SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AVIATION DISTRIBUTORS, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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AVIATION DISTRIBUTORS, INC.
One Capital Drive
Lake Forest, California 92630
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 14, 1998
(APPROXIMATE MAILING DATE: JULY 10, 1998)
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of AVIATION DISTRIBUTORS, INC., a Delaware corporation (the
"Company"), will be held at the Sutton Place Hotel, 4500 MacArthur Boulevard,
Newport Beach, California 92660, on Friday, August 14, 1998 at 2:00 P.M. local
time, for the following purposes:
1. To elect five members of the Board of Directors to serve until the
next Annual Meeting of Stockholders;
2. To consider and act upon the ratification of the appointment of Grant
Thornton, LLP as the independent public accountants of the Company for the
fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on June 30, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting. Only holders of the Company's Common Stock at the close
of business on the record date are entitled to vote at the Meeting.
You are cordially invited to attend the Meeting in person. However,
whether you plan to attend or not, we urge you to complete, date, sign, and
return the enclosed proxy promptly in the envelope provided, to which no postage
need be affixed if mailed in the United States, in order that as many shares as
possible may be represented at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
---------------------------
Bruce H. Haglund, Secretary
Lake Forest, California
July 10, 1998
1
AVIATION DISTRIBUTORS, INC.
One Capital Drive
Lake Forest, California 92630
PRELIMINARY PROXY STATEMENT
July 10, 1998
-----------------------
SOLICITATION OF PROXIES
DATE, TIME, AND PLACE
This Proxy Statement and the accompanying proxy/voting instruction
card ("Proxy Card") are being mailed beginning on or about the date shown
above, to holders of common shares (the "Stockholders") in connection with
the solicitation of proxies by the Board of Directors (the "Board of
Directors" or "Board") of AVIATION DISTRIBUTORS, INC., a Delaware corporation
(the "Company"), to be used at the Annual Meeting of Stockholders (the
"Meeting"), to be held at the Sutton Place Hotel, 4500 MacArthur Boulevard,
Newport Beach, California 92660, on Friday, August 14, 1998 at 2:00 P.M.
local time, or any adjournment thereof.
QUORUM AND VOTING
Proxies are solicited to give all Stockholders of record at the close
of business on June 30, 1998 (the "Record Date"), an opportunity to vote on
matters that come before the Meeting. Shares of Common Stock (the "Shares")
can be voted only if the Stockholder is present in person or is represented
by proxy. The presence in person or by proxy of the holders of a majority of
the total outstanding voting Shares is necessary to constitute a quorum at
the Meeting.
When your Proxy Card is returned properly signed, the Shares
represented will be voted in accordance with your directions. You can
specify your choices by marking the appropriate boxes on the enclosed Proxy
Card. If your Proxy Card is signed and returned without specifying choices,
the Shares will be voted as recommended by the Board of Directors.
Abstentions marked on the Proxy Card and broker non-votes are voted neither
"for" nor "against" items being voted upon, but are counted in the
determination of a quorum.
As of the record date, there were 3,165,000 Shares outstanding. Each
outstanding Share is entitled to one vote on each matter properly brought
before the Meeting other than the election of Directors which is by
cumulative voting.
SOLICITATION AND COST
The Company will bear all costs and expenses related to this
solicitation of proxies by the Board of Directors, including the costs of
preparing, printing, and mailing to the Stockholders this Proxy Statement and
accompanying materials. In addition to the solicitation of proxies by use of
the mails, the Directors, officers, and employees of the Company, without
receiving additional compensation, may solicit proxies personally, by
telephone, or by any other means of communication.
REVOCABILITY OF PROXY
If you wish to give your proxy to someone other than the persons
designated by the Board of Directors, all names appearing on the enclosed
Proxy Card must be crossed out and the name of another person or persons
inserted. The signed card must be presented at the Meeting by the person or
persons representing you. You may revoke your proxy at any time before it is
voted at the Meeting by executing
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a later-dated proxy, by voting by ballot at the Meeting, or by filing a
written revocation of your proxy with the Company before the Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND
RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. If you do attend, you may vote by ballot at the Meeting, thereby
canceling any proxy previously given.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual Stockholders are kept private by the Company. Such
documents are available for examination only by the inspectors of election
and certain personnel associated with processing Proxy Cards and tabulating
the vote. The vote of any Stockholder is not disclosed except as may be
necessary to meet legal requirements.
DOCUMENTS INCORPORATED BY REFERENCE
The Company specifically incorporates the Financial Statements for
the year ended December 31, 1997, filed as part of the 1997 Annual Report on
Form 10-KSB in response to Item 13 of the 10-KSB. The Annual Report and
attached Financial Statements should have been enclosed in the mailing
containing this Proxy Statement. If you did not receive a copy of the Annual
Report and attached Financial Statement, please contact the Company and
request that the information be sent to you. A copy of the 1997 Annual
Report may be obtained from the Company without cost to the requesting
Stockholder by contacting the Company.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING SECURITIES
As of the Record Date for the Annual Meeting of Stockholders, the number of
issued and outstanding shares of Common Stock totaled 3,165,000.
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Company's Shares as of April 30, 1998 for (i) each current
Director and each nominee for Director (ii) each named executive officer of the
Company as defined in 402(a)(2) of Regulation S-B of the Securities Act of 1933,
(iii) all persons known by the Company to beneficially own more than 5% of the
Company's voting Shares, and (iv) all executive officers and Directors of the
Company as a group.
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) NUMBER OF SHARES (2) PERCENT OF TOTAL (3)
------------------- -------------------- --------------------
Victor Z. Buendia 1,250 (4) *
Bruce H. Haglund (4) 12,500 (4) *
Gary L. Joslin -0- 0.0%
Dirk O. Julander, Trustee (5) 1,836,050 (5) 57.1%
Daniel C. Lewis 10,000 (4) *
Kenneth A. Lipinski -0- 0.0%
Elizabeth R. Morgan 2,750 (6) *
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Saleem S. Naber -0- 0.0%
Laura M. Villafuerte 1,250 (4) *
William T. Walker, Jr. 10,000 (4) *
Jeffrey G. Ward 6,500 (7) *
All officers and Directors (8) 1,879,050 57.7%
as a group (11 persons)
*Less than 1%.
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(1) Unless otherwise noted, the Company believes that all Shares are
beneficially owned and that all persons named in the table or family
members have sole voting and investment power with respect to all Shares
owned by them. Unless otherwise indicated, the address of each
Stockholder is One Capital Drive, Lake Forest, California 92630.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options.
(3) Assumes 3,165,000 Shares outstanding plus the number of Shares issuable
to each person named upon the exercise of presently exercisable stock
options held by such person. Each beneficial owner's percentage ownership
is determined
by assuming that options that are held by such person (but not those held
by any other person) and which are exercisable within 60 days from the date
hereof have been exercised.
(4) Represents stock options presently exercisable at $5.00 per share.
(5) Includes 51,050 stock options presently exercisable at $5.00 per share.
The Shares included as beneficially owned by Mr. Julander are held by him
in his capacity as trustee of a voting trust established in November 1997
by Osamah S. Bakhit, the founder and former Chairman of the Board and Chief
Executive Officer of the Company. The voting trust vests sole voting and
investment power with Mr. Julander until the termination of the voting
trust (no later than January 1, 2000).
(6) Includes 1,250 stock options presently exercisable at $5.00 per share.
(7) Includes 5,000 stock options presently exercisable at $5.00 per share.
(8) Includes stock options presently exercisable at $5.00 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995 and December 1996, the Company loaned Osamah S. Bakhit,
the founder and former Chairman of the Board and Chief Executive Officer of the
Company, $328,718 and $80,000, respectively. The loans bear interest at the
rate of 6% per annum. Although the loans were scheduled to be repaid in
December 1997, the Company's Board of Directors approved the deferral of
principal and interest payments until December 31, 1998 in consideration of Mr.
Bakhit's personal guaranty of the Company's current credit facility with BNY
Financial Corporation ("BNYFC") and his pledge of 1,000,000 of his Shares to
BNYFC to secure the indebtedness of the Company in February 1998.
In 1996, Mr. Bakhit and his wife personally guaranteed the Company's credit
facility with Far East Bank, which facility was repaid by the Company in June
1997 when the Company obtained a replacement credit facility. A portion of the
proceeds of the Company's initial public offering was used to repay a portion of
the Company's indebtedness to Far East Bank.
In January 1997, the Company borrowed an aggregate of $400,000 (the
"Employee Loans") from certain of its employees, including Mr. Bakhit, Mark W.
Ashton, the Company's former Chief Financial Officer, Jeffrey G. Ward, the
Company's Executive Vice President, and Elizabeth R. Morgan,
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the Company's Vice President, Consignment and Domestic Sales. The proceeds
of the Employee Loans were used for working capital, paid interest at the
rate of 14% per annum, and were repaid out of the proceeds of the Company's
initial public offering in March 1997.
Gibson, Haglund & Johnson, the law firm in which Bruce H. Haglund, a
member of the Board of Directors, is a principal, received compensation for
legal services rendered to the Company of $63,900 in 1997 and $10,600 in
1996. Mr. Haglund was also granted stock options in 1996 to purchase 10,000
shares of Common Stock of the Company at $5.00 per share, of which 2,500
options are currently exercisable, and additional stock options in 1997 to
purchase 10,000 shares of Common Stock of the Company at $5.00 per share, all
of which are currently exercisable.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16 (a) of the Securities Exchange Act requires the Company's
officers, Directors, and persons who own more than 10% of a registered class
of the Company's equity securities to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "SEC").
Officers, Directors, and greater than 10% beneficial owners are required by
SEC regulation to furnish the Company with copies of all Section 16 (a) forms
they file. The Company believes that all filing requirements applicable to
its officers, Directors, and greater than 10% beneficial owners were complied
with in 1997.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing the overall performance of the Company.
However, in accordance with corporate governance principles, the Board is not
involved in day-to-day operating details. Members of the Board of Directors
are kept informed of the Company's business through discussions with the
officers of the Company, by reviewing analyses and reports sent to them, and
by participating in Board and committee meetings.
The Board held five formal meetings during 1997. All Directors attended
more than 75% of the Meetings held. In addition to formal meetings, the
Board met numerous times informally.
COMMITTEES
In July 1997, the Board of Directors elected Messrs. Haglund, Lewis, and
Walker to the Company's Audit Committee. The Audit Committee is responsible
for recommending to the Board of Directors the engagement of the independent
auditors of the Company and reviewing with the independent auditors the scope
and results of the audits, the internal accounting controls of the Company,
audit practices, and the professional services furnished by independent
auditors. The Audit Committee held five formal Audit Committee meetings in
1997. All members of the Audit Committee attended more than 75% of the Audit
Committee meetings. In addition to formal meetings, the Audit Committee met
numerous times informally.
In September 1997, the Company formed an Executive Committee comprised
of the Company's Chief Executive Officer, Chief Operating Officer, and
Chairman of the Audit Committee. In November 1997, at the time of the
resignation of Mr. Bakhit as the Company's Chief Executive Officer, the
Executive Committee was expanded to include the Company's Executive Vice
President and Vice President-Finance. The current members of the Executive
Committee are Saleem S. Naber, the Chief Executive Officer, Kenneth A.
Lipinski, the Chief Operating Officer, Bruce H. Haglund, Chairman of the
Audit Committee, Jeffrey G. Ward, the Executive Vice President, and Gary L.
Joslin, the Vice President-Finance and Chief Financial Officer. Mr. Lipinski
is the current chairman of the Executive Committee. The Committee meets
regularly to oversee the Company's operations.
5
COMPENSATION OF DIRECTORS
The Company's policy is to pay $2,500 quarterly to Directors who are not
employees or consultants of the Company for their services as directors. The
Company reimburses reasonable out-of-pocket expenses of directors for
attendance at meetings. Members of the Board of Directors are also eligible
to receive stock option grants. In 1996, Mr. Haglund received options to
purchase 10,000 Shares at $5.00 per share, and Messrs. Haglund, Lewis, and
Walker each received options to purchase 10,000 Shares at $5.00 per share.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for (i) any breach of their duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law, its directors
shall not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
Company. Under Delaware law, the directors have a fiduciary duty to the
Company which is not eliminated by this provision of the Certificate of
Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each Director will continue to be subject to liability under
Delaware law for breach of the director's duty of loyalty to the Company for
acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law. This provision also does not affect the
director's responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. In addition, the
Company has obtained liability insurance for its officers and directors.
The Certificate of Incorporation also provides that the Company shall
indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, all of its present and former officers and
directors, and any party agreeing to serve as an officer, director or trustee
of any entity at the Company's request, in connection with any civil or
criminal proceeding threatened or instituted against such party by reason of
actions or omissions while serving in such capacity. Indemnification by the
Company includes payment of expenses in defense of the indemnified party in
advance of any proceeding or final disposition thereof. The rights to
indemnification provided in this provision do not preclude the exercise of
any other indemnification rights by any party pursuant to any law, agreement
or vote of the stockholders or disinterested directors of the Company.
Section 145 of the Delaware General Corporation Law generally allows the
Company to indemnify the parties described in the preceding paragraph for all
expenses, judgments, fines, and amounts in settlement actually paid and
reasonably incurred in connection with any proceedings so long as such party
acted in good faith and in a manner reasonably believed to be in or not
opposed to the Company's best interests and, with respect to any criminal
proceedings, if such party had no reasonable cause to believe his or her
conduct to be unlawful. Indemnification may only be made by the Company if
the applicable standard of conduct set forth in Section 145 has been met by
the indemnified party upon a determination made (1) by the Board of Directors
by a majority vote of directors who are not parties
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to such proceedings, or (2) if there are no such directors or at the order of
such directors, by independent legal counsel in a written opinion, or (3) by
the stockholders.
ELECTION OF DIRECTORS
(Item #1 on the Proxy Card)
The Certificate of Incorporation, as amended (the "Certificate"), of the
Company provides that the number of Directors shall consist of not less than
three and not more than 12 members. The Certificate also provides for a
"classified" Board of Directors, dividing the Directors into three classes,
designated Class I, Class II, and Class III, with each class consisting of
one-third of the total number of Directors, as nearly as possible. The term
of the initial Class I Directors was to terminate at the 1997 annual meeting
of stockholders, the term of the initial Class II Directors was to terminate
at the 1998 meeting, and the term of the initial Class III Directors was to
terminate at the 1999 meeting. The Certificate provides that successors to
the class of directors whose term was to expire at each annual meeting of
stockholders are to be elected for a three-year term.
Although the Company is a Delaware corporation, under Section 2115 of
the California Corporations Code, certain provisions of the California
Corporations Code apply to the Company because of the residence of the
Company's stockholders and the extent of its business operations and assets
in California. The provisions include those pertaining to the requirement of
cumulative voting and those allowing classified boards of directors for
"listed" corporations. Because the Company does not qualify under California
law for a classified Board, the Directors to be elected at the Meeting will
be elected until the next annual meeting of the stockholders.
Five members of the Board of Directors are to be elected at the Meeting.
The five nominees selected by the Board of Directors are listed on the
following pages. Stockholders have cumulative voting rights when voting for
Directors; accordingly, any Stockholder may multiply the number of Shares he
or she is entitled to vote by the number of Directors to be elected and
allocate votes among the candidates in any manner. There are no conditions
precedent to the exercise of the right to cumulate votes in the election of
Directors of the Company: Stockholders may exercise such cumulative voting
rights, either in person or by proxy, with or without advance notice to the
Company. The five Director nominees receiving the highest number of votes
will be elected. Any Shares not voted, whether by abstention, broker
non-vote, or otherwise, have no impact on the vote.
The Board of Directors intends to vote proxies equally for the five
nominees unless otherwise instructed on the Proxy Card. If you do not wish
your Shares to be voted for particular nominees, please identify the
exceptions in the designated space provided on the Proxy Card.
If at the time of the Meeting one or more of the nominees have become
unavailable to serve, Shares represented by proxies will be voted for the
remaining nominees and for any substitute nominee or nominees designated by
the Board of Directors.
Directors elected at the Meeting will hold office until the next Annual
Meeting or until their successors have been elected and qualified. For each
nominee there follows a brief listing of principal occupation for at least
the past five years, other major affiliations, and age as of January 1, 1998.
NOMINEES FOR ELECTION AS DIRECTORS
The names, ages, and positions of the nominees for election as Directors
are as follows:
NAME AGE POSITION WITH THE COMPANY FIRST ELECTED
Bruce H. Haglund 47 Director, Secretary, Chairman of 1996
the Audit Committee
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Gary L. Joslin 61 Vice President-Finance, Chief Financial -
Officer, Director Nominee
Daniel C. Lewis 48 Director, Member of the Audit Committee 1997
Saleem S. Naber 68 Chief Executive Officer, Director Nominee -
William T. Walker, Jr. 66 Director, Member of the Audit Committee -
BRUCE H. HAGLUND, SECRETARY AND DIRECTOR. Mr. Haglund has served as General
Counsel of the Company since 1992 and has served as Secretary and a director
of the Company from June 1996 to present. Since 1994, Mr. Haglund has been a
partner in the law firm Gibson, Haglund & Johnson. Prior to 1994, Mr. Haglund
was a principal in the law firm of Phillips, Haglund, Hadden & Jeffers. From
1984 to 1991, he was a partner at the law firm of Gibson & Haglund. Mr.
Haglund is also a member of the Board of Directors of GB Foods Corporation
and the Secretary of Metalclad Corporation, both public companies traded on
the Nasdaq SmallCap Market, and the Secretary of Renaissance Golf Products,
Inc., a public company whose stock is traded on the OTC/BB. Mr. Haglund has
a J.D. from the University of Utah College of Law. Mr. Haglund is also the
Chairman of the Audit Committee of the Board and a member of the Executive
Committee of the Company.
GARY L. JOSLIN, CHIEF FINANCIAL OFFICER, VICE PRESIDENT - FINANCE. Mr.
Joslin, who became Chief Financial Officer and Vice President - Finance in
April 1998, served as a management and financial consultant prior to joining
ADI. Previously, he served as a senior financial executive in the wholesale
and retail segments of the building materials and equipment industry for
companies ranging in size from $70 million to $450 million, including White
Cap Industries and Prime Source, Inc. He also served in numerous financial
positions with Wickes Companies, a multi-billion-dollar conglomerate involved
in retailing, wholesaling, and manufacturing. Mr. Joslin holds a Bachelor of
Science degree in accounting from California State University - Long Beach
and is a licensed CPA. Mr. Joslin is also a member of the Executive
Committee of the Company.
DANIEL C. LEWIS, DIRECTOR. Mr. Lewis became a director of the Company in
March 1997. Mr. Lewis currently serves as a Senior Vice President of
Booz-Allen & Hamilton, Inc. ("Booz-Allen") where he heads the firm's
worldwide engineering manufacturing businesses of aerospace, automotive and
industrials. At Booz-Allen, Mr. Lewis is a member of the Commercial
Leadership Team, Operating Council, and is a former Director of the Company.
Prior to joining Booz-Allen, Mr. Lewis was a materials manager in
Warner-Lambert's consumer products group. Prior to Warner-Lambert, Mr. Lewis
was with Sundstrand working in the machine tool and aerospace business. Mr.
Lewis has a B.S. in industrial supervision and a B.A. in applied science from
Purdue University and an M.B.A. from Fairleigh Dickinson University. Mr.
Lewis is also a member of the Audit Committee of the Board.
SALEEM S. NABER, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr.
Naber, who became Chief Executive Officer, President and a Director of the
Company in April 1998, has 40 years of experience in the aerospace industry,
exclusively with Lucas Aerospace and Western Gear Corporation, acquired by
Lucas in 1988. His responsibilities with Lucas ranged from Design Engineer of
Precision Products to President of Lucas Western, Inc., the $400 million U.S.
division of Lucas. Mr. Naber's most recent post was Managing Director of
Lucas Aerospace, Aircraft Systems Division. Mr. Naber received a Bachelor of
Science degree in electrical engineering from the University of California -
Berkeley and pursued post-graduate courses at the University of Southern
California and the University of California - Los Angeles. Mr. Naber is also
a member of the Executive Committee of the Company.
WILLIAM T. WALKER, JR., DIRECTOR. Mr. Walker became a director of the
Company in March 1997. Mr. Walker founded Walker Associates, a corporate
finance consulting firm for investment banking, in 1985 and has participated
in or been instrumental in completing over $250 million in public and private
offerings since its inception. Prior to forming Walker Associates, Mr.
Walker served as executive Vice President, Manager of Investment Banking,
Member of the Board and Executive Committee and Chairman of the Underwriting
Committee for Bateman Eichler Hill Richards, a New York Stock Exchange Member
firm. Mr. Walker is also a member of the Board of Directors of Fortune
Petroleum
8
Corporation and Go-Video, Inc., both public companies traded on the American
Stock Exchange. Mr. Walker attended Stanford University. Mr. Walker is also a
member of the Audit Committee of the Board.
Management intends to vote for the directors as nominated.
EXECUTIVE OFFICERS
The names, ages, and positions of the Company's executive officers, who are
not also nominees for Directors, as of April 30, 1998 are as follows:
NAME AGE POSITION WITH THE COMPANY FIRST ELECTED
Kenneth A. Lipinski 55 Interim Chief Operating Officer 1997
Chairman of Executive Committee
Jeffrey G. Ward 38 Executive Vice President 1996
Victor Z. Buendia 40 Vice President, Latin and South 1996
American Sales
Elizabeth R. Morgan 34 Vice President, Consignment and 1996
Domestic Sales
Laura M. Villafuerte 30 Controller 1996
KENNETH A. LIPINSKI, INTERIM CHIEF OPERATING OFFICER. Mr. Lipinski has over 30
years experience as President, Chief Executive Officer, Chief Operating Officer,
or Chief Financial Officer of companies in the telecommunications, real estate,
mortgage banking, and retail clothing industries. These companies ranged in
size from $20 million to $250 million in annual revenue and were closely-held or
publicly-traded, NYSE-listed companies. Mr. Lipinski's business career
commenced at Arthur Andersen & Co., where he spent eight years immediately after
graduating from the University of Notre Dame. He has a CPA and California real
estate brokers licenses and is a member of the Young Presidents Organization.
Mr. Lipinski is also a member of the Executive Committee of the Company.
JEFFREY G. WARD, EXECUTIVE VICE PRESIDENT. Mr. Ward has over 16 years of
aircraft experience and currently oversees and lends leadership to the extensive
sales team at ADI. Prior to joining the Company in 1993, Mr. Ward was a sales
representative for System Industries. He was a sales consultant to the aerospace
industry with key accounts including the U.S. military and major aerospace
manufacturers. Prior to System Industries, Mr. Ward was a sales representative
for Eastman Kodak Company. Mr. Ward also served in the United States Marine
Corps for seven years as a naval aviator. Mr. Ward has a B.A. in economics and
German from University of Virginia. Mr. Ward is also a member of the Executive
Committee of the Company.
VICTOR Z. BUENDIA, VICE PRESIDENT, LATIN AND SOUTH AMERICAN SALES. Mr. Buendia
has five years of aircraft experience. Mr. Buendia is responsible for all of the
Company's major Latin America accounts. Prior to joining the Company in 1992,
Mr. Buendia owned and operated his own business and brings valuable marketing,
communication and sales skills to ADI.
ELIZABETH R. MORGAN, VICE PRESIDENT, CONSIGNMENT AND DOMESTIC SALES.
Ms. Morgan has 13 years of experience in aircraft parts sales. Ms. Morgan is
responsible for the operations and sales of the Company's consignment sales.
Prior to joining the Company in 1994, Ms. Morgan was the Director of Marketing
for Pacific Airmotive, a division of UNC. In addition, Ms. Morgan has worked for
several other companies in aircraft sales.
LAURA M. VILLAFUERTE, CONTROLLER. Ms. Villafuerte has over four years of
public accounting experience and is a Certified Public Accountant. Currently,
Ms. Villafuerte manages the Company's finance and accounting departments and is
responsible for financial reporting and the Company's treasury. From 1991 to
1996, Ms. Villafuerte worked for Arthur Andersen LLP, where she supervised audit
engagements
9
and prepared and reviewed financial reports. Ms. Villafuerte has a B.S. in
accounting from the University of Southern California.
REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs are designed to link executives'
compensation to the performance of the Company. The annual salary paid to
executives over the past three years reflect fixed amounts that are deemed
competitive for executives with comparable ability and experience in the
industry.
COMPENSATION OF OFFICERS
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- -------------------------------------------------------------------------------------------------------
NAME AND OTHER AWARDS PAYOUTS ALL
PRINCIPAL YEAR SALARY BONUS ANNUAL --------------------------------------
POSITION ($) ($) COMPEN- RESTRICTED OPTIONS/ LTIP OTHER (1)
SATION STOCK ($) SARS (#) PAYOUTS ($)
($)
- ------------------------------------------------------------------------------------------------------------------------
Osamah S. Bakhit 1996 116,000 49,000 41,200 - - - -
---------------------------------------------------------------------------------------------
CEO (2) 1997 268,885 70,000 73,683 - - - -
- ------------------------------------------------------------------------------------------------------------------------
Elizabeth R. Morgan 1996 116,156 - - - - - -
---------------------------------------------------------------------------------------------
VP 1997 214,359 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Jeffrey G. Ward 1996 181,482 - 15,000 - - - -
---------------------------------------------------------------------------------------------
Exec. VP 1997 172,024 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Mark W. Ashton 1996 59,423 - - - - - -
---------------------------------------------------------------------------------------------
CFO (3) 1997 140,385 - 11,858 - - - -
- ------------------------------------------------------------------------------------------------------------------------
Victor Z. Buendia 1996 99,630 - - - - - -
---------------------------------------------------------------------------------------------
VP 1997 118,288 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
(1) The remuneration described in the table does not include the cost to the
Company of benefits furnished to the named executive officers, including
premiums for health insurance and other personal benefits provided to such
individual that are extended to all employees of the Company in connection
with their employment. The value of such benefits cannot be precisely
determined; however, the executive officers named above did not receive
other compensation in excess of the lesser of $50,000 or 10% of such
officers' cash compensation. Other annual compensation consists of
automobile lease payments, automobile insurance, and certain other
perquisites paid by the Company.
(2) Mr. Bakhit resigned as the Company's Chief Executive Officer in November
1997.
(3) Mr. Ashton resigned as the Company's Chief Financial Officer in November
1997.
OPTION GRANTS IN LAST FISCAL YEAR--INDIVIDUAL GRANTS
No options were granted to employees of the Company in 1997. Options to
purchase 30,000 shares of Common Stock were granted to Directors in 1997 at an
exercise price of $5.00 per share. See "Compensation of Directors" above.
AGGREGATED OPTION/SAR EXERCISES IN THE YEAR ENDED MAY 31, 1996, AND OPTION
VALUES AT MAY 31, 1996
The following table sets forth the number of options, both exercisable and
unexercisable, held by each of the named executive officers of the Company and
the value of any in-the-money options at December 31, 1997 (assuming a market
value of $5.00 per share on December 31, 1997):
10
Number of
Securities
Underlying
Unexercised Value of
Options/SAR's at in-the-Money
December 31, December 31,
Shares 1997 1997
Acquired Value ---- ----
on Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
----------- -------- ------------- -------------
Osamah S. Bakhit -0- -0- 51,050/-0- $0/$0
Elizabeth R. Morgan -0- -0- 1,250/4,750 $0/$0
Jeffrey G. Ward -0- -0- 5,000/10,000 $0/$0
Mark W. Ashton -0- -0- 3,333/6,667 $0/$0
Victor Z. Buenida -0- -0- 1,250/4,750 $0/$0
RATIFICATION OF APPOINTMENT OF AUDITORS
(Item #2 on Proxy Card)
The Board of Directors has selected Grant Thornton LLP as independent
public accountants for the Company for the fiscal year ending December 31, 1998,
subject to the approval of the Stockholders. Ratification of the appointment of
auditors requires a majority of the votes cast thereon. Any Shares not voted,
whether by abstention, broker non-vote, or otherwise, have no impact on the
vote. If the Stockholders do not ratify this appointment, other independent
auditors will be considered by the Board or Directors upon recommendation of the
Audit Committee.
On August 29, 1997, Arthur Andersen LLP, the Company's former independent
auditor (the "Former Auditor") withdrew its previously issued reports on the
Company's financial statements dated December 31, 1994, 1995, and 1996 and June
30, 1996 (collectively, the "Withdrawn Reports"). The Former Auditor also
resigned on that same date.
In a letter to the Company's Audit Committee, the Former Auditor advised
the Company that it believed that the Company (i) prepared false sales invoices
and provided them to the Company's former bank to obtain financing; (ii) that
the Company prepared false documents and provided them to the Former Auditor to
support the collectibility of accounts receivable balances; and (iii) that the
Company prepared false documents which resulted in inappropriate recording of
sales at December 31, 1996 on orders that had not been shipped as of that date.
The Former Auditor also advised the Company that it believed that the foregoing
matters had a material impact on the Company's December 31, 1996 financial
statements and that they occurred with the knowledge and involvement of
management of the Company. Based on its beliefs, the Former Auditor was
unwilling to continue to rely on management's representations in connection with
its audits of the Company's financial statements and unwilling to serve as the
Company's independent public accountant.
None of the Withdrawn Reports contained an adverse opinion or disclaimer of
opinion, nor were the Withdrawn Reports qualified or modified as to uncertainty,
audit scope, or accounting principles.
In May 1996, the Former Auditor informed the Company of significant
deficiencies in the design and operation of its internal controls that it had
observed in connection with its audit of the Company's December 31, 1995
financial statements. The Company addressed these deficiencies by hiring a new
Chief Financial Officer and a new Chief Accounting Officer in June 1996, as well
as implementing changes in its internal controls.
11
In connection with the December 31, 1996 audit, the Former Auditor
proposed an adjustment to the bad debt reserve for $100,000. The matter was
discussed with management and an adjustment was made which satisfied the
Former Auditor, who then issued an unqualified report for that period. In
connection with limited review procedures performed on the quarter ended
March 31, 1997, the Former Auditor became aware of the fact that certain
receivables were collected by accepting inventory from some customers. These
inventory exchanges are non-monetary transactions, which the Former Auditor
believed should not have resulted in the recognition of revenue and profit on
the related original sales. Management of the Company believed that its
recognition policy was in accordance with industry standards. The Former
Auditor proposed an adjustment to reverse the original profit relating to
these exchanges. No amount was recorded in the first quarter as management
believed that it had excess reserves in inventory and had overaccrued on
certain liabilities, which would negate any impact on the quarterly results.
In connection with limited review procedures performed on the quarter ended
June 30, 1997, the Former Auditor raised issues with respect to (i) a sale
for $240,000 recorded in June 1997 which may not have been shipped until July
3, 1997, (ii) the level of bad debt and credit memo reserves, which on the
basis of limited testing by the Former Auditor, was believed by it to be in
the range of $125,000 to $250,000 low, and (iii) additional inventory
exchanges recorded in the second quarter. In response to discussions with the
Former Auditor concerning these items, the Company adopted the recommendation
to increase the reserves for bad debts and credit memos to $346,000 and
reversed several excess accrued liabilities and part of its inventory
reserves. The Company also made the adjustment necessary to reverse the
$240,000 sale transaction in question. The Former Auditor expressed concern
that further adjustments may be required upon completion of the review of the
matters addressed in the Letter.
Subsequent to the issuance of the press release by the Company of its
second quarter 1997 results and prior to the Company's filing of its second
quarter 1997 Form 10-Q, which did include known adjustments recommended by
the Former Auditor, the Former Auditor requested and the Company agreed to
delay the filing of a registration statement for a secondary offering until
certain allegations brought to the attention of the Former Auditor were
completely reviewed and evaluated as to the potential impact on the Company's
previously released financial reports.
The Company expressed a concern to the Former Auditor regarding numerous
changes of experienced personnel, including the audit partners, and as to
whether these changes were the cause of increasing audit costs.
The Company authorized the Former Auditor to respond fully to the
inquiries of the successor auditor concerning the subject matter of each of
the foregoing disagreements.
On July 24, 1997, the Former Auditor notified an outside director that
it had become aware of information from an informant(s) regarding the
Company's practices, including allegations of falsification of documents
given to the Former Auditor and allegations of improper financial reporting
and, based upon a limited procedural review, the Former Auditor reiterated
its concern about the filing for a secondary offering. The Company had
previously agreed to delay the secondary offering based upon the Former
Auditor's disclosure to management that the Former Auditor needed more time
to perform additional tests of the Company's internal controls and reporting
procedures. The Former Auditor then requested a meeting with all of the
outside directors of the Company.
On July 25, 1997, two of the outside directors, the Company's securities
counsel, and representatives of the Former Auditor participated in a
conference call wherein the Former Auditor informed the directors that the
allegations included (i) the existence of previously undisclosed related
party transactions, (ii) falsified documents, such as shipping documents,
receiving reports, and purchase orders, (iii) fictitious sales and exchanges
of inventory, and (iv) improper recording of sales and receivable agings to
misrepresent the characterization of accounts receivable.
On July 25, 1997, the Board of Directors of the Company appointed the three
non-employee directors to serve on the Company's Audit Committee. On July 28,
1997, the Audit Committee engaged
12
the Former Auditor to conduct an investigation into the allegations. On
August 9, 1997, the Former Auditor participated in a conference call with two
of the members of the Audit Committee and special counsel to the Company to
update the status of the investigation work. The Former Auditor reported that
they believed that some of the allegations had proven correct, most
significantly, that false invoices had been created and sent to the Company's
former bank in order to obtain financing on the accounts receivable and
working capital lines. In addition, the Former Auditor reported that there
had been an admission by a Company employee that a falsified document was
prepared purporting to document an inventory exchange and that the false
document had been provided to the Former Auditor in connection with its
limited review procedures in the first quarter of 1997. The Former Auditor
also recommended that the Board replace or suspend the Chief Executive
Officer, bring in a senior management person to direct the Company's
investigation, and discuss requirements for disclosure of the investigation
with its legal counsel.
On August 12, 1997, the Audit Committee engaged the services of Kenneth
A. Lipinski, an independent consultant reporting directly to the Audit
Committee who was subsequently hired as the Company's interim Chief Operating
Officer, to work with the Former Auditor in connection with the
investigation, to monitor the performance of the Company's accounting
personnel, and to make recommendations to the Audit Committee with respect to
the subject matter of the allegations.
On August 29, 1997, the consultant and two members of the Audit
Committee met with the Former Auditor to discuss the status of the Former
Auditor's investigation. At the meeting, the Former Auditor indicated that on
August 28, 1997 it internally came to the conclusion that the December 31,
1996 financial statements were materially misstated and the Former Auditor
delivered the Letter to the Company.
On November 18, 1997, the Company's Audit Committee engaged Grant
Thornton LLP (the "New Auditor") as its independent auditors. The
Registrant's Board of Directors approved the decision to engage the New
Auditor.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding Shares is required
to approve this proposal. Management intends to vote "FOR" the proposal to
ratify the auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE AUDITORS, AND YOUR PROXY WILL
BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders proposals intended for inclusion in next years proxy statement
should be sent via certified mail-return receipt requested to Bruce H. Haglund,
Secretary, Aviation Distributors, Inc., One Capital Drive, Lake Forest,
California 92630, and must be received by March 1, 1999.
13
MISCELLANEOUS AND OTHER MATTERS
Management knows of no matters to come before the Meeting other than
those specified herein. If any other matter should come before the Meeting,
then the persons named in the enclosed form of proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
DOCUMENTS INCORPORATED BY REFERENCE
The Company specifically incorporates the Financial Statements for the
year ended December 31, 1997, filed as part of the 1997 Annual Report on Form
10-KSB in response to Item 13 of the 10-KSB. The Annual Report and attached
Financial Statements should have been enclosed in the mailing containing this
Proxy Statement. If you did not receive a copy of the Annual Report and
attached Financial Statement, please contact the Company and request that the
information be sent to you. A copy of the 1997 Annual Report may be obtained
from the Company without cost to the requesting stockholder by contacting the
Company.
A COPY OF THE COMPANY'S CURRENT ANNUAL REPORT ON FORM 10-KSB AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, IS BEING MAILED TO EACH STOCKHOLDER
TOGETHER WITH THIS PROXY STATEMENT. ADDITIONAL COPIES MAY BE OBTAINED BY
STOCKHOLDERS WITHOUT CHARGE BY WRITING TO: AVIATION DISTRIBUTORS, INC., ONE
CAPITAL DRIVE, LAKE FOREST, CALIFORNIA 92630. COPIES OF ANY EXHIBITS TO THE
ANNUAL REPORT, SPECIFICALLY LISTED IN THE ANNUAL REPORT, MAY BE OBTAINED BY
STOCKHOLDERS WITH A CHARGE EQUAL TO THE COMPANY'S COST TO COPY AND SEND ANY
REQUESTED EXHIBIT.
14
[SIDE ONE OF CARD]
AVIATION DISTRIBUTORS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 14, 1998
The undersigned hereby constitutes and appoints Bruce H. Haglund and
Gary L. Joslin, and each of them, the true and lawful attorneys, agents, and
proxies of the undersigned, with full power of substitution, to vote with
respect to all the shares of Common Stock, par value $.001, of AVIATION
DISTRIBUTORS, INC., standing in the name of the undersigned at the close of
business on June 30, 1998, at the Annual Meeting of Stockholders to be held
August 14, 1998, and at any and all adjournments and postponements thereof,
to vote:
1. Election of Directors: _____ FOR all nominees listed below
(Except as marked to the contrary below)
_____ WITHHOLD AUTHORITY
BRUCE H. HAGLUND, GARY L. JOSLIN, DANIEL C. LEWIS, SALEEM S. NABER and
WILLIAM T. WALKER.
2. To consider and ratify the appointment of GRANT THORNTON LLP as independent
auditor of the Company for the fiscal year ending December 31, 1998:
_____ FOR _____ AGAINST _____ ABSTAIN
3. In their discretion, the Board of Directors is authorized to vote this
Proxy upon such other matters as may properly come before the meeting or
any adjournment or postponement thereof.
[SIDE TWO OF CARD]
The shares represented by this Proxy will be voted in the manner directed
herein by the undersigned stockholder. If no directions to the contrary are
made, this Proxy will be voted FOR the election of all of the director nominees
named above and FOR approval of Proposals 2 and 3 if necessary.
DATED: ______________________, 1998
_____________________________
(Signature)
_____________________________
(Signature if held jointly)
IMPORTANT: Please sign exactly as your name
appears above. Each joint owner should sign.
Executors, administrators, trustees, should give
full title. If a corporation, please sign in
full corporate name by an authorized officer. If
a partnership, please sign in partnership name by
an authorized person.
Please mark, sign, date and return promptly.
THIS PROXY IS BEING SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
OF AVIATION DISTRIBUTORS, INC.