has
been properly waived thereunder) or violate or result in breach of any term of
the certificate of incorporation or by-laws of the Company, or violate, result
in breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its operations, businesses,
properties, or assets are subject.
4.11 Valid Issuances. The Common Stock, and the Warrant Shares
conform to all statements relating thereto contained in the Offering Documents.
The Shares, when issued and delivered to the Subscribers therefor pursuant to
the terms of this Agreement and the Subscription Agreements and the Warrant
Shares, when issued and delivered pursuant to the terms of the Warrant
Agreement, shall be duly authorized, validly issued, fully paid, and
nonassessable, and shall not have been issued in violation of any preemptive
rights set forth in the Company's charter or any agreement to which the Company
is a party.
4.12 No Subsequent Actions. Subsequent to the dates as of which
information is given in the Offering Documents, and except as may otherwise be
properly described in the Offering Documents, the Company has not (A) issued
any securities, or incurred any liability or obligation, primary or contingent,
for borrowed money, (B) entered into any transaction not in the ordinary course
of business, or (C) declared or paid any dividend on its capital stock.
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<PAGE> 7
4.13 No Anti-Dilution Adjustment. The issuance of the Shares or
the Warrant Shares issuable upon the exercise of the Warrants will not give any
holder of any of the Company's outstanding options, warrants or other
convertible securities or rights to purchase shares of the Company's Common
Stock, the right to purchase any additional shares of Common Stock and/or the
right to purchase Common Stock at a reduced price.
4.14 No Regulatory Problems. The Company (i) has not filed a
registration statement which is the subject of any proceeding or examination
under Section 8 of the Securities Act, or is the subject to any refusal order
to stop order thereunder; (ii) is not subject to any pending proceeding under
Rule 261 of the Securities Act any similar rule adopted under Section 3(b) of
the Securities Act, or to an order entered thereunder; (iii) has not been
convicted of any felony or misdemeanor in connection with the purchase or sale
of any security or involving the making of any false filing the with the
Commission; (iv) is not subject to any order, judgment, or decree of any court
of competent jurisdiction temporarily or preliminary restraining or enjoining,
and is not subject to any order, judgment, or decree of any court of competent
jurisdiction, permanently restraining or enjoining, the Company from engaging
in or continuing any conduct or practice in connection with the purchase or
sale of any security or involving the making of any false filing with the
Commission; and (v) is not subject to a United States Postal Service false
representation order entered unto Section 3005 of Title 39, United States Code;
or a temporary restraining order or preliminary injunction entered under
Section 3007 of Title 39, United States Code, with respect to conduct alleged
to have violated Section 3005 of Title 39, United States Code. None of the
Company's directors, officers, or beneficial owners of ten percent or more of
any class of its equity securities (i) has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security, involving
the making of a false filing with the Commission, or arising out of the conduct
of the business of an underwriter, broker, dealer, municipal securities dealer,
or investment advisor; (ii) is subject to any order, judgment, or decree of any
court of competent jurisdiction temporarily or preliminary enjoining or
restraining, or is subject to any order, judgment, or decree of any court of
competent jurisdiction, permanently enjoining or restraining such person from
engaging in continuing any conduct or practice in connection with the purchase
or sale of any security, or the involving of making a false filing with the
Commission entered pursuant to Section 15(b), 15B(a), or 15B(c) of the
Securities Exchange Act of 1934 ("1934 Act"), or is subject to an order of the
Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers
Act of 1940; (iv) has been suspended or expelled from membership in, or
suspended or barred from association with a member of, an exchange registered
as a national securities exchange pursuant to Section 6 of the 1934 Act, an
association registered as a national securities association under Section 15A
of the 1934 Act, or a Canadian securities exchange or association for any act
or omission to act constituting conduct inconsistent with just and equitable
principles of trade; or (v) is subject to a United States Postal Service false
representation order entered under Section 3005 of Title 39, United States
Code; or is subject to a restraining order or preliminary injunction entered
under Section 3007 of Title 39, United States Code, with respect to conduct
alleged to have violated Section 3005 of Title 39, United States Code.
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<PAGE> 8
4.15 No Defaults: Violations. Except as described in the Offering
Documents, no default exists in the due performance and observance by the
Company of any term, covenant or condition of any material license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which any of properties or assets of the Company
is subject. The Company is not in violation of any term or provision of its
Certificate of Incorporation or Bylaws or in violation of any franchise,
license, permit, applicable law, rule, regulation, judgment or decree or any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business, except as described in the
Offering Documents or where such violation has no material adverse effect on
the business, operations, financial condition and assets of the Company.
4.16 Conduct of Business. The Company has all requisite corporate
power and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own or lease properties and conduct its business as
described in the Offering Documents, and the Company is and has been doing
business in compliance with all such material authorizations, approvals,
orders, licenses, certificates and permits and all federal, state and local
laws, rules and regulations.
4.17 Title Property: Insurance. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property (tangible and intangible) owned or leased by it,
free and clear of all liens, encumbrances, claims security interests, defects
and restrictions of any material nature whatsoever, other than those set forth
in the Offering Documents, and liens for taxes not yet due and payable. The
Company has adequately insured its properties against loss or damage by fire or
other casualty.
4.18 Intangibles. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patients, patent applications, copyrights and other rights
(collectively, "Intangibles") described as used or owned by it in the Offering
Documents. Except as set forth in the Offering Documents, there is no pending
or threatened claim or action by any person pertaining to, or which challenges
the exclusive right of the Company with respect to any Intangibles used in the
conduct of the Company's business. The Intangibles and the Company's current,
products services and processes do not infringe on any intangibles rights held
by any third party. To the best of the Company's knowledge, no others have
infringed upon the Intangibles of the Company.
5. Representation and Warranties of the Placement Agent. The Placement
Agent represents and warrants as follows:
(a) The Placement Agent is duly incorporated and validly existing
and in good standing under the laws of its state of incorporation.
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(b) The Placement Agent is a member in good standing of the NASD
and duly registered under the 1934 Act.
(c) Offers and sales of Units by the Placement Agent will only be
made in such jurisdictions in which the Placement Agent is a registered
broker-dealer or where an applicable exemption from such registration exists.
(d) The Placement Agent has not prior to the date hereof offered
or sold, nor will it offer or sell, any Units to any investor which it did not
or does not have reasonable grounds to believe, was or is an "accredited
investor".
6. Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent pursuant to this Agreement shall be subject, in its discretion,
to the continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to the Placement Agent, as of the date hereof and as
of the Closing Date (and, if applicable, each Additional Closing Date), to the
performance by the Company of its obligations hereunder, and to the following
conditions:
(a) At the Closing and each Additional Closing, as the case may
be, the Placement Agent shall have received the favorable opinion of Bracewell
& Patterson, L.L.P., counsel for the Company, dated the date of delivery,
addressed to the Placement Agent, substantially to the effect that:
(i) The Company has been duly organized and is validly
existing and in good standing under the corporate laws of the jurisdiction of
its incorporation, has the requisite corporate power and authority necessary to
own or hold its properties and conducts its business as described on the
Offering Documents and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction where the
failure to be so qualified might have a materially adverse impact upon the
Company;
(ii) The Company has full corporate right, power and
authority to enter into this Agreement and the Warrant Agreement and to perform
all of its obligations hereunder and thereunder or contemplated hereby and
thereby; the Company has full corporate right, power and authority to issue,
sell and deliver the Units; this Agreement and the Warrant Agreement have been
duly authorized, executed and delivered by the Company and are valid and
binding obligations of the Company, enforceable in accordance with their terms;
(iii) The Company has an authorized and, to counsel's
knowledge, outstanding stock capitalization as set forth in the Offering
Documents and all of the issued and outstanding shares of the Common Stock and
the warrants and options of the Company have been duly and validly authorized
and issued. The outstanding shares of Common Stock are fully paid and
non-assessable. To the knowledge of such counsel, except as set forth in the
Offering Documents, no holder of any of the Company's securities has any
rights, "demands", "piggyback" or otherwise, to have such securities registered
or to demand the filing of a registration statement.
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<PAGE> 10
Except as described in the Offering Documents, to the knowledge of such counsel
there are no preemptive or other rights to subscribe for or purchase, or
restrictions upon the voting or transfer of, any shares of Common Stock of the
Company, under the Certificate of Incorporation or Bylaws of the Company or
under the general corporate law of the State of Texas, or, to the knowledge of
such counsel, under any agreement or other outstanding instrument to which the
Company is a party or by which it is bound.
The Units have been duly authorized and are and in the case of the Warrant
Shares, will be, upon the exercise of and payment therefor, validly issued,
fully paid and non-assessable and the holders thereof are not and will not be
subject to personal liability solely by reason of being such holders; and all
corporate action required to be taken for the authorization, issue and sale of
such securities has been duly and validly taken; the Warrants constitute, valid
and binding obligations of the Company to issue and sell, upon exercise thereof
and payment therefor, the shares of Common Stock of the Company covered by the
exercise provisions thereof, and the certificates representing the Units are in
due and proper form.
(iv) Neither the execution, delivery or performance by the
Company of this Agreement or the Warrant Agreement, nor compliance with the
terms hereof or thereof, or the consummation of the transactions herein or
therein contemplated, has, or will, (i) conflict with, result in a breach of,
or constitute a default under the articles of Incorporation or By-Laws of the
Company, or to the best of such counsel's knowledge, any material contract,
instrument, agreement or document which the Company is a party, or by which the
properties of the Company is bound; (ii) to the knowledge of such counsel,
violate in a material way any existing applicable (other than those pertaining
to environmental matters), judgment, order of decree of any governmental agency
of court, domestic or foreign, having jurisdiction over the Company or any of
its properties or business; or (iii) to the knowledge of such counsel, have any
material adverse effect on any permit, certificate, registration, approval,
consent, license or franchise necessary for the Company to own or lease and
operate any of its properties and to conduct its business or the ability of the
Company to make use thereof.
(v) To such counsel's knowledge, no approval or consent of any
court, board, governmental agency, instrumentality or authority of the United
States or of any state having jurisdiction or authority over the Company, or of
any third party, not duly obtained (other than any approval or consent required
under any federal or state securities laws) is required for the valid
authorization, issuance, sale and delivery of the Shares, the Warrants or the
Warrant Shares and the consummation of the transactions contemplated by this
Agreement or the Warrant Agreement;
(vi) To such counsel's knowledge, except as set forth in the
Offering Documents, there are no claims, actions, suits, hearings,
investigations, inquiries or proceedings of any kind or nature, before or by
any court, governmental authority, tribunal or instrumentality pending or
threatened against or affecting the Company or involving the properties of the
Company which might materially and adversely affect the business, properties or
financial position of the Company, or which might adversely affect the
transactions or other
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acts contemplated by this Agreement and the Warrant Agreement or the validity
or enforceability of this Agreement and the Warrant Agreement.
(vii) To the best of such counsel's knowledge, the issuance
of the Units or the Warrant Shares pursuant to the Offering will not give any
holder of any of the Company's outstanding options, warrants or other
convertible securities or rights to purchases shares of the Company's Common
Stock, the right to purchase any additional shares of Common Stock and/or the
right to purchase Common Stock at a reduced price; and
In addition, counsel's opinion can contain language to the following
effect.
1. Please be advised that when in the following opinion we have made
statements "to our knowledge" we have made such statements based upon
certificates and inquiries of the Company's directors, officers or employees
with respect to such matters as we deemed appropriate, the representations and
warranties of the Company in this Agreement, and our review of such contracts,
commitments, permits, certificates, registrations, consents, licenses and other
agreements, instruments and documents as have been provided to us by the
Company. Nothing has come to our attention that would cause us to believe that
we should not be able to rely on the above-described information by or on
behalf of the Company.
2. To the extent that we opine as to the enforceability of any
agreement, (i) the enforceability thereof may be limited by bankruptcy or other
laws now or hereafter in effect relating to or affecting creditors' rights
generally, (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceedings therefor may be brought,
and (iii) the enforceability of the indemnification and contribution provisions
in the agreement may be limited by the state and federal securities laws and
public policy.
(b) At the Closing and each additional Closing, as the case may be,
the Placement Agent shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the Closing
Date or such Additional Closing Date, as the case may be, to the effect that,
as of the date of this Agreement and as of the Closing Date or such Additional
Closing Date, as the may be, the representations and warranties of the Company
contained herein were and are accurate, and that as of the Closing Date or such
Additional Closing Date, as the case may be, the obligations to be performed by
the Company hereunder on or prior thereto have been fully performed.
(c) All proceedings taken in connection with the issuance, sale, and
delivery of the Units shall be reasonably satisfactory in form and substance to
you and your counsel.
(d) There shall not have occurred, at any time prior to the Closing
or, if applicable, the Additional Closing, as the case may be, (i) any domestic
or international event, act, or occurrence which has materially disrupted, or
in your opinion will in the immediate future
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materially disrupt, the securities markets; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market;
(iii) any outbreak of major hostilities or other national or international
calamity; (iv) any banking moratorium declared by a state or federal authority;
(v) any moratorium declared in foreign exchange trading by major international
banks or other persons; (vi) any material interruption in the mail service or
other means of communications within the United States; (vii) any material
adverse change in the business, properties, assets, results of operations, or
financial condition of the Company; or (viii) any change in the market for
securities in general or in political, financial or economic conditions which,
in your reasonable business judgment, makes it inadvisable to proceed with the
offering, sale, and delivery of the Units.
(e) The Placement Agent shall have received from the Company an
executed Mergers and Acquisition Agreement in the form of Exhibit 6(e)(i)
hereto and the executed Lock Up Agreements (as defined in Section (7) (a) (xv)
below).
Any certificates or other documents signed by any officer of the Company and
delivered to you or to your counsel shall be deemed a representation and
warranty by the Company hereunder as to the statements made therein. If any
condition to your obligations hereunder has not been fulfilled as and when
required to be so fulfilled, you may terminate this Agreement or, if you so
elect, in writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment. In the event that you elect to
terminate this Agreement, you shall notify the Company of such election in
writing. Upon such termination, neither party shall have any further liability
or obligation to the other except as provided for in this Agreement.
7. Covenants.
(a) Covenants of the Company. The Company covenants to the Placement
Agent that it will:
(i) Notify you immediately, and confirm such notice in
writing, (A) when any event shall have occurred during the period commencing on
the date hereof and ending on the later of the Closing Date, the expiration of
the Offering Period, and the last Additional Closing date (if any) as a result
of which the Offering Documents would include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (B) of the
receipt of any notification with respect to the modification, rescission,
withdrawal, or suspension of the qualification or registration of the Units, or
of an exemption from such registration or qualification, in any jurisdiction.
The Company will use its best efforts to prevent the issuance of any such
modification, rescission, withdrawal, or suspension and if any is issued and
you so request, to obtain the lifting thereof as promptly as possible.
(ii) Not make any supplement or amendment to the Offering
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<PAGE> 13
Documents unless you shall have approved of such supplement or amendment in
writing. If, at any time during the period commencing on the date hereof and
ending on the later of the Closing Date, the expiration of the Offering or the
last Additional Closing Date (if any), any event shall have occurred as a
result of which the Offering Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if, in the
opinion of counsel to the Company or counsel to the Placement Agent, it is
necessary at any time to supplement or amend the Offering Documents to comply
with the Act, Reg. D, or any applicable securities or "blue sky" laws, the
Company will promptly prepare an appropriate supplement or amendment (in form
and substance satisfactory to you) which will correct such statement or
omission or which will effect such compliance.
(iii) Deliver without charge to the Placement Agent such
number of copies of the Offering Documents and any supplement or amendment
thereto as may reasonably be requested by the Placement Agent.
(iv) Not solicit any offer to buy or offer to sell Units
by any form of general solicitation or advertising, including, but not limited
to, any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar medium or broadcast over television or radio or
any seminar or meeting whose attendees have been invited by any general
solicitation or advertising.
(v) Use its best efforts to qualify or register the Units
for offering and sale under, or establish an exemption from such qualification
or registration under, the securities or "blue sky" laws of such jurisdiction as
you may reasonably request; provided, however that the Company shall not be
obligated to qualify as a dealer in securities in any jurisdiction in which it
is not so qualified. The Company will not consummate any sale of Units in any
jurisdiction or in any manner in which such sale may not be lawfully made.
(vi) At all times during the period commencing on the date
hereof and ending on the later of the Closing Date, the expiration of the
Offering Period and the last Additional Closing Date (if any), provide to each
Subscriber on request, such information (in addition to that contained in the
Offering Documents) concerning the Offering, the Company, and any other
relevant matters, as it possesses or can acquire without unreasonable effort or
expense, and to extend to each Subscriber, the opportunity to ask questions of,
and receive answers from the Company concerning the terms and conditions of the
Offering and the business of the Company and to obtain any other additional
information, to the extent it possesses the same or can acquire it without
unreasonable effort or expense, as such Subscriber may consider necessary in
making an informed investment decision in order to verify the accuracy of the
information furnished to such Subscriber.
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(vii) Before accepting any subscription to purchase Units,
or making any sale to, any Subscriber, have reasonable grounds to believe that
(A) such Subscriber meets the suitability requirements for investing in the
Units set forth in the Offering Documents, and (B) such Subscriber is a
"qualified investor" as described in the Offering Documents.
(viii) Notify you promptly of the acceptance or rejection
of any subscription.
(ix) File five copies of a Notice of Sales of Securities
on Form D with the Commission no later than 15 days after the first sale of the
Units and file a notice on Form D with the Commission no later than 30 days
after the last sale of Units. The Company shall file promptly such amendments
to such Notices on Form D as shall become necessary and shall also comply with
any filing requirement imposed by the laws of any state or jurisdiction in
which offers and sales of Units are made. The Company shall furnish you with
copies of all such filings.
(x) Place the following legend on all certificates
representing the Shares sold pursuant to this Offering:
"The Securities represented hereby have not been registered under
the Securities Act of 1933, as amended or any state securities
laws and neither the securities nor any interest therein may be
offered, sold, transferred, pledged, or otherwise disposed of
except pursuant to an effective registration statement under such
act or such law which, in the opinion of counsel for the holder,
which counsel and opinion are reasonably satisfactory to counsel
for this corporation, is available".
(xi) Not, directly or indirectly, engage in any act or
activity which may jeopardize the status of the Offering as exempt transactions
under the Act or under the securities or "blue sky" laws of any jurisdiction in
which the Offering may be made. Without limiting the generality of the
foregoing, and notwithstanding anything contained herein to the contrary, the
Company shall not, during the six months following completion of the offering,
(A) directly or indirectly, engage in any offering of securities which, if
integrated with the Offering in the manner prescribed by Rule 502(a) of
Regulation D and applicable releases of the Commission, may jeopardize the
status of the Offering as exempt transactions under Regulation D or (B) engage
in any offering of securities, without the opinion of counsel to the Placement
Agent, to the effect that such offering would not result in integration with
this Offering, or if integration would so result, that such integration would
not jeopardize the status of this Offering as an exempt transaction under
Regulation D.
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<PAGE> 15
(xii) Apply the net proceeds from the sale of the Units for
the purposes set forth under the caption "Use of Net Proceeds" in the Offering
Documents in substantially the manner indicated thereunder.
(xiii) Not, during the period commencing on the date hereof
and ending on the later of the Closing Date, the expiration of the Offering
Period, and the last Additional Closing Date (if any),. issue any press release
or other communication, or hold any press conference with respect to the
Company, its financial condition, results of operations, business, properties,
assets or liabilities, or the Offering, without your prior written consent.
(xiv) For a period of five years after the date hereof,
furnish you, without charge, the following:
(A) within 90 days after the end of each fiscal year, copies of
financial statements certified by independent certified public accountants,
including a balance sheet, statement of income, and statement of cash flows of
the Company and its then existing subsidiaries, with supporting schedules,
prepared in accordance with generally accepted accounting principles, as at the
end of such fiscal year and for the 12 months then ended, which may be on a
consolidated basis, and, within 45 days after the end of each fiscal quarter,
copies of unaudited interim financial statements, as at the end of such quarter
and for the three months then ended.
(B) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, copies of each annual
and interim financial and other report or communication sent by the Company to
its stockholders or filed with the Commission; and
(C) as soon as practicable, copies of every press release and
every material news item and article in respect of the Company or its affairs
which was released by the Company.
(xv) On or before the Closing Date provide the Placement
Agent with true copies of duly executed, legally binding and enforceable
agreements pursuant to which for a period of not less than 24 months after the
later of the Closing Date or the last Additional Closing Date, if any, each Lee
Sanders and Paul Lubomirski agrees that he will not, directly or indirectly
issue, offer to sell, sell grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any such securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Placement Agent (collectively, the "Lock-up Agreements"). During the five
year period commencing with the Closing Date, the Company shall not issue any
securities under Regulation S and will not, without prior written consent of
the Placement Agent, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute or otherwise dispose of, directly or indirectly, any debt
security of the Company or any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock (other then as described
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<PAGE> 16
in the Offering Documents). The Company shall use its reasonable efforts to
cause any sale of its shares through Rule 144 by Lee Sanders and Paul
Lubomirski to be executed through the Placement Agent. On or before the
Closing Date, the Company shall cause the placing of appropriate legends on the
certificates representing the securities subject to the Lock-up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(xvi) Take all necessary actions to insure that for a
period of three (3) years after the Closing Date the Placement Agent shall have
the right to designate, one (1) individual for election to the Company's Board
of Directors ("Board") and if the Placement Agent exercises such right by
written notice to the Company, the Company shall cause the individual
designated by the Placement Agent to be elected to the Board. In the event the
Placement Agent shall not have designated such individual to be elected to the
Board at the time of any meeting of the Board or such person is unavailable to
serve, the Company shall notify the Placement Agent of each meeting of the
Board and an individual designated by the Placement Agent shall be permitted to
attend all meetings of the Board and to receive all notices and other
correspondence and communications sent by the Company to members of the Board.
Such individual shall be reimbursed for all out-of-pocket expenses incurred in
connection with his or her service on, or attendance at meetings of, the Board.
The Company shall provide its outside directors with compensation in the form
of cash and/or options on its Common Stock as deemed appropriate and similar
for similar companies.
(xvii) Grant and hereby does grant to the Placement Agent a
right of first refusal on the terms and subject to the conditions set forth in
this subsection (xvii), for a period of five years from the Closing Date, to
purchase for its account or to sell for the account of the Company or its
present or future subsidiaries, any securities of the Company or any of its
present of future subsidiaries, with respect to which the Company or any of its
present of future subsidiaries may seek a public or private sale. The Company,
for a period of five years from the Closing Date, will consult, and will cause
such present or future subsidiaries to consult with the Placement Agent with
regard to any such offering or placement and will offer, or cause any of its
present or future subsidiaries to offer, to the Placement Agent the
opportunity, on terms not more favorable to the Company or such present or
future subsidiaries than they can secure elsewhere, to purchase or sell any
such securities. If the Placement Agent fails to accept in writing such
proposal made by the Company or any of its present or future subsidiaries
within fifteen business days after receipt of a notice containing such
proposal, then the Placement Agent shall have no further claim or right with
respect to the proposal contained in such notice. If, thereafter, such
proposal is materially modified, the Company shall again consult, and cause
each present or future subsidiary to consult, with the Placement Agent in
connection with such modification and shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal.
8. Expenses of Offering. The Company shall be responsible for, and shall
pay, all expenses directly and necessarily incurred by it in connection with
the Offering, including, but not limited to, the costs of preparing, printing,
and filing where necessary, the Offering Documents and all amendments and
supplements thereto; registrar, warrant and transfer agent
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fees, advertising costs and expenses if deemed desirable (i.e. Tombstone on the
Wall Street Journal and other appropriate publications), "road show" and
information meetings and presentation costs, Company counsel and accounting
fees, issue and transfer taxes, if any, any fees relating to the retention of
the Bank as escrow agent and Blue Sky filing and counsel fees. In this
connection, Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Placement Agent (provided that such
states and jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process). In the event
the Offering is not completed due to the Company's actions or failures to take
such actions as the Placement Agent believes are reasonably required to
complete the Offering contemplated herein or due to a material adverse change
in the Company's business or financial results, prospects or condition or to
adverse market conditions, then the Company shall promptly reimburse the
Placement Agent for its actual out-of-pocket expenses not to exceed $50,000.
9. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Placement Agent and each person, if any, who
controls the Placement Agent within the meaning of the Securities Act and/or
1934 Act against any losses, claims, damages or liabilities, joint or several,
to which the Placement Agent or such controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or action in respect thereto arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any Blue Sky application or other
document executed by the Company specifically for Blue Sky purposes or based
upon any other written information furnished by the Company or on its behalf to
any state or other jurisdiction in order to qualify any or all of the Units
under the securities laws thereof (any such application, document, or
information being hereinafter called "Blue Sky Application"), or (ii) the
omission or alleged omission by the Company to state in the Offering Documents
or in any Blue Sky Application 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 will reimburse the Placement Agent
and each such controlling person for any legal or other expenses reasonably
incurred by the Placement Agent or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
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 is based
upon (i) an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the company by the Placement Agent in preparation of the Offering
Documents or any such Blue Sky Application; (ii) any failure by the Placement
Agent to be registered or be in good standing as a broker dealer in any
jurisdiction in which Units are sold or to comply with the terms of the Blue
Sky Survey; or (iii) any written misrepresentation made to a Subscriber by the
Placement Agent or its agents not included in the Offering Documents and made
by means other than the mere delivery of the Offering Documents to a Subscriber
(collectively, (i), (ii), and (iii), above are referred to as the
"Non-Indemnity Events").
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(b) Indemnification by the Placement Agent. The Placement Agent
agrees to indemnify and hold harmless the Company against any losses, claims,
damages or liabilities to which the Company may become subject, under the
Securities Act or otherwise insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Document, or (B) in any Blue Sky application, or (ii) the
omission or alleged omission by the Company to state in the Offering Documents
or in any Blue Sky Application 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; but in each case, only if and 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 the Placement Agent specifically for
use with reference to the Placement Agent in the preparation of the Offering
Document or any such Blue Sky application; or (iii) any other Non-Indemnity
Event; and will 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; provided that such
loss, claim, damage, liability is found ultimately to arise out of or be based
upon the circumstances described in clauses (i), (ii), or (iii) of this Section
9(b).
(c) Procedure. Promptly after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 9, notify in writing the indemnifying
party of the commencement thereof; and the omission so to notify the
indemnifying party will relieve the indemnifying party from any liability under
this Section 9 as to the particular item for which indemnification is then
being sought, but not from any other for which it may have to be an indemnified
party. In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and to the extent that it may
wish, jointly with any other indemnifying party, similarly notified, to assume
the defense thereof, with counsel who shall be to the reasonable satisfaction
of such indemnified party, and after notice from the indemnifying party to such
indemnifying party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. Any such indemnifying party shall not be liable to any
such indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
(d) Contribution. If the indemnification provided for in this
Section 9 is unavailable to any indemnified party in respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party, as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand, and the Placement Agent on the other hand, from the Offering,
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
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only the relative benefits referred to in clause (i) above, but also the
relative fault of the Company on one hand, and of the Placement Agent on the
other hand in connection with statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand, and the Placement Agent on the other hand, shall be deemed to be in
the same proportion as the total proceeds from the Offering (net of sales
commissions, but before deducting expenses) received by the Company, bear to
the commissions received by the Placement Agent. The relative fault of the
Company on the one hand, and the Placement Agent on the other hand, will be
determined with reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material fact
relates to information supplied by the Company, and its relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Attorneys' Fees. The amount payable by a party under this
Section 9 as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
10. Termination by Placement Agent. The Placement Agent will have the
right to terminate this Agreement by giving written notice as herein specified,
at any time, at or prior to the Closing Date (i) if the Company shall have
failed, refused, or been unable to perform any of its obligations hereunder, or
breached any of its representations or warranties hereunder and such failure,
refusal, inability or breach has not cured promptly after notice; or (ii) if,
in the Placement Agent's opinion, there has occurred an event materially and
adversely affecting the Company.
11. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or mailed by
certified mail or private courier service, postage prepaid, return receipt
requested, to the appropriate parties, at the following addresses: if to the
Placement Agent, to RAS Securities Corp, 2 Broadway, New York, New York 10004,
Attn: Eric Bashford; if to the Company, to 1327 Empire Central, Suite 260,
Dallas, Texas 75247 Attn: Lee Sanders with a copy to Daryl Robertson located at
Bracewell & Patterson, L.L.P., 4000 Lincoln Plaza, Dallas, Texas 75201, or in
each case, to such other address as the parties may hereinafter designate by
like notice.
12. Parties. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns,
Neither party may assign this Agreement or its obligations hereunder without
the prior written consent of the other party. This Agreement is intended to
be, and is for the sole and exclusive benefit of the parties hereto and the
persons described in Section 9(a) and 9(b) hereof, and their respective
successors and assigns, and for the benefit of no other person, and no other
person will have any legal or equitable right, remedy or claim under, or in
respect of this Agreement.
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13. Amendment and/or Modification. Neither this Agreement, nor any term
or provision hereof, may be changed, waived, discharged, amended, modified, or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
14. Further Assurances. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
15. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
16. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
17. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, respectively, and there are no representations, inducements, promises
or agreements, oral or otherwise, not embodied in this Agreement. Any and all
prior discussions, negotiations, commitments and understanding relating to the
subject matter of these agreements are superseded by this Agreement.
18. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
19. Law. This Agreement will be deemed to have been made and delivered in
New York City and will be governed as to validity, interpretation,
construction, effect and all other respects by internal laws of the State of
New York. The Company (i) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York Supreme Court,
County of New York, or in the United States District Court for the Southern
District of New York and agrees that service of process upon it mailed by
certified mail to its address shall be deemed in every respect effective
service of process upon it any suit, action or proceeding.
20. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and, if applicable, any
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<PAGE> 21
Additional Closing Date, and such representations, warranties, covenants and
agreements, including the indemnity and contribution agreements contained in
Section 9, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Placement Agent or any
indemnified person, or by or on behalf of the Company or any person or entity
which is entitled to be indemnified under Section 9, and shall survive
termination of this Agreement or the issuance, sale and delivery of the Units.
In addition, notwithstanding any election hereunder or any termination of this
Agreement, and whether or not the terms of this Agreement are otherwise carried
out, the provisions of Sections 8, 9, 12, and 20 shall survive termination of
this Agreement and shall not be affected in any way by such election or
termination or failure to carry out the terms of this Agreement or any part
thereof.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along
with all counterparts will become a binding agreement between us.
Very truly yours,
AVIATION GROUP, INC.
By: /s/ LEE SANDERS
--------------------------------------------
Lee Sanders, President
AGREED:
RAS SECURITIES CORP.
By:/s/ ROBERT A. SCHNEIDER
-------------------------------
Robert A. Schneider, Chairman
21
<PAGE> 1
EXHIBIT 10.23
May 9, 1997
RAS Securities Corp.
2 Broadway, 20th Floor
New York, New York 10004
Re: Letter of Intent Regarding Initial Public Offering; Agency
Agreement; Merger and Acquisition Agreement
Gentlemen:
As a result of problems relating to underwriting compensation on prior
transactions relating to RAS Securities Corp. ("RAS"), it is our understanding
that RAS has agreed to step down as underwriter of the planned initial public
offering by Aviation Group, Inc. (the "Company"). In that connection, we
request that you formalize this withdrawal by RAS by acknowledging and agreeing
that the following agreements, to the extent indicated below, are hereby
terminated and canceled, subject to the condition set forth herein:
1. Letter of intent agreement dated January 28, 1997 between the Company and
RAS relating to the planned initial public offering shall be terminated
and canceled in its entirety;
2. Paragraphs (xv), (xvi) and (xvii) of Section 7 only of the Agency
Agreement dated January 19, 1996 between the Company and RAS shall be
terminated and canceled; and
3. Merger and Acquisition Agreement dated January 23, 1996 between the
Company and RAS shall be terminated and canceled in its entirety.
It is also our understanding, which you hereby confirm, that RAS will not
participate in any manner, including as an underwriter or as a member of the
selling group, in the planned initial public offering by the Company.
You also agree that the "lock-up" letter agreements each dated March 1, 1996,
between RAS and Paul Lubomirski and Lee Sanders will be deemed terminated upon
the execution by Mr. Sanders and Mr. Lubomirski of new lock-up agreements with
the lead underwriter of the Company's planned initial public offering.
Notwithstanding the foregoing, we understand that your agreements herein are
conditioned upon the completion of the planned initial public offering by the
Company, and if the initial
<PAGE> 2
RAS Securities Corp.
May 9, 1997
Page 2
public offering is not completed or is terminated or abandoned by the Company,
the agreements hereby terminated and canceled will be automatically reinstated
to be in full force and effect.
If the foregoing is satisfactory to you, please execute and return one fully
executed original to the undersigned to evidence your confirmation and
agreement to the foregoing.
Very truly yours,
Aviation Group, Inc.
By: /s/ LEE SANDERS
Lee Sanders, President
Acknowledged and agreed
this 9th day of May, 1997:
RAS SECURITIES CORP.
By: /s/ ROBERT A. SCHNEIDER
-------------------------------
Name: Robert A. Schneider
------------------------------
Title: Chairman & CEO
-----------------------------
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our reports
and to the reference to our firm under the caption "Experts" included in or
made a part of this registration statement.
/s/ ARSEMENT, REDD & MORELLA L.L.C
ARESEMTN, REDD & MORELLA L.L.C.
May 19, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the "Experts," under the
caption "Summary Combined Historical and Pro Forma Financial Information" and
to the use of our report dated December 22, 1995, in the Registration Statement
(Form SB-2).
/s/ JAMES SMITH & COMPANY
JAMES SMITH & COMPANY
A Professional Corporation
Dallas, Texas
May 20, 1997
<PAGE> 1
EXHIBIT 23.4
[LOGO]
McGLADREY & PULLEN, LLP
--------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Prospectus constituting a part of the
Form SB-2 Registration Statement (File No. 333-22727) of Aviation Group, Inc.
of our report dated January 24, 1997, relating to the financial statements of
Casper Air Service, a Wyoming corporation, as of April 30, 1996 and for each of
the two years then ended, which are contained in that Prospectus. We also
consent to the reference to us under the caption "Experts" in the Prospectus.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Casper, Wyoming
May 19, 1997
<PAGE> 1
EXHIBIT 99.1
------------
____________ 1997
First London Securities Corporation
As Representative of the Several Underwriters
2600 State Street
Dallas, Texas 75204
Dear Sirs:
The undersigned understands that First London Securities Corporation,
as representative (the "Representative") of the several underwriters (the
"Underwriters"), proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Aviation Group, Inc. (the "Company") providing
for the purchase by the Underwriters of shares (the "Shares") of Common Stock,
par value $0.01 per share, of the Company ("Common Stock") and Redeemable
Common Stock Purchase Warrants (the "Warrants"), and that the Underwriters
propose to offer the Shares and Warrants to the public (the "Offering").
Common Stock of which the undersigned is now, or may in the future become, the
beneficial owner (within the meaning of Rule 13d-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended) shall be referred to herein as the
"Subject Securities".
In consideration of the execution of the Underwriting Agreement by the
Underwriters and the Offering, and for other good and valuable consideration
the receipt of which is hereby acknowledged, the undersigned hereby irrevocably
agrees that:
(i) Without the prior written consent of the
Representative, the undersigned will not offer, pledge, sell, contract
to sell, grant any option for the sale of, make a short sale or
otherwise dispose of or engage in any hedging or other transaction
that is designed or reasonably expected to lead to a disposition of
any Subject Securities, or otherwise dispose of (or publicly announce
any offer, pledge, sale, grant of an option to purchase or other
disposition), directly or indirectly, any Subject Securities, during
the period from the date of this letter until the 180th day after the
date of the final Prospectus (as defined in the Underwriting
Agreement) with regard to all Subject Securities and during the period
from the date of this letter until the 365th day after the date of the
final Prospectus with regard to 50% of the Subject Securities.
<PAGE> 2
First London Securities Corporation
Page 2
(ii) In addition to the foregoing, the undersigned will
not offer, pledge, sell, contract to sell, grant any option for the
sale of, make a short sale or otherwise dispose of or engage in any
hedging or other transaction that is designed or reasonably expected
to lead to a disposition of any securities convertible into, or
exercisable or exchangeable for, the Subject Securities from the date
of this letter until the 365th day after the date of the final
Prospectus unless, prior to any such disposition, the undersigned
delivers to the Representative an identical copy of this letter,
executed by the prospective acquiror of such securities.
The undersigned further understands that the Company will take such
steps as may be reasonably necessary to enforce the foregoing provisions and
restrict the sale or transfer of such Securities as provided herein including,
but not limited to, notification to the Company's transfer agent regarding any
such restrictions; and the undersigned hereby agrees to and authorizes any
actions and acknowledges that the Company and you are relying upon this
Agreement in taking any such actions.
If for any reason the Offering shall be terminated prior to the
Closing Date (as defined in the Underwriting Agreement), the agreement set
forth above shall likewise be terminated.
If the foregoing conforms to your understanding of our agreement,
please so indicate by signing a copy of this Agreement, whereupon it shall
become a binding agreement between and among us.
Very truly yours,
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Signature
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Printed Name
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Street Address
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City, State and Zip Code
