UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission File No. 1-11775
AVIATION SALES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 65-0665658
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6905 NW 25TH STREET 33122
MIAMI, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 592-4055
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of February 20, 1997, 8,562,500 shares of Common Stock were
outstanding and the aggregate market value (based on the closing price on the
New York Stock Exchange on February 20, 1997, which was $26.50 per share) of the
Common Stock held by non-affiliates was approximately $107,656,250.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held in May 1997 are incorporated by reference
into Part III hereof. Certain exhibits listed in Part IV of this Annual Report
on Form 10-K are incorporated by reference from prior filings made by the
Registrant under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended.
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1. PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISK AND UNCERTAINTY. THERE CAN BE NO ASSURANCE
THAT THESE FUTURE RESULTS WILL BE ACHIEVED. READERS ARE CAUTIONED THAT A NUMBER
OF FACTORS, INCLUDING THOSE IDENTIFIED BELOW, COULD ADVERSELY AFFECT THE
COMPANY'S ABILITY TO OBTAIN THESE RESULTS: (A) ECONOMIC FACTORS WHICH AFFECT THE
AIRLINE INDUSTRY, (B) CHANGES IN GOVERNMENT REGULATION OF THE AVIATION INDUSTRY
AND (C) INCREASED COMPETITION IN THE AIRCRAFT SPARE PARTS REDISTRIBUTION MARKET.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY"
THROUGHOUT THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL INFORMATION
CONTAINED HEREIN, REFER TO THE OPERATIONS OF ASC ACQUISITION PARTNERS, L.P. (AND
ITS PREDECESSOR AJT CAPITAL PARTNERS) PRIOR TO THE COMPANY'S JUNE 1996 INITIAL
PUBLIC OFFERING, AND TO THE OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES
THEREAFTER.
ITEM 1. BUSINESS.
COMPANY OVERVIEW
The Company is a recognized world leader in the aircraft spare parts
redistribution market and provides a wide range of value-added inventory
management services to its customers. The Company sells aircraft spare parts to
major commercial passenger airlines, air cargo carriers, maintenance and repair
facilities and other redistributors throughout the world. Parts sold by the
Company include rotable and expendable airframe and engine components for
commercial airplanes, including Boeing, McDonnell Douglas, Lockheed and Airbus
aircraft and Pratt & Whitney, General Electric and Rolls Royce jet engines. The
inventory management services offered by the Company include purchasing
services, repair management, warehouse management, aircraft disassembly
services, consignment and leasing of inventories of aircraft parts and engines.
During 1996, the Company generated operating revenues of $161.9 million,
operating income of $22.3 million and net income of $15.5 million. Of such
revenues, approximately 58% were derived from sales to domestic customers and
approximately 42% were derived from sales to international customers.
Since the Company's customers consist of the airlines, maintenance and
repairs facilities that service airlines and other aircraft spare parts
redistributors, the Company's business is impacted by the economic factors which
affect the airline industry. When such factors adversely affect the airline
industry, they tend to reduce the overall demand for aircraft spare parts,
causing downward pressure on pricing and increasing the credit risk associated
with doing business with airlines. Additionally, factors such as the price of
fuel affect the aircraft spare parts market, since older aircraft (into which
aircraft spare parts are most often placed) become less viable as the price of
fuel increases. There can be no assurance that economic and other factors which
might affect the airline industry will not have an adverse impact on the
Company's results of operations.
The operations of the business are conducted by the Company and its
wholly-owned subsidiaries, Aviation Sales Operating Company (and its
wholly-owned subsidiaries, Aviation
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Sales Leasing Company and Aviation Sales Bearings Company) and Aviation Sales
Finance Company. Substantially all of the operating assets of the Company are
owned by Aviation Sales Operating Company.
INDUSTRY OVERVIEW AND TRENDS
The Company believes that the annual worldwide market for aircraft
spare parts is approximately $10.0 billion, of which approximately $1.3 billion
reflects annual sales of aircraft spare parts in the redistribution market. The
redistribution market is highly fragmented, with a limited number of large,
well-capitalized companies selling a broad range of aircraft spare parts, and
numerous smaller competitors servicing specialized niches. The Company believes
that the significant trends impacting the redistribution market will continue to
increase its overall size while reducing the number of competitors. These trends
are as follows:
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS. According to Boeing's 1996
Market Outlook (the "Boeing Report"), the worldwide fleet of commercial
airplanes is expected to double from 11,066 airplanes at the end of 1995 to
23,081 airplanes by 2015. Further, the Boeing Report projects that cargo jet
aircraft will increase from 1,219 airplanes in 1995 to 2,260 airplanes by 2015.
Seventy percent of the airplanes delivered to cargo operators are expected to be
used aircraft converted from commercial passenger service. Additionally, the
Company believes that the number of planes in service for more than 10 years is
continuing to increase, and these older planes are the primary market for
redistributors. Finally, cost considerations are forcing many airlines and
repair and maintenance facilities which had historically purchased their
inventory requirements from new parts manufacturers to utilize aircraft spare
parts sold by redistributors. The Company believes that all of these factors
will increase the demand for aircraft spare parts from the redistribution
market.
REDUCTION IN NUMBER OF APPROVED VENDORS. In order to reduce purchasing
costs and streamline purchasing decisions, airline purchasing departments have
been reducing the number of their "approved" suppliers. During the last few
years, several major airlines have reduced their supplier lists from as many as
50 to a core group of five to ten suppliers. In each such case to date, the
Company was one of the suppliers selected. The Company believes that this trend
will continue in the future and that, due to its market presence and reputation
for quality, the Company will continue to be selected as an approved supplier.
CONSOLIDATION OF REDISTRIBUTION MARKET. As a result of reductions in
the supplier base by airline purchasing departments, there has been and the
Company believes there will continue to be a consolidation in the redistribution
market. The Company further believes that only those redistributors such as the
Company, with extensive inventories, adequate capital and the ability to provide
the documentation of traceability necessary to comply with the applicable
regulatory and customer requirements, will survive the consolidation of the
redistribution market.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT FUNCTION. Airlines incur
substantial expenditures in connection with fuel, labor, and aircraft ownership.
Further, airlines have come under increasing pressure during the last decade to
reduce the costs associated with providing air transportation services. While
several of the expenditures required to operate an airline are beyond the direct
control of airline operators (e.g., the price of fuel and labor costs), the
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Company believes that obtaining replacement parts from the redistribution market
and outsourcing inventory management functions are areas in which airlines can
reduce their operating costs. Outsourcing inventory management functions allows
these functions to be handled more inexpensively and efficiently by a
redistributor like the Company that can achieve economies of scale unavailable
to individual airlines. Several smaller and start-up airlines and cargo
operators do not presently own an inventory of aircraft spare parts, but rather
have entered into agreements with redistributors for the supply of all or a
portion of their aircraft spare parts requirements. Additionally, other
airlines, including several large airlines, have begun to outsource portions of
their purchasing services, repair management and warehouse management. The
Company believes that its offering of a broad array of inventory management
services to its customers, in conjunction with the sale of aircraft spare parts,
will give the Company a significant competitive advantage in servicing its
customers.
INCREASING EMPHASIS ON TRACEABILITy. Due to concerns regarding
unapproved aircraft spare parts, regulatory authorities have increased the level
of documentation which must be maintained on aircraft spare parts. This
requirement has, in turn, been extended by end-users to the vendors of the
parts. The sophistication required to track the history of an inventory
consisting of thousands of aircraft spare parts is considerable and has required
companies to invest significantly in information systems technology. The Company
has the benefit of its investment in technology and intends to continue to
maintain its systems to allow it to effectively compete in the redistribution
market. The high cost of required technology to effectively compete in the
redistribution market has made entry into and survival in the aircraft spare
parts redistribution market increasingly difficult and expensive.
INCREASED CONSIGNMENT. Certain of the Company's customers adjust
inventory levels on a periodic basis by disposing of excess aircraft parts.
Traditionally, larger airlines have used internal purchasing agents to manage
such dispositions. The Company believes that major airlines and other owners of
aircraft spare parts, in order to concentrate on their core businesses and to
more effectively redistribute their excess parts inventories, are increasingly
entering into long-term consignment agreements with redistributors. By
consigning inventories to a redistributor such as the Company, customers are
able to distribute their aircraft spare parts to a larger number of prospective
inventory buyers, allowing the customer to maximize the value of its inventory.
Consignment also enables the Company to offer for sale significant parts
inventory at minimal capital cost to the Company. Consignment agreements are
generally entered into on a long-term basis for a large group of parts or entire
airplanes which are disassembled for sale of the individual parts. In the Boeing
Report it is noted that 5,408 aircraft will be removed from active commercial
service between 1994 and 2014. Many of these aircraft will be disassembled in
order to sell their parts.
LEASING. Over the last few years, several smaller and start-up airlines
have chosen to lease inventories of aircraft spare parts in order to preserve
capital while maintaining adequate spare parts support. The Company believes
that this trend to lease aircraft spare parts will continue in the future and
that it has a competitive advantage in providing this leasing service due to its
ability to maximize the residual value of the leased parts after termination of
the lease through sales of the parts in the ordinary course of its business.
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COMPETITIVE STRENGTHS
The Company believes that its primary competitive strengths are its
leading market position; its proprietary information systems; its comprehensive
customer service, including 24-hour a day customer aircraft parts support; and
its availability of capital.
COMPANY STRATEGY
The Company believes that it is one of a limited number of companies
with the breadth of inventory, technical and financial expertise, computer
information systems and financial strength to satisfy customer demands and be
profitable in the consolidating aircraft spare parts redistribution market. The
basic components of the Company's business strategy are the following:
INTERNAL GROWTH. The Company's strategy is to increase operating
revenues and operating income through continued customer penetration in its
existing markets and expansion into new markets. The Company intends to achieve
this by continuing to increase the size and breadth of its inventory and by
continuing to offer its customers a broad array of inventory management services
allowing its customers to reduce their costs of operations by outsourcing some
or all of their inventory management functions and to take advantage of
opportunities to maximize the value of their spare parts inventory. The Company
seeks to maintain close working relationships with its customers and to become
their vendor of choice.
CAPITALIZE ON LARGE BULK PURCHASE OPPORTUNITIES. While there is no
predictability as to when opportunities to purchase large inventories in bulk
will become available in the aircraft spare parts industry, such opportunities
have historically become available on a regular basis. "Bulk" purchase
opportunities arise when airlines, in order to reduce capital requirements, sell
large amounts of inventory in a single transaction or when inventories of
aircraft spare parts are sold in conjunction with bankruptcy proceedings. Bulk
inventory purchases allow the Company to obtain large inventories of aircraft
spare parts at a lower cost than can ordinarily be obtained by purchasing on an
individual basis, resulting in generally higher gross margins on sales of such
parts. Since 1992, the Company has evaluated a number of bulk purchase
opportunities and has successfully completed two large bulk inventory purchases.
Because of its market presence, the Company is usually solicited for a bid when
bulk inventories become available for purchase anywhere in the world. The
Company believes that its market presence, experience in evaluating bulk
acquisitions, sophisticated management information systems and capital strength
enable the Company to quickly analyze and complete large bulk purchases
opportunities to the extent that the economics of such purchases are considered
favorable. The Company further believes that future economic downturns may
provide the Company with the opportunity to acquire additional aircraft spare
parts inventories at favorable prices.
PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES. 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
aircraft spare parts redistribution and inventory management services business.
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.
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In 1996, the Company acquired the assets and businesses (and assumed
certain liabilities) of AvEng Trading Partners, Inc. ("AvEng") and of Dixie
Bearings, Incorporated ("Dixie"). The acquisitions have enabled the Company to
further penetrate the aviation engine parts market and to enter the new aircraft
parts market through the sale of aircraft bearings for use in aircraft,
respectively.
RISKS RELATING TO GROWTH STRATEGY AND FUTURE ACQUISITIONS
A key element of the Company's strategy involves growth through the
acquisition of additional inventories of aircraft spare parts and the
acquisition of other companies, assets or product lines that would complement or
expand the Company's existing aircraft spare parts redistribution and inventory
management services business. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable aircraft
parts inventories, acquisition candidates and capital, and by restrictions
contained in the Company's credit agreements. In addition, acquisitions involve
risks that could adversely affect the Company's operating results, including the
assimilation of the operations and personnel of acquired companies, the
potential amortization of acquired intangible assets and the potential loss of
key employees of acquired companies. There can be no assurance that the Company
will be able to consummate acquisitions on satisfactory terms.
AIRCRAFT SPARE PARTS
Aircraft spare parts can be categorized by their ongoing ability to be
repaired and returned to service. The general categories are as follows: (a)
rotable; (b) repairable; and (c) expendable. A rotable is a part which is
removed periodically as dictated by an operator's maintenance procedures or on
an as needed basis and is typically repaired or overhauled and re-used an
indefinite number of times. An important subset of rotables is life limited
parts. A life limited rotable has a designated number of allowable flight hours
and/or cycles (one take-off and landing generally constitutes one cycle) after
which it is rendered unusable. A repairable is similar to a rotable except that
it can only be repaired a limited number of times before it must be discarded.
An expendable is generally a part which is used and not thereafter repaired for
further use.
Aircraft spare parts conditions are classified within the industry as
(a) factory new, (b) new surplus, (c) overhauled, (d) serviceable and (e) as
removed. A factory new or new surplus part is one that has never been installed
or used. Factory new parts are purchased from manufacturers or their authorized
distributors. New surplus parts are purchased from excess stock of airlines,
repair facilities or other redistributors. An overhauled part has been
completely disassembled, inspected, repaired, reassembled and tested by a
licensed repair facility. An aircraft spare part is classified serviceable if it
is repaired by a licensed repair facility rather than completely disassembled as
in an overhaul. A part may also be classified serviceable if it is removed by
the operator from an aircraft or engine while operating under an approved
maintenance program and is functional and meets any manufacturer or time and
cycle restrictions applicable to the part. A factory new, new surplus,
overhauled or serviceable part designation indicates that the part is eligible
for immediate use on an aircraft. A part in an as
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removed condition requires functional testing, repair or overhaul by a licensed
facility prior to being returned to service in an aircraft.
OPERATIONS
The Company's core business is the buying and selling of aircraft spare
parts. The Company also provides value-added inventory management services to
its customers. These value-added services have become a more significant part of
the Company's business over the last year and the Company believes that they
provide significant opportunities for expansion of the Company's business in the
future.
INVENTORY SALES
The daily operations of the Company encompass inventory sales,
brokering and exchanging aircraft spare parts. The Company advertises its
available inventories held for sale or exchange on the Inventory Locator Service
("ILS") and the Airline Inventory Redistribution System ("AIRS") electronic
databases. Buyers of aircraft spare parts can access the ILS and AIRS databases
and determine the companies which have the desired inventory available. The
Company estimates that 70% of its daily sales activity results from an ILS or
AIRS inquiry. All major airlines and repair agencies subscribe to one or both of
these databases and accordingly, the Company maintains continual on-line direct
access with them. The Company also maintains direct Electronic Data Interchanges
("EDI") with significant customers. These programs provide for the electronic
exchange of pricing and availability from the Company to the customer in
response to an electronic request for quotation. ILS and AIRS do not, however,
list price information relating to particular parts. Knowledge of the value of
particular parts is provided by the Company's proprietary database.
The Company currently has over 485,000 line items in stock with market
availability, pricing and historical data available on more than 3.6 million
line items. The Company sells new, overhauled and serviceable replacement parts
from its inventory. Additionally, the Company will purchase parts on behalf of
its customers against specific orders. The Company also offers a customer
exchange program for rotables. In an exchange transaction, the Company
"exchanges" a new surplus, overhauled or serviceable component taken from stock
with a customer's as-removed unit which has failed. The Company receives an
exchange fee for completing the transaction, plus reimbursement from the
customer for the cost to overhaul or repair the as-removed unit. If the
as-removed part cannot be repaired, it is returned to the customer and the
exchange transaction is converted to an outright sale at a sales price agreed
upon at the time the exchange transaction was negotiated.
The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft spare parts that are purchased from many
sources. Parts that are to be installed in an aircraft must meet certain
standards established by the Federal Aviation Administration ("FAA") and/or the
equivalent regulatory agencies in other countries. Specific regulations vary
from country to country, although regulatory requirements in other countries
generally coincide with FAA requirements. Parts must be traceable to sources
deemed acceptable by such agencies. See "Government Regulation and Traceability"
below. Parts owned or acquired by the Company may not meet applicable standards
or standards may change
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in the future, causing parts which are already contained in the Company's
inventory to be scrapped or modified. Aircraft manufacturers may also develop
new parts to be used in lieu of parts already contained in the Company's
inventory. In all such cases, to the extent that the Company has such parts in
its inventory, their value may be reduced.
As a result of the acquisition of AvEng, the Company has expanded its
inventory of engine spare parts that it can offer to its customers.
Additionally, the acquisition of Dixie, represents the Company's entrance into
the new parts distribution marketplace.
INVENTORY MANAGEMENT SERVICES
The Company is meeting the outsourcing requirements of its customers
through providing a number of inventory management services. These services
assist airlines in streamlining their inventory management operations while
utilizing their capital more efficiently and reducing their costs. Through the
offering of various services, the Company believes it can provide an inventory
management program geared to a customer's particular requirements.
CONSIGNMENT. By consigning inventories to a redistributor such as the
Company, customers are able to distribute their aircraft spare parts to a larger
number of prospective inventory buyers, allowing the customer to maximize the
value of its inventory. Consignment also enables the Company to offer for sale
significant parts inventory at minimal capital cost to the Company. The Company
presently has several consignment agreements in place with major airlines, and
its revenues from consignment arrangements have increased significantly over the
last few years.
PURCHASING SERVICES AND REPAIR MANAGEMENT. The Company provides
services whereby it purchases spare parts for several smaller and start-up
airlines. These arrangements allow the Company's customers to take advantage of
the Company's greater purchasing power. The Company also provides repair
management services to certain of its customers, whereby the Company receives a
fee for managing a customer's required spare parts repair requirements. The
Company believes that it is well positioned to offer these repair management
services, since a significant portion of the component repair cost relates to
the procurement of the parts to be utilized in the repair. Additionally, because
of its size, the Company procures significant repair services for its own
account, and maintains comprehensive databases on repair and replacement part
costs, allowing it to capitalize on favorable pricing for repair services
available only to large users of repair services. This permits the Company to
offer these services on a cost-effective basis to its customers.
LEASING. The Company (through its subsidiary, Aviation Sales Leasing
Company) provides long-term leasing of inventories of aircraft spare parts to
airline customers. An increasing number of smaller and start-up airlines have
chosen to lease aircraft spare parts in order to preserve capital while
maintaining adequate spare parts support. The Company believes that it has a
competitive advantage in aircraft spare parts leasing due to its ability to
maximize the residual value of the parts after termination of the lease through
sales of the parts in the ordinary course of its business. As of December 31,
1996, the Company had $18.0 million of inventories on long-term lease, $8.5
million of which were maintained outside the United States.
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AIRCRAFT DISASSEMBLY. The Company provides "teardown" services at its
Ardmore, Oklahoma facility, both in connection with consignment arrangements and
for the purpose of returning disassembled aircraft spare parts directly to a
customer. The Company expects that the increasing number of older aircraft will
increase the demand for aircraft spare parts and result in expanded
opportunities for aircraft disassembly.
WAREHOUSE MANAGEMENT. The Company provides warehouse management
services which allow a customer to avoid the costs associated with the operation
of its own inventory warehouse facility by maintaining inventory at the
Company's warehouse facility. The Company also will manage a customer's
inventory at the customer's own facility.
SALES AND MARKETING; CUSTOMERS
The Company utilizes inside salespersons, regional field salespersons,
independent contract representatives and overseas sales offices in its sales and
marketing efforts. The Company's outside sales force is responsible for
obtaining new customers and maintaining relationships with existing customers.
The majority of the Company's day-to-day sales are accomplished through the
Company's inside sales force.
The Company staffs its South Florida facility to provide sales and
delivery services seven days a week, 24 hours a day. This service is critical to
provide support to airline customers which, at any time, may have an aircraft
grounded in need of a particular part. The Company's South Florida location,
with easy access to Miami International Airport and Fort Lauderdale
International Airport, assists the Company in providing reliable and timely
delivery of purchased products.
The Company has over 1,000 customers, which include commercial
passenger airlines, air cargo carriers, maintenance and repair facilities and
other aircraft parts redistribution companies. The Company's top 10 and top 100
customers accounted for approximately 23% and 69% in 1995, and 26% and 69% in
1996, of operating revenues, and no single customer accounted for more than 10%
of operating revenues.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed a proprietary management information system
which is an important component of its business and a significant factor in the
Company's leading position in the redistribution market. The Company's
management information systems collect and report data regarding inventory
turnover and traceability, pricing, market availability, customer demographics
and other important data used by the Company. The Company currently maintains
marketing data on and is able to estimate the value of more than 3.6 million
line items. The Company also maintains databases on recommended upgrades or
replacements including airworthiness directives. Access to such information
gives the Company the best possible opportunity to avoid purchases of aircraft
spare parts which might be deemed unusable. In addition, the data maintained by
the Company allows it to provide its customers with information with respect to
obsolescence and interchangeability of parts. The Company utilizes electronic
data scanning and document image storage technology for accurate and rapid
retrieval of inventory traceability documents that must accompany all sales.
These documents are required
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by the Company's customers in order for them to comply with applicable
regulatory guidelines. The Company believes that its continued investment in the
development of information systems is a key factor in maintaining its
competitive advantage.
The Company believes that to maintain its competitive advantages,
accommodate growth and keep pace with the rapid changes in technology, that it
will be prudent to continue to acquire state of the art management information
systems to ensure the capability to meet the Company's needs for the forseeable
future. In that regard, the Company is currently evaluating the prospect of
purchasing and implementing a new management information system.
COMPETITION
There are numerous suppliers of aircraft spare parts in the aviation
market worldwide and, through inventory listing services, customers have access
to a broad array of suppliers. These include major aircraft manufacturers,
airline and aircraft service companies and aircraft spare parts redistributors.
Competition in the redistribution market is generally based on price,
availability of product and quality, including traceability. The Company's major
competitors include AAR Corp., The AGES Group and The Memphis Group. There is
also substantial competition, both domestically and overseas, from smaller,
independent dealers who generally participate in niche markets. Several of the
Company's competitors have greater financial and other resources than the
Company. There can be no assurance that competitive pressures will not
materially and adversely affect the Company's business, financial condition or
results of operations.
GOVERNMENT REGULATION AND TRACEABILITY
The FAA regulates the manufacture, repair and operation of all aircraft
and aircraft parts operated in the United States. Its regulations are designed
to ensure that all aircraft and aviation equipment are continuously maintained
in proper condition to ensure safe operation of the aircraft. Similar rules
apply in other countries. All aircraft must be maintained under a continuous
condition monitoring program and must periodically undergo thorough inspection
and maintenance. The inspection, maintenance and repair procedures for the
various types of aircraft and equipment are prescribed by regulatory authorities
and can be performed only by certified repair facilities utilizing certified
technicians. Certification and conformance is required prior to installation of
a part on an aircraft. Presently, whenever necessary with respect to a
particular part, the Company utilizes FAA and/or Joint Aviation Authority
certified repair stations to repair and certify parts to ensure worldwide
marketability. The operations of the Company may in the future be subject to new
and more stringent regulatory requirements. In that regard, the Company closely
monitors the FAA and industry trade groups in an attempt to understand how
possible future regulations might impact the Company.
An important factor in the aircraft spare parts redistribution market
relates to the documentation or traceability that is supplied with an aircraft
spare part. The Company requires all of its suppliers to provide adequate
documentation as dictated by the appropriate regulatory authority. The Company
utilizes electronic data scanning and storage techniques to maintain complete
copies of all documentation. Documentation required includes, where applicable,
(a) a maintenance release from a certified airline or repair facility signed and
dated by a licensed
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airframe and/or powerplant mechanic who repaired the aircraft spare part and an
inspector certifying that the proper methods, materials and workmanship were
used, (b) a "teardown" report detailing the discrepancies and corrective actions
taken during the last shop repair and (c) an invoice or purchase order from an
approved source.
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
by it. While the Company maintains what it believes to be adequate liability
insurance to protect it from such claims, and while no material claims have, to
date, been made against the Company, no assurance can be given that claims will
not arise in the future or that such insurance coverage will be adequate.
Additionally, there can be no assurance that insurance coverages can be
maintained in the future at an acceptable cost. Any such liability not covered
by insurance could have a material adverse effect on the financial condition of
the Company.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 295
persons. None of the Company's employees are covered by collective bargaining
agreements. The Company believes that its relations with its employees are good.
COMPANY HISTORY AND RECENT DEVELOPMENTS
The Company's predecessors commenced operations in February 1992
through the acquisition by AJT Capital Partners, a Delaware general partnership
d/b/a Aerospace International Services ("AIS"), of the aircraft spare parts
inventory and certain other assets owned by the Estate of Eastern Airlines, Inc.
(the "Eastern Inventory"). During the period from February 1992 through December
1994, AIS's primary business was the marketing and sale of the Eastern
Inventory. In December 1994, AIS formed ASC Acquisition Partners, L.P. d/b/a
Aviation Sales Company (the "Partnership") to acquire the assets and business of
the Aviation Sales Company business unit ("ASC") from Aviall Services, Inc.
In June 1996, the Company completed an initial public offering of its
common stock (the "Offering"). Immediately prior to the Offering, all but one of
the parties holding interests in the Partnership contributed their interest in
the Partnership to the Company in exchange for shares of common stock.
Simultaneously, one of the parties holding an interest in the Partnership
contributed its interest in the Partnership to the Company in exchange for
shares of common stock and an amount equal to the proceeds to be received by the
Company from the Underwriters for 500,000 shares of common stock sold in the
Offering, plus up to 75,000 additional shares of common stock (and/or the
proceeds in respect of the sale of such shares to the extent of the
over-allotment option was exercised). Following the Offering, the operations of
the business have been conducted by the Company.
Subsequent to the Offering, the Company acquired AvEng and Dixie. These
acquisitions have enabled the Company to further penetrate the aviation engine
market and to enter the new parts market for the sale of bearings for use in
aircraft.
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<PAGE>
ITEM 2. PROPERTIES.
The Company's executive offices are located in Miami, Florida. All of
the Company's properties are maintained on a regular basis and are adequate for
the Company's present requirements. The Company is currently evaluating the
possibility of consolidating its inventory into a single warehouse facility.
The following table identifies the principal properties utilized by the
Company. All properties are leased. See Notes 6 and 8 to Notes to Consolidated
Financial Statements.
APPROXIMATE
FACILITY DESCRIPTION LOCATION SQUARE FOOTAGE
- -------------------- -------- --------------
Corporate Headquarters
and Central Warehouse Miami, FL 166,000
Aircraft Dissembly and Storage Ardmore, OK 130,000
Warehouse Pearland, TX 100,000
Warehouse Miami, FL 40,000
Warehouse Miami, FL 10,000
Regional Purchasing Office Van Nuys, CA 6,300
Office and Warehouse College Park, GA 6,000
Warehouse Claremore, OK 1,000
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material legal
proceedings. From time to time the Company may be named as a defendant in suits
for product defects, breach of warranty, breach of implied warranty of
merchantability or other actions relating to products which it distributes which
are manufactured by others. The Company believes that this exposure is
adequately covered by its products liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no vote of security holders during the fourth quarter of the
last fiscal year.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following information relates to the Company's common stock, par
value $.001 per share (the "Common Stock"), which currently is listed on the New
York Stock Exchange under the symbol AVS. At February 20, 1997, there were
approximately 24 stockholders of record of the Company's Common Stock. The
foregoing number does not include beneficial holders of the Company's common
stock. The high and low sales prices of the Common Stock for each quarter since
the effective date of the Offering, June 26, 1996, as reported by the New York
Stock Exchange, are set forth below:
1996
----
HIGH LOW
Second Quarter $ 20 3/4 $ 19
Third Quarter $ 21 1/2 $ 18
Fourth Quarter $ 20 3/4 $ 18 3/4
The Company did not declare any cash dividends for the year ended
December 31, 1996. See Note 5 to the Notes to the Consolidated Financial
Statements for information concerning restrictions in the Company's credit
agreements with financial institutions regarding the payment of dividends and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table represents selected consolidated financial
information of the Company. The selected financial data set forth below should
be read in conjunction with the Consolidated Financial Statements, the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 28, 1992) YEAR ENDED DECEMBER 31,
TO --------------------------------------------------------------
DECEMBER 31, 1992 1993 1994 1995 1996
------------------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Operating revenues $32,227 $23,429 $28,191 $113,803 $161,944
Cost of sales 16,697 11,162 12,017 71,314 110,359
------------ ------------ ------------ ----------- ------------
Gross profit 15,530 12,267 16,174 42,489 51,585
------------ ------------ ------------ ----------- ------------
Operating expenses
Operating 2,970 3,121 2,900 8,989 9,320
Selling 3,590 1,845 2,043 4,820 6,977
General and administrative 5,057 4,199 5,167 8,641 10,681
Depreciation and amortization 2,063 217 415 1,466 2,323
------------ ------------ ------------ ----------- ------------
Total operating expenses 13,680 9,382 10,525 23,916 29,301
------------ ------------ ------------ ----------- ------------
Income from operations 1,850 2,885 5,649 18,573 22,284
Interest and other expenses, net 3,806 6,041 4,458 8,287 5,350
------------ ------------ ------------ ----------- ------------
Net income (loss) before taxes (1,956) (3,156) 1,191 10,286 16,934
Income tax benefit - - - - (426)
------------ ------------ ------------ ----------- ------------
Income (loss) before extra-
ordinary item (1,956) (3,156) 1,191 10,286 17,360
Extraordinary item, net of income
taxes - - - - 1,862
------------ ------------ ------------ ----------- ------------
Net income (loss) ($1,956) ($3,156) $1,191 $10,286 $15,498
============ ============ ============ =========== ============
Pro Forma Data:
Historical income (loss) before
income taxes ($1,956) ($3,156) $1,191 $10,286 $16,934
Pro forma benefit (provision) for
income taxes 763 1,231 (465) (4,012) (6,604)
------------ ------------ ------------ ----------- ------------
Pro forma income (loss) before
extraordinary item (1,193) (1,925) 726 6,274 10,330
Extraordinary item, net of income
taxes - - - - 1,862
------------ ------------ ------------ ----------- ------------
Pro forma net income (loss) ($1,193) ($1,925) $726 $6,274 $8,468
============ ============ ============ =========== ============
Pro forma net income (loss)
per share (1) ($0.24) ($0.39) $0.14 $1.16 $1.21
============ ============ ============ =========== ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Accounts receivable $4,705 $4,166 $16,980 $23,776 $37,087
Inventories 44,473 34,025 52,765 48,957 72,974
Working capital 33,946 24,519 51,871 46,641 68,999
Total assets 55,688 42,401 89,265 93,478 145,183
Total debt 44,472 31,992 69,152 62,043 38,984
Stockholders' equity 6,044 2,888 7,079 14,199 81,071
</TABLE>
___________________
(1) Weighted average shares outstanding are 5,000,000 for period February 28,
1992 (inception) to December 31, 1992 and 1993; 5,063,561 for 1994;
5,400,000 for 1995 and 6,960,295 for 1996.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company's predecessor, Aerospace International Services ("AIS"),
commenced operations in February 1992 through the acquisition of certain
aircraft spare parts owned by Eastern Air Lines, Inc. (the "Eastern Inventory"),
for an aggregate purchase price of $55.2 million. During the period between
February 1992 and December 1994 the primary business of AIS was the marketing
and sale of the Eastern Inventory. During December 1994, AIS organized ASC
Acquisition Partners L.P. (the "Partnership"), and completed the acquisition of
certain assets and assumed certain liabilities of the Aviation Sales Company
business unit from Aviall Services, Inc. ("Aviall") for an aggregate purchase
price of $46.8 million.
On June 26, 1996, the Company completed an initial public offering of
3,250,000 shares of its Common Stock at an offering price of $19 per share. On
July 25, 1996, the Company sold an additional 487,500 shares of its Common Stock
at the same price upon the exercise of an underwriters' over-allotment option.
Immediately prior to the initial public offering, all but one of the
parties holding interests in the Partnership contributed their interest in the
Partnership to the Company in exchange for shares of Common Stock.
Simultaneously, one of the parties holding an interest in the Partnership
contributed its interest in the Partnership to the Company in exchange for
shares of Common Stock and an amount equal to the proceeds to be received by the
Company from the underwriters for 500,000 shares of Common Stock sold in the
offering, plus up to 75,000 additional shares of common stock (and/or the
proceeds in respect of the sale of such shares to the extent that the
underwriters' exercised their over-allotment option).
The Company received aggregate net proceeds in the Offering of $64.6
million. Of this amount, $10.2 million was used to repay the indebtedness
incurred to one of the shareholders of the Company in connection with the
formation of the Company and the balance was used to repay senior and
subordinated indebtedness. See "Liquidity and Capital Resources" below.
Subsequent to the completion of the Offering, on August 9, 1996, the
Company completed the acquisition of certain assets of the business of Dixie
relating primarily to the sale of new bearings for use in aircraft for the
purchase price of approximately $9 million. In addition, the Company assumed
certain liabilities in the amount of approximately $25,000. The acquisition was
accounted for using the purchase method of accounting. As a result of the Dixie
acquisition, the Company's operating revenues increased approximately $7.0
million from the date of the acquisition through December 31, 1996.
On December 10, 1996 (effective November 30, 1996), the Company
completed the acquisition of AvEng for a purchase price equal to 400,000 shares
of the Company's Common Stock. The acquisition was accounted for using the
pooling of interests method of accounting. As a result of the acquisition, the
Company's operating revenues include Aveng's total revenues for 1996 amounting
to approximately $9.3 million.
15
<PAGE>
RESULTS OF OPERATIONS
Operating revenues consist primarily of gross sales, net of allowances
for returns and other adjustments. Cost of sales consists primarily of product
costs, freight charges, commissions to outside sales representatives and an
inventory provision for damaged and obsolete products. Product costs consist of
the acquisition cost of the products and any costs associated with repairs,
overhaul or certification.
Operating revenues and gross profit depend in large measure on the
volume and timing of bookings received during the quarter and the mix of
aircraft spare parts contained in the Company's inventory. Revenues and gross
profit can be impacted by the timing of bulk inventory purchases. In general,
bulk inventory purchases allow the Company to obtain large inventories of
aircraft spare parts at a lower cost than can ordinarily be obtained by
purchasing such parts on an individual basis.
The Company's operating results are affected by many factors, including
the timing of orders from large customers, the timing of expenditures to
purchase inventory in anticipation of future sales, the timing of bulk inventory
purchases and the mix of available aircraft spare parts contained, at any time,
in the Company's inventory. A large portion of the Company's operating expenses
are relatively fixed. Since the Company typically does not obtain long-term
purchase orders or commitments from its customers, it must anticipate the future
volume of orders based upon the historic purchasing patterns of its customers
and upon its discussion with its customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
16
<PAGE>
YEAR ENDED DECEMBER 31, 1995 V. YEAR ENDED DECEMBER 31, 1996
The following table sets forth certain information relating to the
Company's operations for the periods indicated:
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
$ % $ %
------------ ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues $113,803 100.0% $161,944 100.0%
Cost of sales 71,314 62.7% 110,359 68.1%
------------ ------------- ------------- ------------
Gross profit 42,489 37.3% 51,585 31.9%
Operating expenses
Operating 8,989 7.9% 9,320 5.8%
Selling 4,820 4.2% 6,977 4.3%
General and administrative 8,641 7.6% 10,681 6.6%
Depreciation and amortization 1,466 1.3% 2,323 1.4%
------------ ------------- ------------- ------------
Total 23,916 21.0% 29,301 18.1%
------------ ------------- ------------- ------------
Income from operations 18,573 16.3% 22,284 13.8%
Interest and other expenses, net 8,287 7.3% 5,350 3.3%
------------ ------------- ------------- ------------
Income before income tax benefit
and extraordinary item 10,286 9.0% 16,934 10.5%
Income tax benefit - - (426) (0.2%)
------------ ------------- ------------- ------------
Income before extraordinary item 10,286 9.0% 17,360 10.7%
Extraordinary item, net of income taxes - - 1,862 1.1%
------------ ------------- ------------- ------------
Net income $10,286 9.0% $15,498 9.6%
============ ============= ============= ============
</TABLE>
The Company's operating revenues increased by approximately $48.1
million, or 42.3%, from 1995 to 1996. Of this amount, approximately $16.3
million was derived from the operations associated with AvEng and Dixie, both of
which were acquired during 1996. The balance represents increased sales due to
expansion of the Company's customer base and increased sales to existing
customers. During this period, domestic sales increased 39.1% from $68.0 million
to $94.6 million and international sales increased 47.3%, from $45.7 million to
$67.3 million.
The Company's gross profit increased 21.4%, from $42.5 million in 1995
to $51.6 million in 1996. The increase in gross profit is primarily attributable
to the increase in sales. Gross margins decreased from 37.3% in 1995 to 31.9% in
1996 due to a change in the mix of inventories sold. Due to the acquisition of
ASC in December 1994, the Company's gross profit was benefited by the impact of
this bulk inventory acquisition throughout 1995. No such acquisition of
inventory favorably benefited gross margins during 1996.
The Company's operating expenses for 1996, in absolute dollars,
increased $5.4 million, or 22.5%, compared to 1995 (of which approximately $1.5
million of the increase is attributable to the operating expenses of AvEng and
Dixie during 1996 and the balance is attributable to the Company's existing
operations). Primarily due to economies of scale and improved operating
efficiencies, total operating expenses as a percentage of revenue decreased from
21.0% in 1995 to 18.1% in 1996.
17
<PAGE>
Interest and other expenses decreased $2.9 million, or 35.4% from
1995 to 1996 as a result of the repayment and restructuring of the Company's
Amended Credit Facility.
As a result of the above factors, income from operations (before income
tax (benefit) expense and extraordinary item) increased $6.6 million, or 64.6%,
from 1995 to 1996.
In connection with the Offering, the Company repaid certain debt. As a
result, the Company wrote-off approximately $3,053,000 in deferred financing
costs relating to that debt. See Note 5 to Notes to Consolidated Financial
Statements.
Income taxes for 1996 were offset by one-time deferred tax benefits of
approximately $4.9 million associated with the organization of the Company. See
Notes 1 and 10 to Notes to Consolidated Financial Statements.
Based on all of the above factors, the Company's 1996 net income was
$15.5 million ($2.22 per share), an increase of $5.2 million, or 51%, compared
to 1995 net income of $10.3 million.
YEAR ENDED DECEMBER 31, 1994 V. YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain information relating to the
Company's operations for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995
--------------------------- ---------------------------
$ % $ %
------------ ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues $28,191 100.0% $113,803 100.0%
Cost of sales 12,017 42.6% 71,314 62.7%
------------ ------------- ------------- ------------
Gross profit 16,174 57.4% 42,489 37.3%
Operating expenses
Operating 2,900 10.3% 8,989 7.9%
Selling 2,043 7.2% 4,820 4.2%
General and administrative 5,167 18.3% 8,641 7.6%
Depreciation and amortization 415 1.5% 1,466 1.3%
------------ ------------- ------------- ------------
Total 10,525 37.3% 23,916 21.0%
------------ ------------- ------------- ------------
Income from operations 5,649 20.0% 18,573 16.3%
Interest and other expenses, net 4,458 15.8% 8,287 7.3%
------------ ------------- ------------- ------------
Net income $1,191 4.2% $10,286 9.0%
============ ============= ============= ============
</TABLE>
The Company's operating revenues for 1995 increased 303.7% over 1994,
primarily due to the inclusion in 1995 of one full year of sales from ASC,
compared to one month in 1994.
The Company's gross profit increased by $26.3 million from 1994 to 1995
due to the increase in operating revenues. However, there was a decline in the
gross margin from 57.4% to 37.3% which was primarily attributable to the change
in the nature of the operation of the business, from 1994, when the Company's
primary business was the liquidation of the Eastern
18
<PAGE>
Inventory, to 1995, when the Company's primary business was the purchasing and
sale of spare parts and the providing of inventory management services on a
day-to-day basis through the operations of ASC.
The Company's operating expenses for 1995 increased $13.4 million, or
127.2%, compared to 1994 due to the increase in operating revenues. Operating
expenses as a percentage of operating revenues were 21.0% for 1995, compared to
37.3% for 1994. The decrease in operating expenses as a percentage of operating
revenues was primarily due to the economies of scale derived from the increased
revenues as a result of the acquisition of ASC.
As a result of the above factors, income from operations for 1995
increased $12.9 million over 1994. Interest and other expenses increased 85.9%
from $4.5 million in 1994 to $8.3 million in 1995, primarily as a result of the
debt incurred to finance the acquisition of ASC. The Company's net income
increased by $9.1 million from 1994 to 1995.
THE ACQUISITION LOANS
In December 1994, to complete the acquisition of ASC and to refinance
debt incurred in connection with the acquisition of the Eastern Inventory, the
Company borrowed $65.4 million from certain financial institutions and $7.0
million from certain stockholders (collectively, the "Acquisition Loans").
The portion of the Acquisition Loans which was due to financial
institutions was composed of two term loans ("Term Loan A" and "Term Loan B")
and the revolving credit facility. Term Loan A was in the original principal
amount of $45.0 million and Term Loan B was in the original principal amount of
$15.0 million. On July 2, 1996, the Company made a lump-sum principal payment on
Term Loan A in the amount of $15.0 million and repaid in full the outstanding
balance under Term Loan B, utilizing a portion of the proceeds of the Offering.
The balance of Term Loan A was restructured as described below. See "Liquidity
and Capital Resources".
On December 1, 1994, the Company entered into an interest rate cap
agreement which provides that the prime interest rate on $30.0 million of its
term loans will not exceed 9 percent through December 2, 1997. In exchange for
this interest rate limitation, the Company agreed to make quarterly payments to
its lenders ranging from $57,000 to $186,000, depending on the level of the
prime rate. Quarterly payments totaling $228,000 were made during each of the
years ended December 31, 1995 and 1996, which are included in interest expense,
amortization of deferred financing costs and loan administration fees in the
Company's Consolidated Financial Statements.
In December 1994, the Company entered into a subordinated loan
agreement whereby the Company borrowed $7.0 million from certain parties related
to several of its stockholders (the "Subordinated Debt"). On July 2, 1996, the
Company repaid in full the Subordinated Debt with a portion of the proceeds of
the Offering.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company has been financed primarily with its
cash flow from operations, and in 1994 and 1996 with its cash flows from
financing activities. Cash flow from operations was $12.1 million in 1994 and
$14.0 million in 1995. During 1996, the Company used cash of $8.0 million in its
operations. During 1994 and 1996, $35.6 million and $26.8 million, respectively,
of cash flow was provided by financing activities.
The Company's primary uses of cash to date have been investing
activities, and the repayment of indebtedness. Cash used in investing activities
was $47.1 million in 1994, $4.7 million in 1995 and $17.8 million in 1996. Cash
provided by financing activities in 1994 was utilized to complete the
acquisition of ASC. Cash provided by financing activities in 1996 was primarily
provided from the proceeds of the Offering and was utilized to repay related
party debt and to reduce the amounts owed under senior and subordinated
indebtedness, as discussed in further detail below. Cash used in financing
activities was $10.5 million in 1995, relating primarily to the repayment of the
Company's obligations under the senior debt and senior revolving facility.
Through July 1, 1996, the Company had a revolving credit facility
(collectively with the term loans, the "Credit Facility") with certain financial
institutions which provided working capital of up to $20.0 million with interest
at prime plus 1.5% subject to an availability calculation based on the eligible
borrowing base. The eligible borrowing base included certain receivables and
inventories of the Company. The revolving credit facility was to terminate on
November 30, 1999.
The Credit Facility contained certain financial covenants regarding the
financial performance of the Company and certain other covenants including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provided for the suspension of the Credit Facility and
repayment of all debt in the event of a material adverse change in the business
or a change in control. In addition, the Credit Facility required mandatory
repayments from excess cash flow. Substantially all of the Company's assets were
pledged as collateral for amounts borrowed.
On June 26, 1996, the Company's Registration Statement on Form S-1 was
declared effective. On July 2, 1996, the Company closed its initial public
offering of 3,250,000 shares of its Common Stock at $19 per share. In addition,
the Company granted the underwriters a 30-day option to purchase up to 487,500
additional shares to cover over-allotments. On July 25, 1996, underwriters
exercised the over-allotment option and the Company sold an additional 487,500
shares of its Common Stock. The net proceeds from the Offering, after all
expenses, were $64,576,607. Of such proceeds, $10,160,250 were used to pay
indebtedness due to J/T Aviation Partners in connection with the formation of
the Company. The remaining proceeds were used to repay senior and subordinated
indebtedness.
On July 2, 1996, the Company completed the repayment of indebtedness
and restructuring of its credit facility per the terms of an Amended and
Restated Credit Facility (the "Amended Credit Facility"), dated June 27, 1996.
The Amended Credit Facility consists of (a) a term loan facility (the "Amended
Term Loan") in an original principal amount of $20 million,
20
<PAGE>
and (b) a $50.0 million revolving loan, letter of credit and acquisition loan
facility, subject to an availability calculation based on the eligible borrowing
base (the "Amended Revolving Credit Facility"). The eligible borrowing base
includes certain receivables and inventories of the Company. At December 31,
1996, the Company had availability under the Amended Credit Facility of
approximately $26.9 million. The letter of credit portion of the Amended
Revolving Credit Facility is subject to a $10.0 million sublimit and the
acquisition loan portion of the Revolving Credit Facility is subject to a $30.0
million sublimit with the imposition of certain borrowing criteria based on the
satisfaction of certain debt ratios. The unused portion of the acquisition loan
portion of the Amended Revolving Credit Facility expires on the second
anniversary of the closing date of the Amended Credit Facility. The interest
rate on the Amended Credit Facility is, at the option of the Company, (a) prime
plus a margin, or (b) LIBOR plus a margin, where the margin determination is
made based upon the Company's financial performance over the prior 12 month
period (ranging from 0.25% to 1.25% in the event prime is utilized, or 1.75% to
2.75% in the event LIBOR is utilized). At December 31, 1996, the margin was .25%
for prime rate loans and 1.75% for LIBOR rate loans.
The Amended Term Loan amortizes in equal quarterly installments and
terminates on December 1, 1999. Interim payments under the Amended Revolving
Credit Facility will be made from daily collections of the Company's accounts
receivable. The Amended Revolving Credit Facility will terminate on December 1,
1999. The Amended Credit Facility contains similar financial and other covenants
of the Company and similar mandatory prepayment events as set forth in the
original Credit Facility. However, in contrast to the Credit Facility, the
Amended Credit Facility does not require the application of excess cash flows.
Events of default are similar to the Credit Facility; provided however that an
event of default based on a change of control will pertain to a change in more
than 50% of the members of the Board of Directors of either the Company or its
Aviation Sales Operating Company subsidiary in place on the closing date of the
Amended Credit Facility. At December 31, 1996, the Company was in compliance
with all of its requirements under the Amended Credit Facility. The Amended
Credit Facility also contains mandatory prepayment events and is secured by a
lien on substantially all of the assets of the Company. At December 31, 1996,
the outstanding balances under the Amended Term Loan and Amended Revolving
Credit Facility are $22.3 million and $16.7 million, respectively.
During 1996, the Company incurred capital expenditures of approximately
$1.1 million, the majority of which was used to make enhancements to the
Company's management information systems, telecommunication systems and other
capital equipment and improvements. Additionally, immediately prior to the
Offering, the Partnership distributed to its partners 40% of its 1996 net income
through the closing of the initial public offering and additional amounts due to
the partners relating to the Partnership's 1995 net income. These distributions
were approximately $3.0 million and were paid from borrowings under the
revolving portion of the credit facility.
The repayment of indebtedness with the net proceeds of the offering
improved the Company's liquidity by reducing both the Company's interest expense
and the principal amount of the indebtedness required to be repaid in the
future. The Company believes that cash flow from operations and borrowing
availability under the Amended Credit Facility will be sufficient to satisfy the
Company's anticipated working capital requirements over the next two years.
21
<PAGE>
As part of its growth strategy, the Company intends to pursue
acquisitions of bulk inventories of aircraft spare parts and complementary
businesses. Additionally, the Company is currently evaluating the prospect of
purchasing and implementing a new management information system and exploring
the possibility of consolidating its various facilities into a single warehouse
facility. Financing for such activities would be provided from operations and
from the proceeds of the Amended Credit facility. The Company may also issue
additional debt and/or equity securities in connection with one or more of these
activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included elsewhere in
this Report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1997, under the caption, "Election of Directors", to
be filed by the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1997, under the caption, "Executive Compensation",
to be filed by the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1997, under the caption, "Security Ownership of
Certain Beneficial Owners and Management ", to be filed by the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1997, under the caption "Certain Transactions", to
be filed by the Registrant.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The consolidated balance sheets as of December 31, 1995 and December
31, 1996 and the related consolidated statements of income, partners'
capital and stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996 are filed as part of this
report:
<TABLE>
<CAPTION>
(1) FINANCIAL STATEMENTS PAGE
-------------------- -----
<S> <C>
Report of Independent Certified Public Accountants........................................................F- 2
Consolidated Balance Sheets at December 31, 1995 and 1996.................................................F- 3
Consolidated Statements of Income for the three years ended December 31, 1996.............................F- 5
Consolidated Statements of Partners' Capital and Stockholders' Equity for the three years ended
December 31, 1996.........................................................................................F- 6
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996.........................................................................................F- 7
Notes to Consolidated Financial Statements................................................................F- 9
(2) Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 1996...............F - 24
</TABLE>
(3) Exhibits
3.1 Certificate of Incorporation of the Company and amendment thereto(1)
3.2 Second Amendment to Certificate of Incorporation(2)
3.3 Bylaws of the Company(1)
4. Form of Registration Rights Agreement(1)
10.1 Credit Agreement, dated as of December 2,1994 by and between the
Partnership and Citicorp Securities, Inc. as agent(1)
10.2 Lease, dated as of December 2, 1994, by and between Aviation Properties
and the Partnership(1)
10.3 Lease, dated as of December 2, 1994, by and between Aviation Properties
of Texas(1)
+10.4 Amended Employment Agreement, effective as of December 2, 1994, by and
between Dale S. Baker and the Company(2)
24
<PAGE>
+10.5. Amended Employment Agreement, effective as of December 2, 1994, by and
between Harold Woody and the Company(2)
+10.6 Amended Employment Agreement, effective as of December 2, 1994, by and
between Joseph E. Civiletto and the Company(2)
+10.7 Amended Employment Agreement, effective as of June 1, 1996, by and
between James D. Innella and the Company(2)
+10.8 Amended Employment Agreement, effective as of June 1, 1996, by and
between Michael A. Saso and the Company(2)
+10.9 1996 Director Stock Option Plan(2)
+10.10 1996 Stock Option Plan(2)
+*10.11 1997 EBITDA Incentive Compensation Plan
10.12 Form of Amended and Restated Credit Agreement, dated June 26, 1996, by
Aviation Sales Operating Company and Citicorp USA, Inc. as agent(3)
10.13 Asset Purchase Agreement dated as of August 9, 1996 by and between
Dixie Bearings Incorporated and Aviation Sales Bearing Company(4)
*10.14 Asset Purchase Agreement dated as of November 30, 1996 by and between
AvEng Trading Partners, Inc. and the Company
*21.1 List of Subsidiaries of Registrant
*23.1 Consent of Arthur Andersen LLP
*27.1 Financial Data Schedule
____________________________
* Filed herewith
+ Compensation plan or agreement
(1) Incorporated by reference to Company's Registration Statement on Form
S-1 dated April 15, 1996 (File No. 333-3650)
(2) Incorporated by reference to Amendment No. 1 to Company's Registration
Statement on Form S-1 dated June 6, 1996 (File No. 333-3650)
(3) Incorporated by reference to Amendment No. 2 to Company's Registration
Statement dated June 26, 1996 (File No. 333-3650)
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996
(B) Reports on Form 8-K. None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AVIATION SALES COMPANY
(Registrant)
By /s/ DALE S. BAKER March 4, 1997
--------------------------------------
Dale S. Baker
President, Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
By /s/ DALE S. BAKER March 4, 1997
--------------------------------------
Dale S. Baker
President, Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
By /s/ JOSEPH E. CIVILETTO March 4, 1997
--------------------------------------
Joseph E. Civiletto
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ HAROLD M. WOODY March 4, 1997
--------------------------------------
Harold M. Woody
Executive Vice President - Sales and
Marketing and Director
By /s/ JAMES D. INNELLA March 4, 1997
--------------------------------------
James D. Innella
Vice President and Chief Operating Officer
By /s/ ROBERT ALPERT March 4, 1997
--------------------------------------
Robert Alpert
Director
By /s/ SAM HUMPHREYS March 4, 1997
--------------------------------------
Sam Humphreys
Director
By /s/ TIM WATKINS March 4, 1997
--------------------------------------
Tim Watkins
Director
By /s/ KAZUTAMI OKUI March 4, 1997
--------------------------------------
Kazutami Okui
Director
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 F-3
Consolidated Statements of Income for the three years ended
December 31, 1996 F-5
Consolidated Statements of Partners' Capital and Stockholders' Equity
for the three years ended December 31, 1996 F-6
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1996 F-24
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Aviation Sales Company:
We have audited the accompanying consolidated balance sheets of Aviation Sales
Company (a Delaware corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, partners' capital and
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aviation Sales Company and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 5, 1997.
F-2
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------
1995 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 253,307 $ 1,262,149
Accounts receivable, net of allowance for doubtful accounts
of $1,951,395 and $3,779,580 in 1995 and 1996, respectively 23,775,795 37,086,899
Inventories (Note 1) 48,956,682 72,974,397
Prepaid expenses 56,963 4,067,332
Deferred income taxes (Note 10) - 1,972,410
---------------- --------------
Total current assets 73,042,747 117,363,187
---------------- --------------
SPARE PARTS ON LEASE, net of accumulated amortization of
$1,024,904 and $2,601,069 in 1995 and 1996, respectively (Note 4) 11,697,151 17,950,783
---------------- --------------
FIXED ASSETS:
Property and equipment 3,121,702 4,333,070
Less - Accumulated depreciation (1,259,658) (2,027,197)
---------------- --------------
Total fixed assets 1,862,044 2,305,873
---------------- --------------
AMOUNTS DUE FROM RELATED PARTIES 3,031,198 2,914,615
---------------- --------------
OTHER ASSETS:
Deposits and other 872,464 369,191
Deferred income taxes (Note 10) - 3,406,331
Deferred financing costs, net (Note 1) 2,972,454 872,568
---------------- --------------
Total other assets 3,844,918 4,648,090
---------------- --------------
Total assets $ 93,478,058 $145,182,548
================ ==============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
DECEMBER 31,
---------------------------------------
1995 1996
---- ----
LIABILITIES, PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $10,453,278 $15,736,288
Accrued expenses 5,905,662 8,501,372
Notes payable, current maturities -
Senior (Note 5) 10,000,000 7,428,571
Revolver (Note 5) 42,808 16,697,985
---------------- ----------------
Total current liabilities 26,401,748 48,364,216
---------------- ----------------
LONG-TERM LIABILITIES:
Deferred income (Note 4) 877,315 890,065
Notes payable -
Senior (Note 5) 45,000,000 14,857,143
Other (Note 5) 7,000,000 -
---------------- ----------------
Total long-term liabilities 52,877,315 15,747,208
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
PARTNERS' CAPITAL 14,057,567 -
---------------- ----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding - -
Common stock, $.001 par value, 30,000,000 shares
authorized, 400,000 and 8,562,500 shares outstanding
in 1995 and 1996, respectively 400 8,563
Additional paid-in capital - 71,305,305
Retained earnings 141,028 9,757,256
---------------- ----------------
Total stockholders' equity 141,428 81,071,124
---------------- ----------------
Total liabilities, partners' capital and stockholders' equity $93,478,058 $145,182,548
================ ================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUES:
Sales of aircraft parts, net $27,799,227 $108,434,709 $151,407,093
Rentals from leases and other 391,752 5,368,174 10,536,776
---------------- ----------------- -----------------
28,190,979 113,802,883 161,943,869
COST OF SALES 12,016,623 71,314,263 110,358,502
---------------- ----------------- -----------------
16,174,356 42,488,620 51,585,367
---------------- ----------------- -----------------
OPERATING EXPENSES:
Operating 2,900,168 8,988,894 9,319,981
Selling 2,043,147 4,820,081 6,977,518
General and administrative 5,167,245 8,640,423 10,681,242
Depreciation and amortization 414,618 1,465,915 2,322,791
---------------- ----------------- -----------------
10,525,178 23,915,313 29,301,532
---------------- ----------------- -----------------
INCOME FROM OPERATIONS 5,649,178 18,573,307 22,283,835
OTHER EXPENSES:
Interest expense and amortization of deferred
financing costs 4,458,664 8,287,584 5,350,020
---------------- ----------------- -----------------
INCOME BEFORE BENEFIT FOR INCOME
TAXES AND EXTRAORDINARY ITEM 1,190,514 10,285,723 16,933,815
INCOME TAX BENEFIT - - (426,033)
---------------- ----------------- -----------------
INCOME BEFORE EXTRAORDINARY ITEM 1,190,514 10,285,723 17,359,848
EXTRAORDINARY ITEM, NET OF INCOME
TAXES (Note 5) - - 1,862,140
---------------- ----------------- -----------------
NET INCOME $1,190,514 $10,285,723 $15,497,708
================ ================= =================
EARNINGS PER SHARE:
Income before extraordinary item $2.49
Extraordinary item, net of income taxes 0.27
-----------------
Net income $2.22
=================
PRO FORMA EARNINGS PER SHARE (Note 10):
Pro forma income before extraordinary item $0.14 $1.16 $1.48
Extraordinary item, net of income taxes - - 0.27
---------------- ----------------- -----------------
Pro forma net income $0.14 $1.16 $1.21
================ ================= =================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,063,561 5,400,000 6,960,295
================ ================= =================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
AND STOCKHOLDERS' EQUITY
TOTAL COMMON STOCK ADDITIONAL
PARTNERS' ----------------------- PAID-IN
CAPITAL SHARES AMOUNT CAPITAL
-------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1993 $2,888,184 - $ - $ -
Net income 1,190,514 - - -
Capital contributions 3,000,000 - - -
-------------- ----------- ---------- -------------
BALANCE AS OF DECEMBER 31, 1994 7,078,698 - - -
Net income 10,285,723 - - -
Distribution to partners (3,306,854) - - -
Acquisition of AvEng Trading Partners,
Inc. (Note 2) - 400,000 400 -
-------------- ----------- ---------- -------------
BALANCE AS OF DECEMBER 31, 1995 14,057,567 400,000 400 -
Distributions to partners prior to initial
public offering (3,041,936) - - -
Net income 5,881,480 - - -
Exchange of partnership interests for
common stock (Note 1) (16,897,111) 4,425,000 4,425 6,732,436
Net proceeds from initial public offering - 3,737,500 3,738 64,572,869
-------------- ----------- ---------- -------------
BALANCE AS OF DECEMBER 31, 1996 $ - 8,562,500 $8,563 $71,305,305
============== =========== ========== =============
TOTAL
TOTAL PARTNERS' CAPITAL
RETAINED STOCKHOLDERS' AND STOCKHOLDERS'
EARNINGS EQUITY EQUITY
-------------- -------------- ---------------
BALANCE AS OF DECEMBER 31, 1993 $ - $ - $2,888,184
Net income - - 1,190,514
Capital contributions - - 3,000,000
-------------- -------------- ---------------
BALANCE AS OF DECEMBER 31, 1994 - - 7,078,698
Net income - - 10,285,723
Distribution to partners - - (3,306,854)
Acquisition of AvEng Trading Partners,
Inc. (Note 2) 141,028 141,428 141,428
-------------- -------------- ---------------
BALANCE AS OF DECEMBER 31, 1995 141,028 141,428 14,198,995
Distributions to partners prior to initial
public offering - - (3,041,936)
Net income 9,616,228 9,616,228 15,497,708
Exchange of partnership interests for
common stock (Note 1) - 6,736,861 (10,160,250)
Net proceeds from initial public offering - 64,576,607 64,576,607
-------------- -------------- ---------------
BALANCE AS OF DECEMBER 31, 1996 $9,757,256 $81,071,124 $81,071,124
============== ============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $1,190,514 $10,285,723 $15,497,708
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 1,197,540 2,132,522 2,938,974
Provision for doubtful accounts 110,000 360,000 1,954,000
Deferred income taxes - - (5,378,741)
Extraordinary item, net of income taxes - - 1,862,140
(Increase) decrease in accounts receivable, net 1,261,264 (7,204,803) (12,366,644)
(Increase) decrease in inventories 3,616,958 4,330,960 (18,017,715)
(Increase) decrease in prepaid expenses 109,286 (95) (4,010,369)
(Increase) decrease in deposits and other 185,505 (662,426) 503,273
Increase (decrease) in accounts payable 3,361,242 4,270,902 5,238,370
Increase (decrease) in accrued expenses 1,071,100 365,864 3,786,258
Increase (decrease) in deferred income - 103,575 12,750
---------------- ----------------- ---------------
Net cash provided by (used in) operating activities 12,103,409 13,982,222 (7,979,996)
---------------- ----------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of certain assets of the Aviation Sales
Company business unit (44,076,495) (1,060,538) -
Purchase of certain assets of Dixie Bearings, Incorporated - - (8,953,820)
Purchases of equipment, net (534,565) (897,544) (1,111,368)
Purchases of spare parts on lease - (2,722,054) (7,829,797)
Payments to/from related parties (2,465,519) (60,059) 116,583
---------------- ----------------- ---------------
Net cash used in investing activities (47,076,579) (4,740,195) (17,778,402)
---------------- ----------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of senior debt 60,000,000 - -
Repayment of senior debt - (5,000,000) (5,000,000)
Net issuance (repayment) of senior revolving facility 1,818,763 (2,109,400) 15,763,592
Repayment of senior notes payable (23,180,282) - -
Issuance of subordinated debt - AIS partnership 4,200,000 - -
Repayment of senior and junior subordinated debt - AIS
partnership (11,400,000) - -
Advances from partners - AIS partnership 376,364 - -
Repayments to partners - AIS partnership (376,364) - -
Issuance of subordinated debt - ASC partnership 7,000,000 - -
Contributions from (distributions to) partners - ASC
partnership 3,000,000 (3,306,854) (3,041,936)
Payment of initial public offering proceeds to
original credit facility and subordinated debt - - (52,806,400)
Payment to J/T Aviation Partners - - (10,160,250)
Net borrowings under new credit facility - - 16,697,985
Payment under new credit facility - - (2,857,143)
Issuance of senior debt under acquisition facility - - 6,000,000
Payments of senior debt under acquisition facility - - (857,143)
Proceeds from initial public offering - - 64,576,607
Payment of deferred financing costs (5,866,328) (54,745) (1,548,072)
---------------- ----------------- ---------------
Net cash provided by (used in) financing activities 35,572,153 (10,470,999) 26,767,240
---------------- ----------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 598,983 (1,228,972) 1,008,842
---------------- ----------------- ---------------
CASH AND CASH EQUIVALENTS, beginning of period 883,296 1,482,279 253,307
---------------- ----------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $1,482,279 $253,307 $ 1,262,149
================ ================= ===============
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 4,231,428 $ 7,717,005 $ 4,884,720
============== ============== ==============
Income taxes paid $ - $ - $ 3,002,431
============== ============== ==============
Purchase of net assets from Aviation Sales Company
business unit:
Accounts receivable $ 14,184,533 $ - $ -
Inventories 22,357,509 (522,439) -
Spare parts on lease 10,000,000 - -
Fixed assets 750,000 - -
Accounts payable (2,441,807) 1,582,977 -
Deferred income (773,740) - -
-------------- -------------- --------------
Cash paid $ 44,076,495 $1,060,538 $ -
============== ============== ==============
Transfer of building to AVTEX:
Net book value of building $1,772,567 $ - $ -
Mortgage by AVTEX (1,266,947) - -
-------------- -------------- --------------
Due from related party $505,620 $ - $ -
============== ============== ==============
Purchase of certain assets of the business of Dixie
Bearings, Incorporated:
Accounts receivable $ - $ - $ 2,898,460
Inventories - - 6,000,000
Fixed assets - - 100,000
Accounts payable - - (44,640)
-------------- -------------- --------------
Cash paid $ - $ - $ 8,953,820
============== ============== ==============
Excluded from the consolidated statement of cash flows was the effect of certain
noncash activities. The Company issued 400,000 shares of common stock in
conjunction with the acquisition of AvEng Trading Partners, Inc. See Note 2.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Aviation Sales Company ("ASC" or the "Company") is a Delaware
corporation. The operations of the Company were initially conducted by AJT
Capital Partners d/b/a Aerospace International Services ("AIS"). AIS was formed
in February 1992 to acquire certain aircraft spare parts owned by Eastern Air
Lines, Inc. (the "EAL Inventory") and certain outstanding accounts receivable.
On December 2, 1994, (effective November 30, 1994) AIS organized ASC Acquisition
Partners, L.P. (the "Partnership") to acquire the Aviation Sales Company
business unit from Aviall Services, Inc. ("Aviall") and to operate the business
of AIS and the Partnership on a going forward basis. Simultaneously with the
acquisition, AIS contributed all of its assets to the Partnership. For
accounting purposes, the Partnership and AIS were considered related parties as
the ultimate ownership interests of the Partnership were held by parties who
owned substantially the same ownership percentage in AIS. As a result, the
combination was accounted for in a manner similar to a pooling of interests.
On June 26, 1996, all but one of the parties holding interests in the
Partnership contributed their interests in the Partnership to the Company in
exchange for shares of common stock. Simultaneously, one of the parties holding
an interest in the Partnership, J/T Aviation Partners ("J/T"), contributed its
interest in the Partnership to the Company in exchange for shares of common
stock and an amount equal to the proceeds to be received by the Company for
575,000 shares of common stock sold in the offering, as more completely
described below.
On June 26, 1996, the Company's Registration Statement on Form S-1 was
declared effective. On July 2, 1996, the Company closed its public offering of
3,250,000 shares of its common stock at $19 per share. In addition, the Company
granted the underwriters of its public offering a 30-day option to purchase up
to 487,500 additional shares of its common stock to cover the over-allotment
option. On July 25, 1996, the underwriters exercised the over-allotment option
and the Company sold an additional 487,500 shares of its common stock.
The net proceeds from the offering after all expenses were $64,576,607.
Of such proceeds, $10,160,250 was used to pay indebtedness due to J/T in
connection with the formation of the Company. The remaining proceeds were used
to repay senior and subordinated indebtedness - see Note 5.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-9
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of ASC and its wholly-owned subsidiaries Aviation Sales Operating Company, Inc.
(and its wholly-owned subsidiaries, Aviation Sales Leasing Company and Aviation
Sales Bearings Company) and Aviation Sales Finance Company. All significant
intercompany transactions and balances have been eliminated.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The dilutive effect of all outstanding stock options is considered
common stock equivalents and is calculated using the treasury stock method.
Primary and fully diluted net income per share are the same for 1996.
CASH AND CASH EQUIVALENTS
The Company considers all deposits with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents at December 31,
1995 and 1996, include cash held by the Company in demand deposit accounts.
REVENUE RECOGNITION
Sales of aircraft parts are recognized as revenues when the product is
shipped and title has passed to the customer. The Company records reserves for
estimated sales returns in the period sales are made.
INVENTORIES
Inventories, which consist primarily of aviation parts, are stated at
the lower of cost or market. In instances where bulk purchases of inventory
items are made, cost is determined based upon an allocation by management of the
bulk purchase price to the individual components. Expenditures required for the
recertification of parts are capitalized as inventory costs as incurred and are
expensed as the parts associated with the re-certification are sold.
SPARE PARTS ON LEASE
The Company, primarily through Aviation Sales Leasing Company, leases
spare part inventories to the airline industry on a worldwide basis through
operating leases. Operating lease income is recognized on a straight-line basis
over the term of the underlying leases. The cost of spare parts on lease are
amortized, principally on a straight-line basis, to the estimated remaining net
realizable value over the lease term or the economic life of the spare parts
inventory.
F-10
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
For financial reporting purposes, the Company provides for depreciation
of property and equipment using the straight-line method at annual rates
sufficient to amortize the cost of the assets during their estimated useful
lives. Estimated useful lives range from 3 to 7 years for the Company's property
and equipment.
Maintenance and repair expenditures are charged to expense as incurred,
and expenditures for betterments and major renewals are capitalized. The
carrying amounts of assets which are sold or retired and the related accumulated
depreciation are removed from the accounts in the year of disposal, and any
resulting gain or loss is reflected in income. Such gains or losses were not
significant during the years ended December 31, 1994, 1995 and 1996.
Depreciation expense amounted to $345,174, $510,455 and $767,539 for
the years ended December 31, 1994, 1995 and 1996, respectively.
DEFERRED FINANCING COSTS
The costs associated with obtaining financing for the Company's
acquisitions are included in the accompanying consolidated balance sheets as
deferred financing costs and are being amortized over the initial terms of the
loans to which such costs relate. Amortization expense for the years ended
December 31, 1994, 1995 and 1996 was $781,103, $677,597 and $595,268,
respectively.
DEFERRED INCOME
Advance payments and deposits received on operating leases are
initially deferred and subsequently recognized as the Company's obligations
under the lease agreement are fulfilled.
STOCK COMPENSATION PLANS
At December 31, 1996, the Company has two stock-based compensation
plans, which are fully described in Note 11. The Company accounts for the fair
value of its grants under those plans in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") on January 1, 1996. The
disclosure provisions of the statement have been omitted as the impact of all
options issued is not significant.
F-11
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Prior to June 26, 1996, the business of the Company was conducted by
the Partnership and therefore was not subject to income taxes. The Company, as a
result of the transfer of the net assets of the Partnership to the Company and
the initial public offering of its common stock, became subject to federal and
state income taxes. At that time, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Deferred income taxes, which arose primarily as a result of temporary
differences between the Partnership's book and tax basis of certain assets and
liabilities, were recorded, resulting in an adjustment to the Company's reported
earnings in the period of adoption. A deferred income tax benefit of $914,459
was credited to operations at the time of adoption. The transfer of J/T's
interest in the Partnership to the Company described in Note 1 resulted in a
step-up in basis in the Company's net assets for tax purposes. As a result,
during 1996, a deferred tax benefit of $3,962,498 was recorded. See Note 10.
Under SFAS 109, deferred tax assets or liabilities are computed based
upon the difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate applicable when the
related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability from period to period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance would be included in the provision for deferred income taxes
in the period of change.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value due to the short maturity of the
instruments and the provision for what management believes to be adequate
reserves for potential losses. The fair value of long-term debt is estimated
using quoted market prices, whenever available, or an appropriate valuation
method and approximates the carrying amount of long-term debt in the
accompanying consolidated balance sheets.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of" ("SFAS 121") in 1996. SFAS 121 establishes accounting
standards for recording the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The adoption of SFAS 121 did not have a
material impact on the Company's financial position or results of its
operations.
F-12
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
NOTE 2 - ACQUISITIONS
On December 10, 1996, the Company acquired AvEng Trading Partners, Inc.
("AvEng") for consideration of 400,000 shares of the Company's common stock.
Although the acquisition was accounted for using the pooling of interests method
of accounting, the accompanying consolidated statements of income, partners'
capital and stockholders' equity and cash flows prior to December 31, 1995 have
not been restated to give retroactive effect for the acquisition due to the
immateriality of the restated amounts.
On August 9, 1996, the Company completed the acquisition of certain
assets of the business of Dixie Bearings, Incorporated ("Dixie") relating
primarily to the sale of new bearings for use in aircraft for a purchase price
of approximately $9 million. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the operations of Dixie since the
acquisition have been included in the accompanying consolidated financial
statements from the date of acquisition. The historical operations of Dixie,
when compared to the historical operations of the Company, are not significant.
In connection with the acquisition, the Company borrowed $6,000,000 of senior
notes payable to financial institutions and paid the balance in cash. See Note
5.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company distributes products in the United States and abroad to
commercial airlines, air cargo carriers, distributors, maintenance facilities,
corporate aircraft operators and other aerospace companies. The Company's credit
risks consist of accounts receivable from customers in the aviation industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and provides allowances for doubtful accounts as required. No single
customer represents greater than 10 percent of total revenues or accounts
receivable for the years ended December 31, 1994, 1995 or 1996.
F-13
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SPARE PARTS ON LEASE
In connection with the Aviation Sales Company business unit
acquisition, the Company acquired certain aircraft spare parts and assumed
leases to third parties pursuant to noncancelable operating leases ranging from
three to five years. The leases generally provide for residual payments to the
Company should the parts be damaged or unlocatable at the expiration of the
lease term. The cost and accumulated amortization of the spare parts under the
leases were as follows:
DECEMBER 31,
--------------------------
1995 1996
---- ----
Aircraft spare parts at cost.......... $12,722,055 $20,551,852
Accumulated amortization.............. (1,024,904) (2,601,069)
------------ ------------
$11,697,151 $17,950,783
============ ============
At December 31, 1995 and 1996, $9,316,198 and $8,464,366, respectively,
of spare parts on lease were maintained in the Far East.
Deposits of $877,315 and $890,065, respectively, received from the
leases are recorded as deferred income in the accompanying December 31, 1995 and
1996 consolidated balance sheets and will be applied in connection with final
settlement of these leases.
Amortization expense amounted to $69,444, $955,460 and $1,576,165 for
the years ended December 31, 1994, 1995 and 1996, respectively.
Future minimum lease receivables under the leases are as follows:
YEARS ENDING DECEMBER 31,
- -------------------------
1997...................................... $ 4,470,616
1998...................................... 2,313,063
1999...................................... 2,064,300
2000...................................... 1,897,200
2001...................................... 510,000
Thereafter................................... 382,500
-----------
$11,637,679
===========
F-14
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
At December 31, 1995 and 1996, notes payable consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996
------------------------------ ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Senior bank loans:
Term Loan - A $40,000,000 10.33% $ - -
Term Loan - B 15,000,000 10.83% - -
Revolving credit facility 42,808 -
Amended Term Loan - - 17,142,857 7.77%
Amended Revolving Credit Facility:
Revolving loan - - 16,697,985 8.50%
Acquisition loan facility - - 5,142,857 8.07%
Subordinated debt due to partners
of ASC 7,000,000 13.83% - -
Less - Current maturities (10,042,808) (24,126,556)
-------------- --------------
Net long-term notes payable $52,000,000 $14,857,143
============== ==============
</TABLE>
Term Loan A, in the original principal amount of $45,000,000, was
repayable in 18 consecutive equal quarterly installments of $2,500,000
commencing on August 31, 1995, with the final installment due November 30, 1999.
Term Loan A bore interest at prime plus 1.5 percent. Term Loan B, in the
original principal amount of $15,000,000, bore interest at prime plus 2 percent.
Term Loan B was repayable in two equal installments of $7,500,000 each, due on
May 31, 2000 and November 30, 2000. The revolving credit facility (the
"Revolving Credit Facility"), provided working capital of up to $20,000,000 to
the Company with interest at prime plus 1.5 percent, subject to an availability
calculation of the Company's eligible borrowing base. In addition, the Company
was required to make mandatory repayments from excess cash flows, as defined.
The eligible borrowing base included certain receivables and inventories of the
Company. The Revolving Credit Facility was to terminate on November 30, 1999. At
December 31, 1995, the Company had availability under the Revolving Credit
Facility of approximately $19.0 million. The Revolving Credit Facility contained
certain financial covenants regarding the financial performance of the Company,
certain reporting requirements, a limitation on the amount of annual capital
expenditures and limitations on the incurrence of additional debt and provided
for the suspension of the Revolving Credit Facility and repayment of all debt in
the event of a material adverse change in the business or a change in control of
the Company. Substantially all of the Company's assets were pledged as
collateral for amounts borrowed pursuant to the Revolving Credit Facility.
The Company incurred interest expense of $375,000, $4,601,962 and
$1,918,555 for the years ended December 31, 1994, 1995 and 1996, respectively,
in connection with Term Loan A;
F-15
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (Continued)
$131,250, $1,646,667 and $784,792 for the years ended December 31, 1994, 1995
and 1996, respectively, in connection with Term Loan B; and $34,667, $155,749
and $332,645 for the years ended December 31, 1994, 1995 and 1996, respectively,
in connection with the Revolving Credit Facility.
On December 1, 1994, the Company entered into an agreement which
provides that the prime interest rate on $30,000,000 of senior term loans will
not exceed 9 percent through December 2, 1997. In exchange for this interest
rate limitation, the Company agreed to make quarterly payments to its lenders
ranging from $57,000 to $186,000 depending on the level of the prime rate, as
defined. Quarterly payments totaling $228,000 were made during each of the years
ended December 31, 1995 and 1996, and are included in interest expense in the
accompanying consolidated statements of income.
On July 2, 1996, the Company completed the repayment of indebtedness
and restructuring of its Revolving Credit Facility per the terms of an amended
credit facility (the "Amended Credit Facility"), dated June 27, 1996. The
Amended Credit Facility consists of (a) a term loan facility (the "Amended Term
Loan") in an original principal amount of $20.0 million and (b) a $50.0 million
revolving loan, letter of credit and acquisition loan facility, subject to an
availability calculation based on the eligible borrowing base (the "Amended
Revolving Credit Facility"). At December 31, 1996, the Company has availability
under the Amended Revolving Credit Facility of approximately $26.9 million. The
letter of credit portion of the Amended Revolving Credit Facility is subject to
a $10.0 million sublimit and the acquisition loan portion of the Amended
Revolving Credit Facility is subject to a $30.0 million sublimit with the
imposition of certain borrowing criteria based on the satisfaction of certain
debt ratios. The unused portion of the acquisition loan portion of the Amended
Revolving Credit Facility expires on the second anniversary of the closing date
of the Amended Credit Facility. The interest rate on the Amended Credit Facility
is, at the option of the Company, (a) prime plus a margin, or (b) LIBOR plus a
margin, where the margin determination is made based upon the Company's
financial performance over the prior 12 month period (ranging from 0.25% to
1.25% in the event prime is utilized, or 1.75% to 2.75% in the event LIBOR is
utilized). At December 31, 1996, the margin is .25% for prime rate loans and
1.75% for LIBOR rate loans. In connection with the repayment and restructuring
of the Revolving Credit Facility, the Company wrote-off $3,052,688 of deferred
financing costs. This write-off is classified as an extraordinary item, net of
income taxes, in the accompanying consolidated statements of income.
The Amended Term Loan will amortize in equal quarterly installments and
will terminate on December 1, 1999. Interim payments under the Amended Revolving
Credit Facility will be made from daily collections of the Company's accounts
receivable. The Amended Revolving Credit Facility will terminate on December 1,
1999. The Amended Credit Facility contains certain financial covenants regarding
the financial performance of the Company and certain other covenants including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provides for the suspension of the Amended Credit Facility
and repayment of all debt in the event of a material adverse change in the
business or a change in control, as defined. At December 31, 1996, the Company
was in compliance with all of its requirements under the Amended Credit
Facility. The Amended Credit Facility also
F-16
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (Continued)
contains mandatory prepayment events and is secured by a lien on substantially
all of the assets of the Company. The Company incurred interest expense of
$850,347 and $298,017 for the year ended December 31, 1996, in connection with
the Amended Term Loan and Amended Revolving Credit Facility, respectively.
As described in Note 2, the Company borrowed $6.0 million on August 9,
1996, under the acquisition loan portion of the Amended Revolving Credit
Facility for the acquisition of certain assets of the business of Dixie. Loans
made under the acquisition subfacility shall be repayable in consecutive equal
quarterly installments, each due on the same dates as the Amended Term Loan
installments are due with a final payment on November 30, 1999, unless the
Amended Revolving Credit Facility termination earlier occurs.
The Company entered into a subordinated loan agreement (the
"Subordinated Debt") on December 2, 1994, whereby the Partnership borrowed
$7,000,000 from the partners which was payable in a single lump sum on the
earlier of June 2, 2001, or six months after amounts borrowed pursuant to the
credit facility have been paid in full. Upon the earlier to occur of June 2,
2001 or the repayment of the Subordinated Debt in full, the Company was required
to pay to the partners an additional facility fee of $350,000, provided that, if
the Subordinated Debt was prepaid in full prior to June 2, 1996, the Company
would be released from its obligation to pay such facility fee. On July 2, 1996,
the Company repaid the Subordinated Debt in full and the facility fee with a
portion of the proceeds of the initial public offering. The Subordinated Debt
agreement provided that amounts borrowed become due and payable should the
Company default pursuant to the terms of the credit facility. The Subordinated
Debt bore interest at prime plus 5 percent. During the years ended December 31,
1994, 1995 and 1996, the Company incurred interest expense of $84,389, $975,868
and $475,563, respectively, in connection with the Subordinated Debt.
NOTE 6 - RELATED-PARTY TRANSACTIONS
On December 2, 1994, the Company entered into a 20-year lease with
Aviation Properties, a Delaware general partnership ("Aviation Properties"),
pursuant to which the Company leases its corporate headquarters and warehouse in
Miami, Florida (the "Miami Property"). The Company makes annual payments under
such lease in the amount of approximately $892,990. The sole partners of
Aviation Properties are (a) AVAC Corporation ("AVAC") and (b) J/T Aviation
Partners, a Delaware general partnership ("J/T"). The sole stockholder and
president of AVAC is Robert Alpert, a principal stockholder and director of the
Company. J/T is also a principal stockholder of the Company.
In connection with Aviation Properties' purchase of the Miami Property,
the Company made a $2,465,519 loan to Aviation Properties, which loan bears
interest at 8% per annum, with principal and interest due in a single payment on
December 2, 2004.
On December 2, 1994, the Company entered into a six-year lease with
Aviation Properties of Texas, a Delaware general partnership ("AVTEX"), pursuant
to which the Company leases a warehouse in Pearland, Texas. The Company is
required to make annual
F-17
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED-PARTY TRANSACTIONS (Continued)
payments under such lease in the amount of $114,468. The sole partners of AVTEX
are AVAC and J/T.
The Company believes the terms of the loan to Aviation Properties and
the terms of the leases with Aviation Properties and AVTEX are no less favorable
than could be obtained from an unaffiliated third party.
The Company is obligated to pay a fee of $50,000 per quarter to an
entity controlled by Mr. Alpert for consulting services. The Company's
obligation to pay this fee will expire at the end of February 1997. The Company
believes the terms of the consulting agreement are no less favorable than could
be obtained from an unaffiliated third party.
RCP Management L.P. ("RCP") was an issuer of subordinated debt to the
Company. AVAC is an affiliated entity of RCP.
Tomen America, Inc., was an issuer of subordinated debt to the Company.
T/M Aviation (Japan), Inc. and TM Aviation (USA), Inc. hold an equity interest
in J/T, a principal stockholder in the Company. TM Aviation (Japan), Inc. is a
wholly owned subsidiary of Tomen Corporation. TM Aviation (USA), Inc. is a
wholly owned subsidiary of Tomen America, Inc., which is a wholly owned
subsidiary of Tomen Corporation.
Japan Fleet Service Co. Ltd., a Japanese corporation ("JFS Japan"), was
an issuer of subordinated debt to the Company and is an affiliate of J/T. Japan
Fleet Service (Delaware), Inc. ("JFS Delaware") is a wholly owned subsidiary of
Japan Fleet Service (Europe) B.V. ("JFS Europe") and holds an equity interest in
J/T. JFS Europe is 60 percent owned by Japan Fleet Service (s) Pte. Ltd. ("JFS
Singapore") and 40 percent owned by JFS Japan.
In accordance with a management agreement between AIS and RCP, all
full-time, non-temporary personnel working for the benefit of AIS were employed
through Aircraft Spare Parts, Inc. ("ASPI"), which is an affiliate of RCP.
Effective December 2, 1994, Aviation Sales Management Company ("ASMC") replaced
ASPI as the employer. J/T is a principal shareholder in ASMC. The Company
reimburses ASMC and, prior to December 2, 1994, AIS reimbursed ASPI for all of
its related expenditures. During the year ended December 31, 1994, Aircraft
Spare Parts, Inc. was reimbursed by AIS approximately $3,259,127 for
personnel-related costs. ASMC was reimbursed approximately $404,274, $0 and $0,
respectively, by the Company for each of the periods in the three years ended
December 31, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is currently involved in various lawsuits and other
contingencies arising out of operations in the normal course of business. In the
opinion of management, the ultimate resolution of those claims and lawsuits will
not have a material adverse effect on the financial position or results of
operations of the Company.
On July 29, 1994, AIS filed an action against the Brazoria County,
Texas, Appraisal District seeking relief from ad valorem tax appraisals of
certain property for tax years 1993 and 1994. On February 7, 1995, a settlement
was reached in the matter, and the appraised value on the property was reduced
for 1993 and 1994. The settlement resulted in a reduction of 1993 and
F-18
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
1994 property taxes of $435,939 and $33,964, respectively. This reduction in tax
liability of $469,903 was recorded in general and administrative expense in
1994.
On June 18, 1993, the estate of Eastern Air Lines, Inc. ("EAL") filed
an action against AIS claiming that certain errors were made by EAL in the
calculation of credits received by AIS against the purchase of the EAL Inventory
at closing on February 28, 1992. On February 25, 1994, the Company filed a
counterclaim against the estate of EAL in the United States Bankruptcy Court. In
October 1994, the Company and EAL agreed to settle all claims and mutually
release all parties. As a result of the settlement, the Company recorded
additional general and administrative expense of $869,081 for the year ended
December 31, 1994.
The Company has certain employment agreements with officers and
employees dated December 1994, which extend from three to five years and are
renewable in one-year periods thereafter. The employment agreements provide that
such officers and employees may earn bonuses, based upon a sliding percentage
scale of their base salaries, provided the Company achieves certain financial
operating results, as defined. Further, each of the employment agreements
provides that in the event of (a) a change in control of the Company including
the vesting of decision-making authority in one of the Company's current
officers; (b) the sale of all or substantially all of the assets of the Company
to a third party for which the executive officer does not continue in
employment; or (c) the merger or consolidation of the Company with an entity for
which the executive officer does not continue in employment, the employment
agreement shall be terminable by the executive officer upon 90 days' notice and
one year's base salary shall be payable to the executive officer as a
termination fee.
At January 1, 1995, five officers and employees of the Company were
granted options (the "Options") by the partners to purchase an aggregate of
13.5% of the outstanding limited partnership interests in the Partnership for an
aggregate exercise price of $1,437,027, which was greater than the fair market
value, as determined by an independent, third party, of the interests in the
Partnership at that date. At January 1, 1996, the Options were exercised in full
by delivery to the partners of full recourse promissory notes representing the
payment in full of the exercise price of the Options.
The Company has purchase commitments to various airlines whereby the
Company sells aircraft inventory as agent for such airlines. Pursuant to such
agreements, the Company has commitments to various airlines requiring the
Company to purchase a minimum amount of inventory from such airlines before
February 1997. In the opinion of management, the Company's commitments will be
realized through future sales of aircraft inventory owned by such airlines.
Effective January 1, 1995, the Company established a qualified defined
contribution plan (the "Plan") for eligible employees. The Plan provides that
employees may contribute up to the maximum percent of pretax earnings as allowed
by the U.S. tax code and the Company may elect, at its discretion, to make
contributions to the Plan in any year. The Company contributed approximately
$197,000 and $309,000 to the Plan in 1995 and 1996, respectively. The Company
does not provide retired employees any health or life insurance benefits.
F-19
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES
The Company leases certain buildings and office equipment under
operating lease agreements. Two of the buildings are leased from related parties
of the Company. See Note 6. For the years ended December 31, 1994, 1995 and
1996, rent expense under these leases amounted to $407,857, $1,554,677 and
$1,813,113, respectively. Minimum rental commitments under operating leases are
as follows:
LEASE OBLIGATIONS LEASE OBLIGATIONS
YEARS ENDING DECEMBER 31, TO RELATED PARTIES TO THIRD PARTIES
------------------------- ------------------ -----------------
1997 $ 1,007,458 437,610
1998 1,007,458 212,690
1999 1,007,458 117,218
2000 997,919 112,950
2001 892,990 28,238
Thereafter 12,427,448 -
------------------ -----------------
$17,340,731 $ 908,706
================== =================
NOTE 9 - DOMESTIC AND EXPORT SALES INFORMATION
Information about the Company's domestic and export sales for the
three years ended December 31, 1996 follows (in thousands):
1994 1995 1996
-------- -------- --------
NET REVENUES BY GEOGRAPHICAL AREA
United States............................... $25,864 $ 68,052 $ 94,591
Export Sales:
Europe................................. 2,327 28,666 40,308
Far East............................... - 7,525 13,907
Latin America.......................... - 9,560 13,138
-------- -------- --------
$ 28,191 $113,803 $161,944
======== ======== ========
NOTE 10 - INCOME TAXES
Prior to June 26, 1996, the operations of the Company were conducted by
the Partnership, a Delaware general partnership and, therefore, the results of
operations for the years ended December 31, 1994, 1995 and for the period
January 1, 1996 through June 26, 1996, do not include a provision for income
taxes, as the income of the Partnership passed directly to its partners.
F-20
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued)
The following pro forma adjustments to record income taxes at the
Company's estimated effective tax rate have been reflected in the pro forma
earnings per share data presented in the accompanying consolidated statements of
income for all periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Historical income before income
taxes and extraordinary item $1,190,514 $10,285,723 $16,933,815
Pro forma provision for income taxes (464,300) (4,011,432) (6,604,188)
------------- ------------- -------------
Pro forma income before extraordinary item 726,214 6,274,291 10,329,627
Extraordinary item, net of income taxes - - (1,862,140)
------------- ------------- -------------
Pro forma net income $726,214 $6,274,291 $8,467,487
============= ============= =============
</TABLE>
Pro forma net income per share has been computed by dividing pro forma
net income by the number of shares of ASC common stock which the partners of the
Partnership received upon the formation of the Company. For periods prior to the
closing of the Company's public offering, the pro forma weighted average number
of common shares outstanding assumes that the 4,425,000 shares issued to the
partners and the 575,000 shares of common stock, the net proceeds in respect of
which were paid to J/T, were outstanding in all periods. Additionally, the
400,000 shares issued in connection with the acquisition of AvEng are included
for all periods from the date of inception of AvEng at November 4, 1994.
The benefit for income taxes for the year ended December 31, 1996
consists of the following:
Current
Federal $3,279,832
State 482,328
-------------
3,762,160
-------------
Deferred
Federal (4,689,159)
State (689,582)
-------------
(5,378,741)
-------------
Total benefit for income taxes (1,616,581)
Less: benefit for income taxes relating
to extraordinary item (1,190,548)
Benefit for income taxes relating -------------
to continuing operations $ (426,033)
=============
F-21
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets as of December 31, 1996 are as follows:
Deferred tax assets, net:
Allowance for doubtful accounts $1,103,384
Inventories 1,144,941
Property and equipment 3,735,079
Spare parts on lease (198,626)
Other 11,706
------------
5,796,484
Less: valuation allowance (417,743)
------------
Net deferred tax asset $5,378,741
============
The reconciliation of the federal statutory rate and the Company's
effective tax rate is as follows:
1996
----
Federal income tax at the statutory rate 35.0
Increases (reductions) in tax rate resulting from:
Partnership income not subject to taxation (12.2)
Step-up in tax basis resulting from transfer
of J/T's interest (see Note 1) (21.0)
Transfer of net assets of the Partnership to
the Company (see Note 1) (7.1)
State income taxes, net of federal tax benefit 4.6
Other (1.8)
------
Effective income tax rate (2.5)
======
NOTE 11 - STOCK OPTION PLANS
In connection with the organization of the Company, the company adopted
two stock option plans (the "Plans"). Pursuant to the 1996 Director Stock Option
Plan (the "Director Plan"), options to acquire a maximum of the greater of
150,000 shares or 2% of the number of shares of Common Stock then outstanding
may be granted to directors of the Company. Pursuant to the 1996 Stock Option
Plan (the "1996 Plan"), options to acquire a maximum of the greater of 650,000
shares of Common Stock or 8% of the number of shares of Common Stock then
outstanding may be granted to executive officers, employees (including employees
who are directors), independent contractors and consultants of the Company.
Options to purchase 196,600 shares at an exercise price equal to $19.00 per
share have been granted under the Plans, 122,200 of which are immediately
exercisable.
F-22
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTION PLANS (Continued)
The price at which the Company's common stock may be purchased upon the
exercise of options granted under the Plans will be required to be at least
equal to the per share fair market value of the Common Stock on the date the
particular options are granted. Options granted under the Plans may have maximum
terms of not more than ten years.
Generally, options granted under the Plans may remain outstanding and
may be exercised at any time up to three months after the person to whom such
options were granted is no longer employed or retained by the Company or serving
on the Company's Board of Directors.
Pursuant to the Plans, unless otherwise determined by the compensation
committee, one-third of the options granted under the Plans are exercisable upon
grant, one-third are exercisable on the first anniversary of such grant and the
final one-third are exercisable on the second anniversary of such grant.
However, options granted under the Plans shall become immediately exercisable if
the holder of such options is terminated by the Company or is no longer a
director of the Company, as the case may be, subsequent to certain events which
are deemed to be a "change in control" of the Company.
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except earnings per share)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1996:
Operating revenues $35,554 $36,159 $41,181 $49,050
Income from operations 5,426 5,027 5,911 5,920
Net income 3,395 3,904 5,079 3,120
Pro forma income before extraordinary
item per share $0.40 $0.35 $0.37 $0.37
Pro forma net income per share $0.40 $0.35 $0.15 $0.37
1995:
Operating revenues $28,451 $28,749 $28,781 $27,822
Income from operations 6,034 5,165 3,966 3,408
Net income 3,951 3,065 1,872 1,398
Pro forma income before extraordinary
item per share $0.44 $0.35 $0.21 $0.16
Pro forma net income per share $0.44 $0.35 $0.21 $0.16
F-23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AVIATION SALES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
ADDITIONS
------------------
BALANCE AT CHARGED TO
BEGINNING COST AND (B) BALANCE AT
DESCRIPTION OF YEAR EXPENSES OTHER DEDUCTIONS END OF YEAR
- ----------- --------- ---------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances for Doubtful
Accounts Receivable:
Year Ended December 31-
1994 $1,011,732 $110,000 $1,504,077 (A) $ - $2,625,809
========== ======== ========== ======== ==========
1995 $2,625,809 $360,000 $ - $1,034,414 $1,951,395
========== ======== ========== ========= ==========
1996 $1,951,395 $1,954,000 $ - $ 125,815 $3,779,580
========== ========== ========== ========= ==========
</TABLE>
- -----------
(A) Represents allowances for doubtful accounts receivable purchased from
Aviation Sales Company business unit.
(B) Represents accounts receivable written-off.
F-24
<PAGE>
EXHIBIT INDEX
As required under Item 14, Exhibits, Financial Statement Schedules and
Reports on Form 10-K, the exhibits filed as part of this report are provided in
this separate section. The exhibits included in this section are as follows:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.11 1997 EBITDA Incentive Compensation Plan
10.14 Asset Purchase Agreement dated as of November 30, 1996 by and
between AvEng Trading Partners, Inc. and the Company
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
EXHIBIT 10.11
AVIATION SALES COMPANY
1997 EBITDA INCENTIVE COMPENSATION PLAN
1. PURPOSES. This Aviation Sales Company 1997 EBITDA Incentive
Compensation Plan (the "Plan") is intended to provide an incentive for certain
senior management employees of Aviation Sales Operating Company, a Delaware
corporation (the "Company").
2. ELIGIBILITY. The Employees identified on SCHEDULE 2 attached hereto
shall be eligible to participate in the Plan, so long as they are employed
actively and continuously during the entirety of a calendar twelve (12)-month
period (a "Period"), in respect of which a cash payment hereunder (a "Payment"
or "Payments") is calculated as provided herein (each such Employee is referred
to herein as a "Participant"). Notwithstanding the foregoing, any Employee who
is a participant in the Plan who dies or whose employment with Employer is
terminated by Employer without cause during any Period shall be entitled to the
pro rata payments described in Section 4(c). Additional Participants may be
added to the Plan by the Committee in accordance with Section 6(a).
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or if there is no
Compensation Committee, by the Board of Directors of the Company (the
"Committee"). The interpretation and construction by the Committee of the Plan,
the calculation by the Committee of Payments and any other determinations or
calculations made by the Committee hereunder, shall be conclusive, final and
binding, except as otherwise provided herein. The Committee may delegate the
administration of this Plan and such other aspects of the Plan (which may
include any or all of the determinations and calculations required by this Plan)
to such officer(s) of the Company as the Committee shall deem appropriate, and
no such officer, no member of the Committee, and no member of the Board of
Directors of the Company shall be liable to any person for any action,
determination or calculation in connection with this Plan made in good faith.
Each such officer and member of the Committee or Board of Directors shall be
fully protected in taking any action hereunder in reliance in good faith upon
the books and records of the Company or upon such information, opinions, reports
or statements presented to the Company by any person as to matters such officer
or member of the Committee or Board of Directors reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company.
<PAGE>
4. TERMS AND CONDITIONS.
(a) GENERAL. Payments under the Plan shall be calculated on a
cumulative basis with respect to each calendar year Period as described below,
beginning December 1, 1996, and shall be paid, subject to the restrictions on
such payment contained in this Plan and subject to applicable federal and local
income tax and other payroll withholding requirements, as follows: eighty
percent (80%) of the amount payable with respect to each Participant shall be
paid on or before January 31st of the following year, and the balance shall be
paid on the earlier of May 31st or the date on which the audited financial
statements for Aviation Sales Company, a Delaware corporation and the parent of
the Company ("ASC"), for the applicable calendar year are issued by ASC's
independent auditors. All amounts payable under the Plan shall be paid directly
to the Participant.
(b) AMOUNT OF PAYMENTS; CALCULATIONS. The Payments with
respect to each calendar year (the "Period Payment") shall be a percentage (the
"Allocable Percentage") of each Participant's Base Salary for such year
determined in accordance with the level (the "Applicable Earnings Level"), of
earnings (without taking into account Payments made hereunder) before interest,
taxes, depreciation and amortization ("EBITDA") of ASC for such Period. The
Applicable Earnings Level shall be a percentage of the management case level of
EBITDA during any Period (the "Management Case EBITDA"), as listed on SCHEDULE
4(B) attached hereto, and the corresponding Allocable Percentage for each
Applicable Earnings Level shall be as listed on SCHEDULE 4(B). The Management
Case EBITDA shall be determined by the Committee as provided in Section 6(a). If
ASC's EBITDA for any Period is between Applicable Earnings Levels, the Allocable
Percentage for such Period shall be determined in accordance with SCHEDULE 4(B).
Actual EBITDA with respect to any Period shall be determined by the Committee
based on the audited financial statements of ASC and its consolidated
subsidiaries; PROVIDED, HOWEVER, that if the methodology employed in producing
the actual audited financial statements for ASC for a period employ different
assumptions than those employed by the Committee in establishing Management Case
EBITDA for that Period, the Management Case EBITDA will be adjusted accordingly
to reflect the same assumptions as those used in preparing the actual audited
financial statements.
(c) BASE SALARY DEFINED. For purposes of the Plan, a
Participant's Base Salary is such person's base salary (not including, among
other amounts, Payments hereunder, commissions, benefits, car allowances, mobile
telephones, overtime payments or Company contributions (other than salary
reduction contributions) to the Company's 401(k) plan or any other deferred
compensation program) on January 1st of each year with respect to which Payments
are being calculated (or if such Participant was not employed by the Company or
a wholly owned subsidiary of ASC or the Company on such date, at the initial
date of such person's employment during such fiscal year), as determined by the
Committee. Subject to the provisions and limitations of this Plan, each
Participant shall be paid a Period Payment hereunder in respect of any Period in
the amount determined in accordance with Section 4. If a Participant ceases to
be
-2-
<PAGE>
employed by the Company or a wholly owned subsidiary of ASC or the Company
for any reason other than death or termination of employment by the Company
without cause, such person shall not receive a Period Payment with respect to
such Period. If a Participant dies or is terminated as an employee without cause
during a Period, the deceased Participant's estate or the terminated Employee,
as the case may be, shall be entitled to receive a pro rata Period Payment based
on the portion of the calendar year during which the deceased Participant or
terminated Employee was employed by the Company.
5. CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, no Payments shall be payable hereunder so long as the payment thereof
would (i) result in a breach of, or a default or acceleration of payments under,
any agreement (including any loan agreement) to which ASC, the Company or any of
their respective subsidiaries is a party, or (ii) cause ASC, the Company or any
subsidiary of ASC or the Company to be required to meet more restrictive
covenants under ASC's or the Company's charter or any agreement (including any
credit or loan agreement) to which ASC or the Company or any of their respective
subsidiaries is party than ASC or the Company or any such subsidiary was
required to meet prior to the payment (or accrual for payment) thereof.
If for any reason the Company is unable to make any Period Payments due
under the Plan (a "Deferred Payment"), such Deferred Payment will be carried as
an account payable on the books of the Company, will bear interest at eight
percent (8%) per annum, compounded quarterly, from the date due until paid, and
shall be payable out of the first available cash of the Company.
6. MISCELLANEOUS.
(a) COMMITTEE ACTION. Other than as set forth in the next
sentence below, prior to the commencement of any calendar year of the Company,
the Committee shall determine (i) with respect to such calendar year the
Allocable Percentage for each Eligible Employee, and (ii) after consultation
with management and taking into account current market conditions, with respect
to such calendar year, the Management Case EBITDA for such Period. Eligible
Employees who were not Employees as of the first day of a calendar year shall be
assigned an Allocable Percentage by the Committee as soon as practicable after
such Eligible Employee becomes an Employee. For purposes of the Plan, the
Committee shall, as promptly as practicable after adoption of this Plan by the
Board of Directors of the Company, make the determinations set forth in the
previous sentence with respect to such calendar year. The determinations
described above in this Section 6(a) with respect to the Allocable Percentage
and the Management Case EBITDA shall be set forth on SCHEDULE 4(B) and SCHEDULE
6(A) attached hereto.
(b) AMENDMENT AND TERMINATION. Notwithstanding anything to the
contrary contained herein, the Committee may amend this Plan (including any
Schedule hereto or any amount determined pursuant hereto or thereto) in any
manner (including an amendment to effect the exclusion of any Employee or
category of Employees from participation herein) or may suspend or terminate
this Plan; PROVIDED, HOWEVER, that no amendment or modification to this Plan
-3-
<PAGE>
shall be made that (i) provides for this Plan to terminate or expire prior to
January 1, 2001, (ii) deprives any of the Participants designated as such on
SCHEDULE 4(B) attached hereto as of December 1, 1996 (the "1997 Participants")
of the right to continue as Participants, or (iii) reduces the Allocable
Percentages applicable to the 1997 Participants to less than those stipulated on
SCHEDULE 4(B) as of December 1, 1996. Notice shall be given to all Participants
affected by such Committee action. Moreover, no such amendment, suspension or
termination shall deprive any Participant of any right to receive a Payment
otherwise payable pursuant to the terms of the Plan in respect of any Period
which has ended prior to the date of such amendment, suspension or termination.
(c) RIGHTS OF EMPLOYEES. A Participant's participation in this
Plan does not create any obligation whatsoever by the Company or any of ASC's or
the Company's subsidiaries to continue such Participant's employment or
otherwise effect the Company's right to terminate such Participant's employment
at will, with or without cause in the sole discretion of the Company or any of
ASC's or the Company's subsidiaries which is an employer of such Participant;
PROVIDED, HOWEVER, that nothing contained in this Section 6(c) shall be
construed to amend or modify in any respect any written employment agreements
between the Company and any Participant. No person shall solely as a result of
the existence of this Plan or such person's participation herein be entitled to
review or have access to the books and records of the Company or any of ASC or
the Company's subsidiaries. The Company shall provide each Participant with a
copy of ASC annual audited financial statements, along with a schedule showing
how such Participant's Period Payment was calculated.
7. EFFECTIVE DATE OF PLAN. Effective as of December 1, 1996, this Plan
shall amend and modify that certain Aviation Sales Company 1996 EBITDA Incentive
Compensation Plan (the "1996 Plan"), previously adopted by the Company, and
shall replace and supersede the 1996 Plan in its entirety for the calendar month
commencing December 1, 1996, and the calendar years commencing January 1, 1997;
PROVIDED that the 1996 Plan shall remain in effect with respect to calendar year
1996 until the obligations of the Company to the Participants thereunder are
satisfied in full.
-4-
<PAGE>
SCHEDULE 2
PARTICIPANTS
PARTICIPANT BASE SALARY
Dale S. Baker $248,426(1)
Harold Woody $222,267(1)
Joseph E. Civiletto $135,975(1)
James D. Innella $150,000(1)
Michael Saso $185,000(1)
James C. Stoecker $150,000
Mark Stiegel $140,000
Al Short $120,000
______________
(1) Base Salary is subject to January 1, 1997, cost-of-living adjustment.
<PAGE>
SCHEDULE 4(B)
APPLICABLE EARNING LEVELS AND ALLOCABLE PERCENTAGES
APPLICABLE EARNING LEVELS ALLOCABLE PERCENTAGE
Base Case (80% of Management Case EBITDA) 20%
Management Case EBITDA 50%
125% of Management Case EBITDA 75%
150% of Management Case EBITDA 100%
200% of Management Case EBITDA 200%
250% of Management Case EBITDA 250%
If ASC's actual EBITDA for any Period is between two (2) Applicable Earning
Levels, then the Allocable Percentage for the Period Payments for such Period
shall be the percentage resulting if the Allocable Percentage corresponding to
the lesser Applicable Earning Level is increased by an amount that is
proportionate to the amount that ASC's actual EBITDA exceeds the lesser
Applicable Earning Level but is less than the greater Applicable Earning Level.
For example, for the fiscal year 1997, if ASC's actual EBITDA exceeds the
Management Case EBITDA by 110%, then the corresponding Allocable Percentage
shall be 60%. Alternatively, for the fiscal year 1997, if ASC's actual EBITDA
exceeds the Management Case EBITDA by 175%, then the corresponding Allocable
Percentage shall be 150%.
<PAGE>
SCHEDULE 6(A)
MANAGEMENT CASE EBITDA
CALENDAR YEAR MANAGEMENT CASE
EBITDA ($)
1997 ____________
1998 ____________
1999 ____________
2000 ____________
EXHIBIT 10.14
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
AVENG TRADING PARTNERS, INC.
AND
AVIATION SALES COMPANY
<PAGE>
<TABLE>
<CAPTION>
INDEX
<S> <C>
ARTICLE I CERTAIN DEFINITIONS.................................................................................. 1
ARTICLE II SALE OF ASSETS: CLOSING; ADJUSTMENT................................................................. 7
Section 2.1. Assets to Be Acquired................................................................ 7
Section 2.2. Assumption of Liabilities............................................................ 8
Section 2.3. Retained Liabilities................................................................. 9
Section 2.4. Consideration; Closing Deliveries; Possession........................................ 9
Section 2.5. Time and Place of Closing............................................................ 11
Section 2.6. Closing Procedures................................................................... 11
Section 2.7. Post-Closing Procedures.............................................................. 12
Section 2.8. Final Purchase Price Adjustments..................................................... 13
Section 2.9. Records.............................................................................. 14
Section 2.10. Liquidation of Seller................................................................ 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER........................................................... 16
Section 3.1. Incorporation; Authorization; Ownership of Stock, etc................................ 16
Section 3.2. Financial Information................................................................ 17
Section 3.3. Properties........................................................................... 17
Section 3.4. Absence of Certain Changes; Solvency................................................. 18
Section 3.5. Litigation; Orders................................................................... 18
Section 3.6. Intellectual Property................................................................ 19
Section 3.7. Licenses, Approvals, Other Authorizations, Consents, Reports,
etc.................................................................................. 19
Section 3.8. Labor Matters........................................................................ 20
Section 3.9. Compliance with Laws................................................................. 20
Section 3.10. Insurance............................................................................ 20
Section 3.11. Contracts............................................................................ 21
Section 3.12. Environmental Matters................................................................ 21
Section 3.13. No Agreements to Sell Assets......................................................... 23
Section 3.14. Brokers, Finders, etc................................................................ 23
Section 3.15. Maintenance of the Assets............................................................ 23
Section 3.16. Preservation of Business............................................................. 23
Section 3.17. Maintenance of the Records........................................................... 24
Section 3.18. Bank Accounts and Directors and Officers............................................. 24
Section 3.19 Regarding Various Transactions....................................................... 24
Section 3.20. Accuracy of Representations and Warranties; Schedules and
Exhibits............................................................................. 24
Section 3.21 No Implied Representation............................................................ 25
Section 3.22. Construction of Certain Provisions................................................... 25
Section 3.23. Estoppel............................................................................. 26
-i-
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................................. 27
Section 4.1. Organization; Authorization; etc..................................................... 27
Section 4.2. Brokers, Finders, etc................................................................ 27
Section 4.3. Licenses, Approvals, Other Authorizations, Consents, Reports,
etc.................................................................................. 27
Section 4.4. Litigation; Orders................................................................... 28
Section 4.5. AVS Stock............................................................................ 28
Section 4.6. Disclosure........................................................................... 28
Section 4.7. The AVS Shares....................................................................... 28
Section 4.8. Accuracy of Representations and Warranties; Schedules and
Exhibits............................................................................. 29
ARTICLE V COVENANTS OF SELLER AND BUYER........................................................................ 30
Section 5.1. Efforts; Obtaining Consents.......................................................... 30
Section 5.2. Further Assurances................................................................... 30
Section 5.3. Public Announcements................................................................. 31
Section 5.4. Accounts and Notes Payable Notices................................................... 31
Section 5.5. Post-Closing Confidentiality......................................................... 31
Section 5.6. Registration of AVS Shares........................................................... 32
ARTICLE VI EMPLOYEE BENEFITS................................................................................... 33
Section 6.1. Employee Benefit Plans............................................................... 33
Section 6.2. Termination of Participation......................................................... 33
Section 6.3. Profit Sharing Plan.................................................................. 33
Section 6.4. Employees............................................................................ 34
ARTICLE VII TAX MATTERS........................................................................................ 36
Section 7.1. Tax Returns.......................................................................... 36
Section 7.2. Sales, Transfer and Similar Taxes.................................................... 36
Section 7.3. Cooperation and Exchange of Information.............................................. 36
ARTICLE VIII CONDITIONS OF BUYER'S OBLIGATION TO CLOSE......................................................... 39
Section 8.1. Representations, Warranties and Covenants of Seller.................................. 39
Section 8.2. Filings; Consents.................................................................... 39
Section 8.3. No Injunction........................................................................ 39
Section 8.4. Delivery of Records.................................................................. 39
Section 8.5. Releases of Liens.................................................................... 39
Section 8.6. Performance of Seller's Obligations.................................................. 39
Section 8.7. No Material Adverse Change........................................................... 40
Section 8.8. Due Diligence........................................................................ 40
ARTICLE IX CONDITIONS TO SELLER'S OBLIGATION TO CLOSE.......................................................... 41
Section 9.1. Representations, Warranties and Covenants of Buyer................................... 41
Section 9.2. No Injunction........................................................................ 41
-ii-
<PAGE>
Section 9.3. Delivery of Initial Purchase Price and Closing Documents............................. 41
Section 9.4. Performance of Buyer's Obligations................................................... 41
ARTICLE X SURVIVAL; INDEMNIFICATION............................................................................ 42
Section 10.1. Survival............................................................................. 42
Section 10.2. General Indemnification by Buyer or Seller........................................... 43
Section 10.3. Third Party Claims................................................................... 43
Section 10.4. Bulk Sales Waiver; Indemnification................................................... 44
ARTICLE XI MISCELLANEOUS....................................................................................... 45
Section 11.1. Non-Assignable Undertakings and Rights............................................. 45
Section 11.2. Counterparts....................................................................... 45
Section 11.3. Governing Law...................................................................... 45
Section 11.4. Entire Agreement................................................................... 45
Section 11.5. Expenses........................................................................... 46
Section 11.6. Notices............................................................................ 46
Section 11.7. [intentionally left blank]......................................................... 47
Section 11.8. Successors and Assigns............................................................. 47
Section 11.9. Headings; Definitions.............................................................. 47
Section 11.10. Amendments and Waivers............................................................. 47
Section 11.11. Interpretation; Absence of Presumption............................................. 47
Section 11.12. Severability....................................................................... 48
Section 11.13. Settlement of Disputes............................................................. 48
Section 11.14. Survival........................................................................... 51
</TABLE>
iii
<PAGE>
SCHEDULES
Schedule 1.1(c) Seller's September 30, 1996 Balance Sheet
Schedule 2.1(a)(i) Furniture, Fixture and Equipment
Schedule 2.1(a)(ii) Motor Vehicles
Schedule 2.1(b) Inventory
Schedule 2.1(c) Contracts and Deposits
Schedule 2.1(f) Computer Hardware, Software and Data Files
Schedule 2.1(k) Accounts Receivable and Notes Receivable
Schedule 2.1(l) Licenses and Permits
Schedule 2.10 Distribution of AVS Shares to Seller's Stockholders
Schedule 3.1(a) Seller's Jurisdictions of Qualification
Schedule 3.1(g) Seller's Stock Ownership, etc.
Schedule 3.2 Summary of Seller's Financial Statements
Schedule 3.5 Litigation; Orders
Schedule 3.7(a) Seller's Licenses, Approvals, Other Authorizations,
Consents, Reports, etc.--Operation of the Business
Schedule 3.7(b) Seller's Licenses, Approvals, Other Authorizations,
Consents, Reports, etc.--Performance of Agreement
Schedule 3.10 Insurance
Schedule 3.11 Contracts
Schedule 3.13 Agreements to Sell Assets
Schedule 3.18 Bank Accounts, Directors and Officers
Schedule 6.1(a) Employee Benefit Plans
-iv-
<PAGE>
Schedule 6.1(c) Employee Benefit Plans
Schedule 6.4(a) Active Employees
Schedule 7.1 Taxing Authorities
Schedule 7.3(c) Tax Returns
-v-
<PAGE>
EXHIBITS
Exhibit 2.4(b)(i) Form of Assignment and Assumption Agreement
Exhibit 2.4(b)(ii) Form of Employment Agreements
Exhibit 2.4(b)(iii) Form of Stockholders Agreement
Exhibit 2.4(c)(i) Form of Bill of Sale
Exhibit 2.4(c)(ii) Form of Materials Certification
Exhibit 5.3 Form of Press Release
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (and, collectively with all of the
Schedules and Exhibits referenced herein and attached hereto, the "AGREEMENT"),
dated as of November 30, 1996 (the "EFFECTIVE DATE"), is by and between AVENG
TRADING PARTNERS, INC. a corporation organized under the laws of the State of
Delaware ("SELLER"), and AVIATION SALES COMPANY, a corporation organized under
the laws of the State of Delaware ("BUYER").
WHEREAS, Seller wishes to sell to Buyer all of the assets and
businesses of Seller, and Buyer wishes to purchase such assets and to assume
certain of the liabilities relating to the Business and such assets, but only to
the extent specified herein and excluding, in all events, the Retained
Liabilities (as defined herein), all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"ACTION" shall mean any actual or threatened action, suit, arbitration,
inquiry, proceeding or investigation by or before any Government Authority or
arbitral tribunal.
"ACTIVE EMPLOYEES" shall have the meaning set forth in Section 6.4(a).
"AFFILIATE" (and, with a correlative meaning, "AFFILIATED") shall mean,
with respect to any Person (i) any corporation or organization of which such
Person is an officer, director or partner or is directly or indirectly the
beneficial owner or at least ten percent (10%) of the outstanding shares of any
class of equity securities or financial interest therein; or (ii) any other
Person that directly, or through one or more intermediaries, controls or is
controlled by or is under common control with such first Person and, if such a
Person is an individual, any member of the immediate family (including parents,
spouse and children) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or
1
<PAGE>
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"AGREEMENT" shall have the meaning set forth in the preamble of this
Agreement.
"ARBITRATOR" shall have the meaning set forth in Section 2.7(b).
"ASOC" shall mean Aviation Sales Operating Company, a wholly-owned
subsidiary of Buyer, d/b/a Aviation Sales Company.
"ASSET PURCHASE" shall mean the consummation of the transactions
described in Sections 2.1 to 2.4.
"ASSETS" shall have the meaning set forth in Section 2.1.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.2.
"AVS SHARES" shall have the meaning set forth in Section 2.4(b).
"BANK DEBT" shall mean any indebtedness of Seller to any third-party
financial institution.
"BANK LIENS" shall mean any liens or other encumbrances granted by
Seller to lenders affecting the Business or any of the Assets.
"BUSINESS" shall mean the business of Seller as it is being conducted
by Seller on the Effective Date, consisting of the distribution by sale, lease,
exchange and brokerage of aircraft engine spare parts, which is performed by
Seller from the Seller's Facilities.
"BUSINESS CONDITION" shall have the meaning set forth in Section
3.1(a).
"BUYER" shall have the meaning set forth in the preamble of this
Agreement.
"BUYER INDEMNIFIED PARTIES" shall have the meaning set forth in Section
10.2(b).
"BUYER'S ACCOUNTANT" shall mean the Miami, Florida office of Arthur
Andersen, L.L.P.
"BUYER'S 401(K) PLAN" shall have the meaning set forth in Section 6.3.
"CERCLA" shall have the meaning set forth in Section 3.12(a)(i).
"CLAIMS" shall mean all rights, demands, claims, actions and causes of
action (whether for personal injuries or property, consequential or other
damages of any kind).
2
<PAGE>
"CLOSING" shall mean the consummation of the transactions made the
subject of this Agreement.
"CLOSING AUDIT PAYMENT DATE" shall have the meaning set forth in
Section 2.8(c).
"CLOSING DATE" shall mean 11:59 p.m. Miami, Florida time, on the date
of the Closing.
"CLOSING BALANCE SHEET" shall have the meaning set forth in Section
2.7(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"CONSIGNMENT INVENTORY" shall mean all of the inventory of aircraft
engine spare parts held by Seller as consignee under consignment agreement.
"CONTRACTS" shall have the meaning set forth in Section 2.1(c).
"COVERED LIABILITIES" shall mean any and all debts, losses,
liabilities, claims, damages, obligations (including those arising out of any
Action, such as any settlement or compromise thereof or judgment or award
therein), and any reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees, experts' fees, consultants' fees and expenses
incurred in defending any Action).
"EFFECTIVE DATE" shall have the meaning set forth in the preamble of
this Agreement.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
6.1(a).
"EMPLOYEES" shall have the meaning set forth in Section 6.1(a).
"EMPLOYMENT LAWS" shall have the meaning set forth in Section 6.4(d).
"ENCUMBRANCES" shall mean mortgages, liens, encumbrances, security
interests, covenants, conditions, restrictions, rights-of-way, easements and
encroachments, whether recorded or unrecorded.
"EPA" shall have the meaning set forth in Section 10.3(b)(ii)(A).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"FAA" shall mean the United States Federal Aviation Administration.
"FEDERAL AVIATION ACT" shall have the meaning set forth in Section
3.3(b).
"FINAL PURCHASE PRICE ADJUSTMENT" shall have the meaning set forth in
Section 2.8(b).
3
<PAGE>
"GAAP" shall mean at any particular time, generally accepted accounting
principles as in effect in the United States at such time; provided, however,
that if it was permissible to use more than one principle at such time in
respect of a particular accounting matter, GAAP shall refer to the principle
which was then employed by Seller.
"GOVERNMENT AUTHORITY" shall mean any government or state (or any
subunit thereof), whether domestic, foreign or multinational (including European
Community), or any agency, authority, bureau, commission, department or similar
body or instrumentality thereof, or any governmental court or tribunal.
"HARDWARE, SOFTWARE AND DATA FILES" shall have the meaning set forth in
Section 2.1(f).
"HAZARDOUS MATERIALS" shall have the meaning set forth in Section 3.12(
a)(ii).
"HAZARDOUS MATERIALS CONTAMINATION" shall have the meaning set forth in
Section 3.12(a)(iii).
"HAZARDOUS SUBSTANCES LAWS" shall have the meaning set forth in Section
3.12(a)(i).
"HIRED EMPLOYEES" shall have the meaning set forth in Section 6.4(a).
"INITIAL PURCHASE PRICE" shall mean the aggregate sum of $8,000,000.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth in
Section 3.6(a).
"INVENTORY" shall mean all of the inventory (whether existing or on
order) of aircraft engine spare parts owned by Seller, as such inventory shall
exist or be on order as of the Closing Date, which Inventory, as of November 30,
1996, is in the quantity and condition described on SCHEDULE 2.1(B) attached
hereto, calculated at Seller's net book value.
"JAMS" shall have the meaning set forth in Section 11.13(b)(ii).
"LICENSES" shall have the meaning set forth in Section 3.7(a).
"MISSING INVENTORY" shall have the meaning set forth in Section 2.6(
c)(i).
"NET WORKING CAPITAL" shall have the meaning set forth in Section
2.6(b).
"PERMITTED LIENS" shall mean (i) statutory liens for Taxes not yet due
and payable, (ii) those Encumbrances disclosed in the Schedules and mechanics
and materialmans liens related to inventory repairs which are in the aggregate
not material to the Business.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization, other form of business or legal
entity or Government Authority.
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"PHYSICAL INVENTORY" shall have the meaning set forth in Section 2.6
(c)(i).
"PROFIT SHARING PLAN" shall have the meaning set forth in Section 6.3.
"PURCHASE PRICE" shall mean the aggregate sum of $8,000,000, as
adjusted following the Closing in the manner described in Section 2.8, subject
to any additional adjustments specifically provided for in this Agreement.
"RCRA" shall have the meaning set forth in Section 3.12(a)(i).
"RECEIVABLES" shall have the meaning set forth in Section 2.1(k).
"RECORDS" shall have the meaning set forth in Section 2.9.
"RETAINED LIABILITIES" shall have the meaning set forth in Section 2.3.
"REVIEW" shall have the meaning set forth in Section 2.7(b).
"SELLER" shall have the meaning set forth in the preamble of this
Agreement.
"SELLER INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 10.2(a).
"SELLER'S ACCOUNTANT" shall mean Tommy C. Petty, C.P.A.
"SELLER'S DEPOSITS" shall have the meaning set forth in Section 2.1(c).
"SELLER'S FACILITIES" shall mean the real property, together with
the improvements and fixtures located thereon or attached thereto, leased by
Seller and located at 518 North J.M. Davis Boulevard, Claremore, Oklahoma
74017, and 806 W. Blue Starr, Claremore, Oklahoma 74017.
"SELLER'S MANAGEMENT TEAM" shall have the meaning set forth in Section
2.4(b)(ii).
"SELLER'S SEPTEMBER 30, 1996 BALANCE SHEET" shall mean the compiled
balance sheet of Seller as of September 30, 1996, a copy of which is attached
hereto as SCHEDULE 1.1(C).
"SELLER'S STOCKHOLDERS" shall have the meaning set forth in Section
2.10.
"TAX AUDIT" shall have the meaning set forth in Section 7.3(d).
"TAXES" shall mean (i) all taxes (whether federal, state, local or
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, excise, use, occupation, value added,
ad valorem, transfer, franchise, withholding, payroll, employment, excise, real
property or other property taxes, together with any interest or penalties
imposed with
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respect thereto, and (ii) any obligations under any agreements or arrangements
with respect to any Taxes described in clause (i) above.
"TRADE SECRETS" shall have the meaning set forth in Section 3.6(b).
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ARTICLE II
SALE OF ASSETS: CLOSING; ADJUSTMENTS
SECTION 2.1. ASSETS TO BE ACQUIRED. Subject to the satisfaction or
waiver of the conditions set forth herein and to the other terms, conditions and
provisions of this Agreement, at the Closing, Seller shall sell, convey, assign,
transfer and deliver to Buyer, and Buyer shall purchase, acquire, accept and pay
for, all of Seller's right, title and interest in all of the properties, assets
and other rights owned or leased by, or licensed to, Seller on the Closing Date,
including without limitation, the following (collectively, the "ASSETS"):
(a) (i) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office equipment, tools,
packing and packaging materials and other tangible personal property used in
connection with the Business, of the type of personal property described on
SCHEDULE 2.1(A)(I) attached hereto, which schedule reflects the personal
property as of the date set forth in such schedule to the extent such personal
property has an individual purchase price greater than or equal to $500, and
(ii) all motor vehicles of the type described on SCHEDULE 2.1(A)(II) attached
hereto, which schedule reflects the motor vehicles as of the date set forth in
such schedule;
(b) all of the Inventory, together with all Records relating thereto,
which Inventory consists of the aircraft engine spare parts inventory in the
quantity and condition described on SCHEDULE 2.1(B) attached hereto;
(c) to the extent assignable and alienable (i) all contracts, agreements,
leases of personal property, franchises, authorizations granted by original
licensed equipment manufacturers and other contracts, agreements or commitments
to which Seller is a party which are in effect on the Closing Date (including
all assignable warranties and indemnities of manufacturers related to the
Inventory) (collectively, the "CONTRACTS"), which Contracts, as of the date set
forth on such schedule, consist of the contracts and agreements described on
SCHEDULE 2.1(C) attached hereto, together with (ii) all deposits or advance
payments made by Seller with third parties in connection with any Contract or
made by third parties with Seller in connection with any Contract (collectively,
the "SELLER'S DEPOSITS"), which Seller's Deposits, as of the date set forth on
such schedule, consist of the deposits described on SCHEDULE 2.1(C) attached
hereto;
(d) all written technical information, data, specifications, research and
development information, engineering drawings and operating and maintenance
manuals;
(e) all proprietary information and licenses from third persons granting
the right to perform services provided by the Business.
(f) to the extent assignable and alienable, all computer hardware and
operating applications and programs, source codes, object codes, and computer
data files, including systems documentation and instructions, including without
limitation, the computer hardware and operating
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applications and programs, source codes, access codes, and computer data files
described on SCHEDULE 2.1(F) attached hereto (the "HARDWARE, SOFTWARE AND DATA
FILES");
(g) all accounting books and records, cost information, sales and pricing
data, customer lists, quality records and reports and other books, records,
studies, surveys, reports, plans and documents;
(h) all lists of Seller's agents, representatives, suppliers and
subcontractors, together with all contracts and agreements with the foregoing to
which Seller is a party which are in effect on the Closing Date;
(i) any prepaid expenses for periods after the Closing Date;
(j) to the extent assignable and alienable, all intangible and other
assets;
(k) all accounts receivable and notes receivable, as such accounts
receivable and notes receivable shall exist on the Closing Date (the
"RECEIVABLES"), which Receivables, as of November 30, 1996, consist of the
accounts receivable and the notes receivable described on SCHEDULE 2.1(K)
attached hereto;
(l) to the extent assignable all licenses, permits, approvals and
authorizations which have been issued by any Government Authority, including,
without limitation, the licenses and permits described on SCHEDULE 2.1(L)
attached hereto;
(m) all Claims which Seller may have against any Person; and
(n) all logos, trade marks, service marks, and trade names and all
applications for registration and registrations therefor (together with the
goodwill associated therewith), and, all literature, sales materials or products
incorporating same.
SECTION 2.2. ASSUMPTION OF LIABILITIES. Except as set forth in this
Section 2.3, at the Closing Buyer shall assume, succeed to, be obligated for or
be liable for and shall indemnify and hold Seller and the Seller Indemnified
Parties harmless as provided in Section 10.2 against all of the liabilities and
obligations which relate to or arise out of the Assets, the Business or any of
its operations arising prior to the Closing Date, or arising from actions taken
or omitted to be taken prior to the Closing Date, including, without limitation,
the following, but excluding the Retained Liabilities (collectively, hereinafter
referred to as the "ASSUMED LIABILITIES"):
(a) all liabilities and obligations relating to employee matters to be
assumed by Buyer pursuant to Article VI (including without limitation, all
liabilities and obligations relating to accrued vacation time of Hired Employees
in accordance with Section 6.4(a));
(b) all other liabilities and obligations with respect to which Buyer
is obligated to indemnify Seller or the Seller Indemnified Parties under this
Agreement as set forth in Article X;
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(c) any Claims asserted in respect of products manufactured,
supplied or sold by Seller or in respect of services provided by Seller;
(d) any contracts, agreements, leases, arrangements, unfilled orders,
commitments, or other instruments or obligations of Seller to the extent
included within the Assets; and
(e) all of Seller's accounts payable as of the Closing Date, as
reflected on the Closing Date Balance Sheet.
SECTION 2.3. RETAINED LIABILITIES. Seller shall retain, and shall
continue to be responsible after the Closing Date for, and shall hold Buyer and
the Buyer Indemnified Parties harmless against, the "RETAINED LIABILITIES",
which term shall mean, and be strictly limited to, the liabilities and
obligations which at any time arise out of the following, and which shall
specifically exclude any and all of the Assumed Liabilities set forth in Section
2.2:
(a) the London Matter; and
(b) any liability or obligation of Seller arising or incurred in
connection with the negotiation, preparation or execution of this Agreement and
the transactions contemplated hereby, except attorneys fees which will be paid
by Buyer in accordance with Section 11.5.
SECTION 2.4. CONSIDERATION; CLOSING DELIVERIES; POSSESSION
(a) At the Closing, Buyer shall purchase the Assets from Seller, upon
and subject to the terms and conditions of this Agreement and in reliance on the
representations, warranties and covenants of Seller contained herein, in
exchange for the Purchase Price.
(b) Subject to the terms and conditions of this Agreement, at the
Closing:
(i) Buyer shall (A) pay the Initial Purchase Price by
delivering to Seller certificates representing 400,000 shares of
Buyer's common stock (the "AVS SHARES") to Seller, which AVS Shares
shall be subject to the registration and restrictive provisions of the
Stockholders Agreement; and (B) Buyer shall assume the Assumed
Liabilities pursuant to an Assignment and Assumption Agreement in the
form of EXHIBIT 2.4(B)(I);
(ii) Buyer, ASOC and James C. Stoecker, Mark F. Stiegal and Al
Short (collectively, "SELLER'S MANAGEMENT TEAM") shall enter into
Employment Agreements in substantially the form of EXHIBIT 2.4(B)(II);
and
(iii) Buyer, Kathryn M. Stoecker and Seller's Management Team
shall enter into the Stockholders Agreement in the substantially form
of EXHIBIT 2.4(B)(III).
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(c) In addition to the other things required to be done hereunder, at
the Closing, Seller shall deliver, or cause to be delivered, at Seller's sole
cost and expense except when otherwise expressly provided, to Buyer or ASOC, as
directed by Buyer, the following:
(i) a duly executed Bill of Sale in substantially the form of
EXHIBIT 2.4(C)(I);
(ii) a Materials Certification executed by Seller regarding
the Inventory in substantially the form of EXHIBIT 2.4(C)(II), which
executed Materials Certification shall be set forth on each page of a
schedule similar in format to SCHEDULE 2.1(B) and listing the items of
the Inventory in existence as of the Closing Date (it being understood
that Seller will provide to Buyer an updated SCHEDULE 2.1(B) with
respect to the Inventory on the Closing Date containing the Materials
Certification);
(iii) to the extent not previously delivered to Buyer, the
materials and information described in Section 2.9 in the form of
originals (or if originals are not available, then true and legible
copies); Seller shall include an inventory record of all such
documentation within the possession or control of Seller or a third
party for the sole benefit of Seller and relating to the Assets
conveyed (PROVIDED, that Seller shall have no liability or obligation
to Buyer if such third party does not deliver such documentation to
Buyer) showing title and reference numbers and other appropriate
identifying information and Seller shall further provide legible,
reproducible current hard copy of all revisions and supplements to such
documentation (PROVIDED, that if such hard copy is not available,
Seller shall deliver microfilm copies); all manuals shall be delivered
to Buyer, shall reflect the configurations of the Purchased Inventory
at the Closing, and shall reflect all data, illustrations and text in
U.S. weights and measures;
(iv) a legal opinion from Much, Shelist, Freed, Denenberg,
Ament, Bell & Rubenstein, P.C. in form and substance reasonably
satisfactory to Buyer and Buyer's counsel;
(v) a certificate dated the Closing Date and duly executed on
behalf of Seller to the effect that the condition set forth in Section
8.1 has been satisfied and otherwise reaffirming the representations
and warranties of Seller set forth in this Agreement;
(vi) a copy of the resolutions of the board of directors of
Seller, or similar enabling document, authorizing the execution,
delivery and performance of this Agreement by Seller, and a certificate
of its secretary or assistant secretary, dated as of the Closing Date,
that such resolutions were duly adopted and are in full force and
effect;
(vii) evidence or copies of any consents, approvals, orders,
qualifications, waivers or releases of liens required pursuant to
Section 8.2 or Section 8.5; and
(viii) an Assignment of Leases, in form and substance
satisfactory to Buyer, whereby Seller will assign its interest in the
leases with respect to the Seller's Facilities.
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(d) In addition to the payment of the Initial Purchase Price and
assumption of the Assumed Liabilities and the other things required to be done
hereunder, at the Closing, Buyer shall deliver, or cause to be delivered, to
Seller the following:
(i) a legal opinion from Boyar, Simon & Miller, P.C., counsel
to Buyer, in form and substance reasonably satisfactory to Seller and
Seller's counsel;
(ii) a certificate dated the Closing Date and validly executed
on behalf of Buyer to the effect that the condition set forth in
Section 9.1 shall have been satisfied and otherwise reaffirming the
representations and warranties of Buyer set forth in this Agreement;
(iii) a copy of the resolutions of the board of directors of
Buyer, or similar enabling document, authorizing the execution,
delivery and performance of this Agreement by Buyer, and a certificate
of the secretary or assistant secretary of Buyer, dated as of the
Closing Date, that such resolutions were duly adopted and are in full
force and effect; and
(iv) if not previously delivered to Seller, all other
certificates, documents, instruments and writings required pursuant
hereto to be delivered by or on behalf of Buyer at or before the
Closing.
(e) At the Closing, Seller shall deliver all tangible items included
within the Assets. Seller shall deliver possession of the Assets to Buyer at the
Seller's Facilities on the Closing Date.
SECTION 2.5. TIME AND PLACE OF CLOSING. The Closing shall take place on
the Closing Date beginning at 10:00 A.M., Miami, Florida time, at the offices of
Buyer (or such other time and place as may be agreed to by the parties).
SECTION 2.6. CLOSING PROCEDURES.
(a) [Intentionally omitted]
(b) NET WORKING CAPITAL. For purposes of this Agreement, "NET WORKING
CAPITAL" shall mean (A) the sum of all Receivables, inventories (including the
Inventory), prepaids and other current assets, less (B) the sum of all accounts
payable, accrued wages and other current liabilities excluding those related to
debt, capitalized leases and interest, in each case recorded in accordance with
GAAP. Notwithstanding anything contained in this Section 2.6(b) to the contrary,
deferred tax balances and liabilities for Taxes (whether property, sales or
income), including an estimate of such liabilities through the Closing Date, as
recorded on Seller's September 30, 1996 Balance Sheet and the Closing Balance
Sheet, as the case may be, in accordance with GAAP, shall be excluded from the
calculations of Net Working Capital for purposes of calculating the Final
Purchase Price Adjustment.
(c) PHYSICAL INVENTORY.
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(i) Seller shall have the right to conduct a complete a
physical inventory (the "PHYSICAL INVENTORY") of all of the Inventory
and the Consignment Inventory. The Physical Inventory shall be
undertaken jointly by Buyer and Seller. Each of Seller and Buyer shall
bear their own costs and expenses associated with the Physical
Inventory. The Physical Inventory shall verify the physical existence
of the Inventory reflected on Seller's September 30, 1996 Balance Sheet
and of the Consignment Inventory. If the Physical Inventory reflects
that an item of Inventory is missing (i.e., not located at the Seller's
Facilities or not within the possession or control of Seller)
(collectively, the "MISSING INVENTORY"), such Missing Inventory will
not be included within the Inventory for purposes of calculating the
Final Purchase Price Adjustment.
(ii) Seller acknowledges and agrees that if, after the
Closing, Seller has in its possession or control any of the Missing
Inventory, then if the Missing Inventory is located at the Seller's
Facilities, Seller shall deliver such Missing Inventory to Buyer to be
included as part of the Inventory for purposes of making the Final
Purchase Price Adjustment under Section 2.8 and calculating the
Purchase Price.
(d) VERIFICATION OF THE INVENTORY. Without limiting the provisions of
Section 2.6(c), until the Closing Date, Buyer or Buyer's representative shall
also have the right to verify the stated condition of, and the Records for, the
Inventory. Upon twenty-four (24) hours notice, Seller shall provide Buyer and
Buyer's representative reasonable access to any and all records and storage
facilities necessary for Buyer and Buyer's representative to verify the stated
condition of, and the Records for, each item of the Inventory; PROVIDED,
HOWEVER, that such verification is conducted during normal business hours and
does not unreasonably disrupt Seller's normal business operations, and PROVIDED
FURTHER, HOWEVER, that Seller shall have the right to observe such verification
process by Buyer when and to the extent conducted at the Seller's Facilities.
SECTION 2.7. POST-CLOSING PROCEDURES
(a) FINAL ADJUSTMENT. As soon as practicable following the Closing
Date, but in no event later than forty-five (45) days thereafter, Seller shall,
at Seller's cost and expense, prepare and deliver to Buyer a final balance sheet
as of the Closing Date, which shall be referred to as the "CLOSING BALANCE
SHEET". The Closing Balance Sheet shall be prepared by Seller in conformity with
GAAP. The Closing Balance Sheet shall in Buyer's discretion be audited by
Seller's Accountant in accordance with generally accepted auditing standards
approved and adopted by the American Institute of Certified Public Accountants.
Seller's Accountant, upon completion of the audit of the Closing Balance Sheet
shall issue a report to Seller and Buyer. Buyer shall provide to Seller and
Seller's Accountant access to such of its books and records as may reasonably be
required for the preparation and audit of the Closing Balance Sheet.
(b) RESOLUTION OF AUDIT DISPUTES. Buyer and Buyer's Accountant shall
have sixty (60) days to review the proposed Closing Balance Sheet and the
related report prepared by Seller's Accountant and to notify Seller of any
disputes Buyer may have relating to the proposed Closing Balance Sheet. Buyer's
notice to Seller of any dispute shall specify in reasonable detail all points
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of disagreement and demand that a review of such dispute (a "REVIEW") be
conducted. Buyer and Seller shall promptly cause Buyer's Accountant and Seller's
Accountant to consult with respect to such points of disagreement in an effort
to resolve all disputes. If Buyer's Accountant and Seller's Accountant are
unable to resolve such disputes within forty-five (45) days of Seller's receipt
of notice of a Review, Buyer's Accountant and Seller's Accountant shall jointly
select the Miami office of a firm of "Big Six" independent public accountants
which has not performed any service since January 1, 1996, for Buyer or Seller
or any of their respective Affiliates to act as arbitrator (the "ARBITRATOR").
The Arbitrator, within thirty (30) days after having been selected hereunder,
shall decide all remaining points of disagreement with respect to any such
proposed Closing Balance Sheet and deliver a written notice of its determination
of the disputed items to Buyer and Seller. In making its determinations, the
Arbitrator may not assign a value to any item in dispute higher than the highest
value for such item claimed by either party or less than the lowest value
claimed for such item by either party. All decisions of the Arbitrator shall be
final, conclusive and legally binding on all parties hereto with respect to the
Closing Balance Sheet. The party whose calculations were furthest from the final
determinations of the Arbitrator shall pay the fees and expenses of the
Arbitrator and the entire expenses of the legal counsel and accountants for both
parties.
SECTION 2.8. FINAL PURCHASE PRICE ADJUSTMENTS.
(a) DECREASE IN NET WORKING CAPITAL. If Seller's Net Working Capital as
shown on the Closing Balance Sheet (the "FINAL NET WORKING CAPITAL") shall be
less than the Net Working Capital reflected in Seller's September 30, 1996
Balance Sheet, then the Purchase Price shall be decreased by the amount of such
decrease in Net Working Capital.
(b) PAYMENT OF FINAL PURCHASE PRICE ADJUSTMENT. On the Closing Audit
Payment Date, the final adjustment to the Purchase Price shall be determined in
accordance with Section 2.8(a) (the "FINAL PURCHASE PRICE ADJUSTMENT"). If the
Final Purchase Price Adjustment reflects that Seller is obligated to pay a net
sum to Buyer, then Seller shall pay to Buyer the amount of the Final Purchase
Price Adjustment. The Final Purchase Price Adjustment shall be paid on the
Closing Audit Payment Date by a delivery by Seller to Buyer of a number of AVS
Shares calculated by taking the amount of the adjustment and dividing such
amount by $20.00. In the event any action or proceeding is brought to enforce
the payment of the Final Purchase Price Adjustment, the prevailing party in such
action shall be entitled to recover all attorney's fees and other costs incurred
in connection with such action.
(c) For purposes of the payment required to be made pursuant to Section
2.8(b), "CLOSING AUDIT PAYMENT DATE" shall mean the date which is ten (10)
business days after the earliest to occur of (i) the date that Buyer and Seller
agree on a resolution of all disputes concerning the proposed Closing Balance
Sheet (ii) sixty (60) days after Buyer receives the proposed Closing Balance
Sheet together with Seller's Accountant's report thereon, if Seller shall not
have received notice from Buyer on or prior to such date demanding a Review of
such proposed Closing Balance Sheet, (iii) the date on which Buyer's Accountant
and Seller's Accountant shall resolve all disputes with respect to the Closing
Balance Sheet, or (iv) the date
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on which the Arbitrator shall resolve all points of disagreement with respect to
the Closing Date Balance Sheet, as the case may be.
SECTION 2.9. RECORDS. Seller will, at Seller's sole cost and expense,
deliver to Buyer at the Seller's Facilities, on the Closing Date, the following
records relating to the Inventory but only in the form such records are already
in existence and in the possession or control of Seller or a third party for the
sole benefit of Seller as of the Closing Date (PROVIDED, that Seller shall have
no liability or obligation to Buyer if such third party does not deliver such
documentation to Buyer); PROVIDED, HOWEVER, that nothing contained in this
Section 2.9 shall be construed to require Seller to create any new or additional
records or modify in any way any existing records (the "RECORDS"):
(a) All computer data, in any and all media in which maintained by Seller,
including, without limitation, Stock Action Reports (SAR), Procurement Action
Reports (PAR), Usage Material Management Systems (MMS) data, inventory details,
historic sales and quote activity, purchasing records, warranty records,
computer data, and hard copies of Inventory Receiving Reports (including
Seller's part number and purchase order history, P.O. number, P.O. date and
vendor code) and price lists and Inventory Activity Reports in whatever medium
currently stored:
(b) All Illustrated Parts Catalogs of aircraft and engine types covered by
the Purchased Inventory, to the extent in Seller's possession or control;
(c) All historical, engineering, technical, operational and maintenance
files and data related to the Purchased Inventory, including, without
limitation, vendor overhaul tags, teardown/shop findings and reports, packing
slips, material certifications, disc sheets, disc records, vendor tags or other
tags indicating the condition of the Inventory and historical records for all
life limited parts, so as to disc and part traceability to the original
manufacturer thereof, including without limitation, the following records:
(i) All shop visit findings for all rotable components; and
(ii) Completed shop overhaul reports and material
certifications for material utilized in any repair, all signed by
persons authorized by the FAA to effect any repair in question;
(d) Seller shall provide:
(i) All airworthiness directive records ("A.D.'S") for all
materials including rotables, engine modules, and engine parts with
A.D.'s performed and/or pending;
(ii) All engineering orders applied to any item of equipment
with signed copy of the engineering order compliance record for such
item of equipment;
(iii) Modification summary for each item of equipment; and
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(iv) Hard copy traceability of life limited parts to original
manufacturer showing ultimate life limits and calculated remaining life
(hours, cycles, and years) (if applicable). Available computer data will
also be provided;
(e) Seller shall provide:
(i) Seller approved vendors by Seller's part number;
(ii) Vendor code to vendor cross reference;
(iii) Seller's part number to manufacturer part number
interchangeability;
(iv) Shelf life limits and current remaining shelf life of
all parts with such limits;
(v) Life limited parts by aircraft type in descending
order of time and cycles remaining; and
(vi) Updated tape of inventory delivered with cover letter
from Seller providing confirmation.
SECTION 2.10. LIQUIDATION OF SELLER. Seller and Buyer hereby
acknowledge that immediately after the consummation of the Asset Purchase,
Seller will be liquidated and all of Seller's assets, which assets of Seller
will then consist of the AVS Shares, shall be distributed by Seller to its
stockholders as listed on SCHEDULE 2.10 attached hereto (the "SELLER'S
Stockholders"). Seller's Stockholders have executed this Agreement for the
express purpose of acknowledging that upon such liquidation of Seller such
Seller's Stockholders will be bound by the terms of Sections 2.7 and 2.8 of this
Agreement on a pro rata basis based upon the number of AVS Shares received by
each of such Seller's Stockholders in connection with the liquidation of Seller.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 3.1. INCORPORATION; AUTHORIZATION; OWNERSHIP OF STOCK, ETC.
(a) Seller is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Seller (i) has all
requisite corporate power to own, lease and otherwise operate its properties and
assets and to carry on its business as and where it is now being conducted, and
(ii) is in good standing and is duly qualified to transact business in each
domestic jurisdiction in which the nature of property owned or leased by it or
the conduct of its business requires it to be so qualified, except where the
failure to be in good standing or to be duly qualified to transact business,
would not, individually or in the aggregate, have a material adverse effect on
the Assets or financial condition of Seller (the "BUSINESS CONDITION"). Seller
has delivered to Buyer true, correct and complete copies of all charter, bylaws
and other organizational documents of Seller. SCHEDULE 3.1(A) sets forth a list
of each of the jurisdictions in which Seller is qualified to do business.
(b) Seller has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby.
(c) The execution and delivery of this Agreement, the performance of
Seller's obligations hereunder and the consummation of the transactions
contemplated hereby by Seller have been duly and validly authorized by all
necessary corporate proceedings on the part of Seller and no other corporate
proceedings or actions on the part of Seller, its board of directors or
stockholders are necessary therefor.
(d) The execution, delivery and performance by Seller of this Agreement
will not (i) violate any provision of Seller's certificate of incorporation or
by-laws, (ii) violate any provision of, or be an event that is (or with the
passage of time will result in) a violation of, or result in the acceleration of
or entitle any party to accelerate (whether after the giving of notice or lapse
of time or both) any obligation under, or result in the imposition of any lien
upon or the creation of a security interest in any of the Assets pursuant to,
any mortgage, lien, lease, agreement, instrument, order, arbitration award,
judgment, injunction, decree, contractual obligation, license, commitment or
other arrangement to which Seller is a party or by which Seller, the Assets or
the Business are bound, or (iii) except as disclosed on SCHEDULE 3.7(A) OR
SCHEDULE 3.7(B) attached hereto, violate or conflict with any statute, rule or
regulation applicable to Seller, the Assets or the Business or any of its
properties or assets or any other restriction of any kind or character to which
Seller, the Assets or the Business is subject.
(e) This Agreement has been duly executed and delivered by Seller, and,
assuming the due execution and delivery of this Agreement by Buyer, this
Agreement constitutes the legal, valid and
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binding obligation of Seller, enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting the rights and remedies of creditors
generally and to general principles of equity (regardless of whether in equity
or at law).
(f) Upon consummation of the Asset Purchase at the Closing, Seller will
deliver to Buyer good, indefeasible and marketable title to the Assets free and
clear of any liens, claims, charges, security interests, options, claims of
offset or other legal or equitable encumbrances (including without limitation
the Bank Liens), except for Permitted Liens.
(g) SCHEDULE 3.1(G) attached hereto sets forth (i) the number of shares
of capital stock of Seller issued and outstanding as of the Closing Date, (ii)
each of the Persons who owns such stock and the amount of stock of Seller owned
by each such Person, and (iii) the terms and conditions upon which such stock
was acquired, from whom and the date of each such acquisition.
SECTION 3.2. FINANCIAL INFORMATION. Attached as SCHEDULE 3.2 is a
summary of the unaudited balance sheets of Seller and the related statements of
operations of Seller for the operation of Seller since its inception. To
Seller's knowledge, the data contained in such summary is true and accurate in
all material respects and was prepared utilizing the books of account and
records of Seller, which books of account and records, taken as a whole, have
been maintained in all material respects in accordance with GAAP.
SECTION 3.3. PROPERTIES
(a) Except for properties disposed of since September 30, 1996, in the
ordinary course of business, and subject to any Bank Liens (which Bank Liens
with respect to the Assets will be released at the Closing), (i) Seller has
good, indefeasible and marketable title to, or holds by valid and existing lease
or license, free and clear of all mortgages, pledges, liens, encumbrances,
security interests or claims of offset, all of the Assets, (ii) Seller has not
conveyed to any Person any rights or interests in any of the Assets, (iii) no
amount is owing under any lease agreement included in or related to the Assets
or the Business with respect to the period through the Closing Date, (iv) all
mortgages, pledges, liens, encumbrances, security interests upon or affecting
Seller, the Assets or the Business shall have been released prior to the
Closing, except for the Permitted Liens and except in any of the foregoing cases
for such imperfections of title, mortgages, pledges, liens, encumbrances or
security interests as (x) are reflected or reserved against in the Closing
Balance Sheet, or (y) arise out of Taxes or general or special assessments not
in default and payable without penalty or interest.
(b) To Seller's knowledge, SCHEDULE 2.1(B) contains a true, accurate and
complete listing of the quantity, location and condition of the Inventory and
the Consignment Inventory as of November 30, 1996. To Seller's knowledge, the
Inventory and the Consignment Inventory have been maintained, in compliance in
all material respects with Federal Aviation Regulation (FAR) Part 121 under the
United States Federal Aviation Act of 1958, as amended, and all regulations,
rulings, interpretations and guidelines published thereunder and from time to
time in
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effect (collectively, the "FEDERAL AVIATION ACT"). Except with respect to the
warranties and representations specifically set forth in this Agreement, Seller
makes no warranty, express or implied, whether as to merchantability,
suitability, fitness for a particular purpose, or quality of the Assets or as to
the condition or workmanship thereof, or to the absence of defects thereon,
either latent or patent, it being understood that except as set forth in this
Agreement, the Assets are being conveyed hereunder "as is" on the date hereof
and in their present condition.
(c) All of the Assets are located at the Seller's Facilities.
(d) SCHEDULE 2.1(K) sets forth a true, correct and complete list of all
Receivables as of November 30, 1996, included within the Assets, including the
aging of each account receivable and note receivable. Seller has good and
marketable title to each of the Receivables listed on SCHEDULE 2.1(K), free and
clear of any liens, claims, charges, security interests, options, claims of
offset or other legal or equitable encumbrances.
(e) Except as set forth in this Agreement, any Schedule hereto, or any
certificate delivered by Seller in connection with this Agreement, the
facilities, structures and equipment owned or leased by Seller and comprising a
portion of the Assets or utilized by Seller in the conduct of the Business are
in good operating condition and repair, ordinary wear and tear excepted, and are
adequate for the uses to which they are intended to be or are being put.
SECTION 3.4. ABSENCE OF CERTAIN CHANGES; SOLVENCY
(a) Except as specifically contemplated by the terms and provisions of this
Agreement, since September 30, 1996, (i) there has been no material adverse
change in the consolidated net worth of the Business, (ii) to Seller's knowledge
and except as to reasonable use, wear and tear since September 30, 1996, there
has been no physical damage, destruction or loss that would, after taking into
account any insurance recoveries payable in respect thereof, have an adverse
effect on the Business Condition, and (iii) no event has occurred and no
condition exists which, individually or in the aggregate, would have a material
adverse effect on this Agreement, the Assets, the Business, or the transactions
contemplated by this Agreement.
(b) Seller is solvent and, immediately after giving effect to the
consummation of the transactions contemplated by this Agreement, will be
solvent.
SECTION 3.5. LITIGATION; ORDERS. Except as disclosed on SCHEDULE 3.5
attached hereto, as of the Effective Date, to Seller's knowledge, there are no
lawsuits, actions, administrative or arbitration or other proceedings or
governmental investigations pending or, to Seller's knowledge, threatened by or
against Seller (to the extent reasonably expected to affect the Assets taken as
a whole or impact or affect the ability of Seller to consummate the Asset
Purchase), the Assets taken as a whole, or the Business. Except as disclosed on
SCHEDULE 3.5, as of the Effective Date, to Seller's knowledge, there are no
judgments or outstanding orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency, or by arbitration)
against Seller (to the extent reasonably expected to affect the Assets taken as
a
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whole or impact or affect the ability of Seller to consummate the Asset
Purchase), the Assets taken as a whole, or the Business.
SECTION 3.6. INTELLECTUAL PROPERTY
(a) SCHEDULE 3.6 attached hereto lists all of the patents and patent
applications; all trademarks, service marks, trade names and applications for
registration and registrations therefor; and all copyrights and applications and
registrations therefor used or developed by Seller, or in which Seller has an
interest (collectively, the "INTELLECTUAL PROPERTY RIGHTS"), and their
respective actual and potential use or application. No other patent, trademark,
service mark, trade name or copyright, or license under any thereof, is
necessary to permit Seller to conduct the Business as now conducted or as
heretofore or proposed to be conducted. Seller owns exclusively or has the
exclusive right to use, free and clear of all Encumbrances, all Intellectual
Property Rights, renewals therefor and claims for infringement thereof, without
infringing upon or otherwise acting adversely to the right or claimed right of
any third party under or with respect to any intellectual property rights.
Seller is not obligated or under any liability whatsoever to make payments by
way of royalties, fees or otherwise to any owner or licensee of, or any claimant
to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use of the Intellectual Property Rights.
(b) Seller owns exclusively and has the exclusive and unrestricted
right to use all Trade Secrets required for or incident to its operation and
then sale of all products and services sold or proposed to be sold by Seller
free and clear of any Encumbrances, including, without limitation, of any former
employer of its employees. For purposes of this Agreement, "TRADE SECRETS" shall
mean all trade secrets, know-how, inventions, designs, customer lists,
processes, computer programs (including source codes) and technical data and
information.
(c) Seller has no knowledge and has received no communications alleging
that Seller has violated or, by conducting its business as now conducted or as
proposed to be conducted after the Closing Date, would violate any patents,
licenses, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights of any Person.
SECTION 3.7. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS,
REPORTS, ETC.
(a) The Assets include all of the agreements, materials, and real and
personal property interests and rights reasonably necessary for vehicular and
pedestrian access, ingress and egress to and from the Seller's Facilities, to
operate and maintain the Seller's Facilities, all in accordance with the
applicable law, except to the extent that would not have a material adverse
effect on the Business Condition or that would not affect the ability of Seller
to enter into this Agreement or consummate the transactions contemplated hereby
and except for land use permits and related items which must be applied for by
Buyer and issued to Buyer. SCHEDULE 3.7(A) attached hereto includes a list of
all licenses, permits, franchises and other authorizations of any Government
Authority that are necessary for the operation and maintenance of the Business
prior to the Closing
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(the "Licenses"), true, correct and complete copies of which have been delivered
by Seller to Buyer or otherwise been made available by Seller for Buyer. Except
as disclosed on SCHEDULE 3.7(A), all such Licenses are in full force and effect.
As of the Effective Date, except as disclosed on SCHEDULE 3.7(A), to Seller's
knowledge, no proceeding is pending or threatened seeking the revocation or
limitation of any such license, permit, franchise or other authorization.
(b) SCHEDULE 3.7(B) attached hereto lists all registrations, filings,
applications, notices, consents, approvals, orders, qualifications and waivers
required to be made, filed, given or obtained by Seller or any of its Affiliates
with, to or from any Person in connection with the execution, delivery,
performance and consummation of the Asset Purchase, except for those that become
applicable solely as a result of the specific regulatory status of Buyer or its
Affiliates.
SECTION 3.8. LABOR MATTERS. As of the Effective Date, there are no
collective bargaining agreements with labor unions or associations representing
employees of the Business. As of the Effective Date, to Seller's knowledge,
Seller is not involved in any labor dispute, arbitration, lawsuit or
administrative proceeding relating to labor matters involving the employees of
Seller.
SECTION 3.9. COMPLIANCE WITH LAWS
(a) To Seller's knowledge, the conduct of the Business substantially
complies in all material respects with all statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto, and Seller
has obtained all approvals, authorizations, consents, licenses, franchises and
other permits the absence of which would have a material adverse effect upon the
Business Condition or Seller's ability to enter into this Agreement or
consummate the transactions contemplated hereby. The parties agree that the
representation contained in the preceding sentence does not relate to or cover
environmental matters, and that the Seller makes no representation or warranty
with respect to environmental matters, except as specifically set forth in
Section 3.12.
(b) To Seller's knowledge, neither Seller, nor any shareholder,
director, officer, partner, employee or agent of Seller, nor any other Person
acting on their behalf, has, directly or indirectly, given or agreed to give any
payment (in kind or in cash), gift or similar benefit to any customer, supplier,
governmental employee, lobbyist, labor union, political action committee,
candidate for public office or other Person who is or may be in a position to
help or hinder the business of Seller (or assist any of them in connection with
any actual or proposed transaction) which (i) might subject Buyer to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have had an adverse effect on Seller, the
Assets, the Business or the operations of Seller, (iii) if not continued in the
future, might adversely affect the Assets, the Business or Buyer, (iv) might
subject the Buyer to suit or penalty in any private or governmental litigation
or proceeding, or (v) violated the Foreign Corrupt Practices Act.
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SECTION 3.10. INSURANCE. SCHEDULE 3.10 attached hereto lists all
insurance policies owned or held by Seller on the Effective Date. As of the
Effective Date, all such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the Effective Date
have been paid to the extent due, and no notice of cancellation or termination
has been received with respect to any such policy.
SECTION 3.11. CONTRACTS. Except as otherwise disclosed on SCHEDULE 3.11
attached hereto or SCHEDULE 6.1(A) attached hereto, as of the Effective Date,
Seller is not a party to any (i) employment or consulting agreement, (ii)
distributor or manufacturer's representative contract, (iii) lease of real or
personal property, whether as lessor or lessee, (iv) consignment of inventory,
whether as consignor or consignee, (v) joint venture or partnership agreement
relating, (vi) technology license agreement, (vii) agreement or commitment for
capital expenditure, (viii) agreement continuing over a period of more than one
(1) year from its date requiring future payment or payments in excess of $10,000
per year, or (ix) other contract, agreement or arrangement requiring future
payment or payments in excess of $10,000 per year. With respect to all contracts
listed on SCHEDULE 3.11, except as disclosed on said Schedule, to Seller's
knowledge, such contracts are legal, valid and binding and in full force and
effect in accordance with their terms, except as may be limited by judicial
decisions or general principles of equity, and Seller is not, as of the
Effective Date, in material breach thereof or material default thereunder and
there does not exist under any provision thereof, as of the Effective Date, any
event that, with the giving of notice or the lapse of time or both, would
constitute such a breach or default, except for such failures and such breaches,
defaults and events as to which requisite waivers or consents have been or are
obtained or which would not, individually or in the aggregate, have a material
adverse effect on Seller or the Business Condition. To Seller's knowledge, no
dispute exists with respect to any of the contracts listed on SCHEDULE 3.11,
except as described on SCHEDULE 3.11. SCHEDULE 3.11 lists, as of the Effective
Date, all indebtedness owed by Seller, including without limitation, all notes,
mortgages, indentures and other obligations and agreements and other instruments
and other liabilities and obligations, whether accrued, absolute, contingent or
otherwise, for or relating to any lending or borrowing (including assumed debt)
effected by Seller or to which any of the Assets or the properties of the
Business are subject.
SECTION 3.12. ENVIRONMENTAL MATTERS
(a) DEFINITIONS. For the purposes of this Agreement, unless the context
otherwise specifies or requires, the following terms shall have the meaning
herein specified:
(i) "HAZARDOUS SUBSTANCES LAWS" shall mean all present laws,
ordinances, rules, regulations and standards of any Government
Authority relating to the use, analysis, production, storage,
treatment, sale, disposal or transportation of any Hazardous Materials,
including, without limitation, the Resource Conservation and Recovery
Act of 1976 (42 U.S.C. Section 6901 et seq.) ("RCRA"), the
Comprehensive Environmental Response Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Federal Water
Pollution Control Act (33 U.S.C. Section 1251), the Federal
Insecticide,
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Fungicide and Rodenticide Act (7 U.S.C. Section 136), and the Clean Air
Act, all as may be amended from time to time.
(ii) "HAZARDOUS MATERIALS" shall mean (A) any "hazardous
waste" as defined by RCRA, and regulations promulgated thereunder; (B)
any "hazardous substance" as defined by CERCLA, and regulations
promulgated thereunder; (C) asbestos; (D) polychlorinated biphenyls;
(E) any substance the presence of which on the Seller's Facilities is
prohibited by any Hazardous Substances Laws; and (F) any other
substance which by any Hazardous Substances Laws requires special
handling or notification of any federal, state or local governmental
entity in its collection, storage, treatment or disposal.
(iii) "HAZARDOUS MATERIALS CONTAMINATION" shall mean any
presently existing contamination of any real or personal property,
soil, groundwater, air or other elements or any contamination of the
buildings, facilities, soil, groundwater, air or other elements on, at,
below or of any other property as a result of Hazardous Materials.
(b) HAZARDOUS MATERIALS WARRANTIES. Seller hereby represents and
warrants that:
(i) To Seller's knowledge, there are no conditions existing on
the Seller's Facilities that can reasonably be expected to give rise to
clean up obligations under any Hazardous Substances Laws in effect as
of the Closing Date;
(ii) No investigation, administrative order, consent order and
agreement, litigation or settlement with respect to Hazardous Materials
or Hazardous Materials Contamination is in existence or, to Seller's
knowledge, proposed or threatened with respect to the Seller's
Facilities. No portion of the Seller's Facilities is currently on and,
to Seller's knowledge, has ever been on or been proposed to be on the
National Priorities List under CERCLA or on the CERCLIS or any similar
federal or state "Superfund" or "Superlien" list;
(iii) To Seller's knowledge, Seller has disposed of all
wastes, including those containing any Hazardous Materials, in
compliance with all applicable Hazardous Substances Laws, and Seller
has not received any notice or claim of liability for any off-site
contamination;
(iv) To Seller's knowledge, there are no environmental permits
required for the operation of the Business conducted at the Seller's
Facilities, and there are no pending or renewal applications for
issuance of any additional environmental permits for the operations
conducted at the Seller's Facilities;
(v) To Seller's knowledge, Seller has not transported or
arranged for the transportation of any Hazardous Materials to any
location that is listed, to Seller's knowledge, or proposed for listing
on the National Priorities List under CERCLA or on the CERCLIS or any
similar federal or state "Superfund" or "Superlien" list;
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(vi) To Seller's knowledge, all underground storage tanks
currently located on the Seller's Facilities are disclosed on
SCHEDULE 3.12(B);
(vii) To Seller's knowledge, Seller is in material compliance
with all applicable Hazardous Substances Laws and has not received any
notice or claim of liability under any Hazardous Substances Laws; and
(viii) To Seller's knowledge, Seller does not use any
Hazardous Materials in connection with the Business or any of its
processes.
The parties agree that no representation or warranty contained in this
Agreement, other than those contained in this Section 3.12, relates to or shall
be deemed to relate to any environmental matters.
SECTION 3.13. NO AGREEMENTS TO SELL ASSETS. Except as set forth on
Schedule 3.13 attached hereto and except for the transactions contemplated by
this Agreement, and, except for sales of the Inventory in the ordinary course of
business prior to the Closing Date, Seller has no legal obligation, absolute or
contingent, to any Person to sell the Assets or sell the Business, or to effect
any merger, consolidation or other reorganization of Seller or to enter into any
agreement with respect thereto.
SECTION 3.14. BROKERS, FINDERS, ETC. Seller has not employed, and is
not subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated hereby who would
have a valid claim for a fee or commission from Buyer in connection with such
transactions.
SECTION 3.15. MAINTENANCE OF THE ASSETS. From September 30, 1996,
through the Closing Date, Seller has maintained the Assets in a diligent manner
and, in particular, Seller has used its reasonable best efforts:
(a) Not to cancel or permit any insurance relating to the Assets or the
Business to lapse or terminate (unless renewed or replaced by like coverage);
(b) Not to knowingly violate or fail to comply in any material respect
with any laws applicable to Seller, the Assets or the Business;
(c) To keep and maintain the Assets in a good condition, reasonable wear
and tear excepted, and to continue to store the Assets in accordance with
prudent industry practices;
(d) Not to take, or omit to take, any action that would have the effect of
violating any of the representations, warranties, covenants and agreements of
Seller contained in this Agreement; and
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(e) Not to engage in transactions other than in the ordinary course of
business consistent with past practices.
SECTION 3.16. PRESERVATION OF BUSINESS. Subject to the terms and
conditions of this Agreement, from September 30, 1996, through the Closing Date,
Seller has used reasonable best efforts to preserve the business of the Business
intact, to keep available to the Business the services of the Active Employees
and to preserve the goodwill of customers, suppliers, and others having business
relations with the Business.
SECTION 3.17. MAINTENANCE OF THE RECORDS. Except as may have been
necessary to effect sales of the Inventory by Seller in the ordinary course of
business, Seller (i) has maintained the Records where presently located in the
Seller's Facilities, (ii) has not removed any of the Records, (iii) has
continued to input data into the Seller's computer related to the Assets, (iv)
has not sold, transferred or otherwise assigned any right, title or interest in
or to the Records to any third party, and (v) has taken all reasonable steps to
protect Buyer's interest in the Records.
SECTION 3.18. BANK ACCOUNTS AND DIRECTORS AND OFFICERS. SCHEDULE 3.18
attached hereto contains a true, accurate and complete list of the name and
location of each bank in which Seller has an account, each safety deposit box or
custody agreement and the names of the Persons authorized to draw thereon or to
withdraw therefrom. SCHEDULE 3.18 further sets forth the names of all of the
officers and directors of Seller as of the date noted thereon.
SECTION 3.19 REGARDING VARIOUS TRANSACTIONS
(a) Except as set forth in SCHEDULE 3.19 attached hereto, Seller has not
engaged in any transactions with any Affiliate since the inception of Seller,
except in the ordinary course of Seller's business.
(b) Except as set forth in SCHEDULE 3.19, neither Seller nor any of its
Affiliates has acquired any stock in Buyer.
(c) Except for distributions of cash in the ordinary course of business,
during the two years immediately preceding the Closing Date Seller has not made
any distributions to any of its equity holders, nor has it engaged in any
transactions with its equity holders involving the issuance, exchange or
redemption of its stock.
(d) Seller is not a successor to any entity (by merger or acquisition of
assets), and Seller has not been a subsidiary or division during the two years
immediately preceding the Closing Date.
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SECTION 3.20. ACCURACY OF REPRESENTATIONS AND WARRANTIES; SCHEDULES AND
EXHIBITS.
(a) No representation, warranty or other statement made by or on behalf
of Seller in this Agreement or any other document executed or to be executed in
connection therewith contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements herein or therein
taken as a whole not misleading in light of the circumstances under which they
were made.
(b) Disclosure of any fact or item by Seller in any Schedule or Exhibit
hereto referenced by a particular paragraph or section in this Agreement or in
any certificate delivered on or prior to the Closing Date shall, should the
existence of the fact or item or its contents be relevant to any other paragraph
or section, be deemed to be disclosed with respect to that other paragraph or
section whether or not an explicit cross-reference appears.
SECTION 3.21. NO IMPLIED REPRESENTATION. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS ARTICLE OR ANY OTHER PROVISION OF THIS AGREEMENT, IT IS THE
EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS NOT MAKING ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE
EXPRESSLY GIVEN IN THIS AGREEMENT, THE SCHEDULES AND THE DOCUMENTS, INSTRUMENTS
AND CERTIFICATES TO BE DELIVERED TO BUYER AT THE CLOSING, INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ASSETS AND IT IS UNDERSTOOD THAT BUYER TAKES ALL OF SUCH PROPERTIES AND
ASSETS ON AN "AS IS" AND "WHERE IS" BASIS. It is understood that any cost
estimates, projections or other predictions contained or referred to in the
Schedules hereto and any cost estimates, projections or predictions that have
been or shall hereafter be provided to Buyer or any of its Affiliates, agents or
representatives are not and shall not be deemed to be representations or
warranties of Seller. NOTWITHSTANDING ANY PROVISION OF THIS SECTION 3.21 TO THE
CONTRARY, BUT SUBJECT IN ALL EVENTS TO THE TERMS OF THIS AGREEMENT WITH RESPECT
TO SURVIVAL OF THE REPRESENTATIONS, WARRANTIES AND AGREEMENTS THAT ARE CONTAINED
HEREIN, SELLER ACKNOWLEDGES THAT (A) BUYER IS RELYING ON THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS ARTICLE III AND IN ARTICLE VI IN DECIDING TO ENTER
INTO THIS AGREEMENT, AND (B) BUYER'S DECISION TO CONSUMMATE THE TRANSACTIONS
MADE THE SUBJECT OF THIS AGREEMENT SHALL NOT BE CONSTRUED AS, OR BE DEEMED TO
BE, A WAIVER OF BUYER'S RELIANCE ON THE REPRESENTATIONS AND WARRANTIES CONTAINED
IN THIS ARTICLE III AND IN ARTICLE VI IN ELECTING TO CONSUMMATE THE TRANSACTIONS
MADE THE SUBJECT OF THIS AGREEMENT. BUYER REPRESENTS AND WARRANTS THAT THE
ASSETS DO NOT CONSTITUTE "CONSUMER PRODUCTS" WITHIN THE MEANING OF THE
MAGNUSON-MOSS WARRANTY ACT AND THAT IF ANY WARRANTY IS NEVERTHELESS IMPOSED
UNDER THAT ACT BUYER HEREBY WAIVES ANY
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ACTIONS OR REMEDIES AVAILABLE THEREUNDER. BUYER HEREBY WAIVES ANY ACTIONS OR
REMEDIES TO THE EXTENT AVAILABLE TO IT UNDER (i) THE DELAWARE UNIFORM DECEPTIVE
TRADE PRACTICES ACT, DELAWARE CODE SECTION 6-2531, ET SEQ., AND (ii) THE FLORIDA
CONSUMER PROTECTION LAWS, FLA. LAWS CH. 501.
SECTION 3.22. CONSTRUCTION OF CERTAIN PROVISIONS. It is understood and
agreed that neither the specification of any dollar amount in the
representations and warranties contained in this Agreement nor the inclusion of
any specific item in the Schedules or Exhibits is intended to imply that such
amounts or higher or lower amounts, or the items so included or other items, are
or are not material, and neither party shall use the fact of the setting of such
amounts or the fact of the inclusion of any such item in the Schedules or
Exhibits in any dispute or controversy between the parties as to whether any
obligation, item or matter is or is not material for purposes of this Agreement.
SECTION 3.23. ESTOPPEL. Seller's representations and warranties under
this Agreement shall be limited by, and Seller shall have no liability arising
out of, any facts or circumstances which become known to Buyer prior to the
Closing. For purposes of this Section 3.23, any facts or circumstances shall be
deemed to be known by Buyer upon the actual knowledge by Dale S. Baker, Joseph
E. Civiletto or William H. Alderman.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1. ORGANIZATION; AUTHORIZATION; ECT. Buyer is a corporation
duly organized and validly existing under the laws of its jurisdiction of
organization. Buyer has full power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance of Buyer's obligations hereunder and the consummation of the
transactions contemplated hereby by Buyer have been duly and validly authorized
by all necessary corporate proceedings on the part of Buyer and no other
proceedings or actions on the part of Buyer, its board of directors or
stockholders are necessary therefor. The execution, delivery and performance by
Buyer of this Agreement will not (i) violate any provision of the certificate of
incorporation or bylaws or similar organizational instrument of Buyer, (ii)
violate any provision of, or be an event that is (or with the passage of time
will result in) a violation of, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation under, or, except in accordance with the terms of that
certain Amended and Restated Credit Agreement dated June 26, 1996, by and among
Buyer and the Lenders and Issuing Banks thereunder and Citicorp USA, Inc., as
agent for the Lenders and the Issuing Banks, result in the imposition of any
lien upon or the creation of a security interest in any of Buyer's assets or
properties pursuant to, any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment, injunction or decree to which Buyer is a party or
by which Buyer is bound, or (iii) violate or conflict with any statute, rule or
regulation applicable to Buyer or any of its properties or assets or any other
restriction of any kind or character to which Buyer is subject. This Agreement
has been duly executed and delivered by Buyer, and, assuming the due execution
and delivery of this Agreement by Seller, this Agreement constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the rights and remedies of
creditors generally and to general principles of equity (regardless of whether
in equity or at law).
SECTION 4.2. BROKERS, FINDERS, ETC. Buyer has not employed, and is not
subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated hereby who would
have a valid claim for a fee or commission from Seller in connection with such
transactions.
SECTION 4.3. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS,
REPORTS, ETC. There are no registrations, filings, applications, notices,
consents, approvals, orders, qualifications or waivers required to be made,
filed, given or obtained by Buyer with, to or from any Person in connection with
the execution, delivery, performance and consummation of the Asset Purchase,
except for those that become applicable solely as a result of the specific
regulatory status of Seller or its Affiliates.
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SECTION 4.4. LITIGATION; ORDERS. As of the Effective Date, there are no
lawsuits, actions, administrative or arbitration or other proceedings or
governmental investigations pending or, to Buyer's knowledge, threatened by or
against Buyer (to the extent reasonably expected to impact or affect the ability
of Buyer to consummate the Asset Purchase). As of the Effective Date, to Buyer's
knowledge, there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency, or
by arbitration) against Buyer (to the extent reasonably expected to affect the
Assets taken as a whole or impact or affect the ability of Buyer to consummate
the Asset Purchase).
SECTION 4.5. AVS STOCK. AVS is authorized to issue 51,000,000 shares of
capital stock of which (i) 50,000,000 shares are Common Stock, par value $0.001
per share, and (ii) 1,000,000 shares are Preferred Stock, par value $0.01 per
share. As of the date hereof and not including the AVS Shares (a) 8,062,500
shares of AVS's Common Stock have been issued and are outstanding, and (b) none
of AVS's Preferred Stock has been issued.
SECTION 4.6. DISCLOSURE. Buyer has heretofore delivered to the Seller
each of the following:
(a) Buyer's Prospectus dated June 26, 1996 as well as a copy of Buyer's
Quarterly Reports on Form 10Q for quarters ending June 30, 1996 and September
30, 1996; and
(b) All other reports of Buyer filed with the SEC, to the extent that such
reports have been filed with the SEC after the filing of the reports referred to
in Section 4.6(a) above and prior to the execution hereof.
Each of such documents, at the time it was prepared, and all of such
documents taken together, did not and do not contain an untrue statement of
material fact or omit to state any material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. All the financial statements contained in the foregoing
documents were prepared from the books and records of Buyer. The audited
financial statements were prepared in accordance with GAAP, and fairly and
accurately reflect the financial position and condition of Buyer as of the dates
and for the periods indicated. The unaudited financial statements were prepared
in a manner not inconsistent with the basis of presentation used in the audited
financial statements, and fairly present the financial condition of Buyer as at
and for the periods indicated, subject to normal adjustments, none of which will
be material.
SECTION 4.7. THE AVS SHARES. The AVS Shares are validly issued, fully
paid and nonassessable, and upon delivery thereof to Seller, Seller will have
good title to the AVS Shares, free and clear of all liens, claims, encumbrances,
and other equities by nature, except as provided in this Agreement, the
Stockholders Agreement and the Escrow Agreement.
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SECTION 4.8. ACCURACY OF REPRESENTATIONS AND WARRANTIES; SCHEDULES AND
EXHIBITS
(a) No representation, warranty or other statement made by or on behalf
of Buyer in this Agreement or any other document executed or to be executed in
connection therewith contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements herein or therein
taken as a whole not misleading in light of the circumstances under which they
were made.
(b) Disclosure of any fact or item by Buyer in any Schedule or Exhibit
hereto referenced by a particular paragraph or section in this Agreement or in
any certificate delivered on or prior to the Closing Date shall, should the
existence of the fact or item or its contents be relevant to any other paragraph
or section, be deemed to be disclosed with respect to that other paragraph or
section whether or not an explicit cross-reference appears.
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ARTICLE V
COVENANTS OF SELLER AND BUYER
SECTION 5.1. EFFORTS; OBTAINING CONSENTS
(a) Subject to the terms and conditions herein provided, Seller and Buyer
each agree to use reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated hereby, and to cooperate with the other in connection with the
foregoing, including using all reasonable efforts (i) to obtain the waivers,
consents, approvals and authorizations described on SCHEDULE 3.7(B), (ii) to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties hereto to consummate the transactions
contemplated hereby, (iii) to effect all necessary registrations and filings and
submissions of information requested by any Government Authority, and (iv) to
fulfill all conditions to this Agreement.
(b) Seller and Buyer further covenant and agree, with respect to any
threatened or pending preliminary or permanent injunction or other order, decree
or ruling or statute, rule, regulation or executive order that would adversely
affect the ability of the parties hereto to consummate the transactions
contemplated hereby, to respectively use all reasonable efforts to prevent the
entry, enactment or promulgation thereof, as the case may be. In furtherance and
not in limitation of the foregoing, Buyer and Seller shall use all reasonable
efforts to resolve such objections, if any, as may be asserted with respect to
the transactions contemplated hereby.
(c) Each party hereto shall promptly inform the other of any material
communication from any Government Authority regarding any of the transactions
contemplated hereby. If either party or any Affiliate thereof receives a request
for additional information or documentary material from any such Government
Authority with respect to the transactions contemplated hereby, then such party
will endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party where such consultation
is necessary or appropriate, an appropriate response in compliance with such
request.
SECTION 5.2. FURTHER ASSURANCES. Seller and Buyer agree that, from time
to time, whether before, at or after the Closing Date, each of them will, and
will cause their respective Affiliates to, execute and deliver such further
instruments of conveyance and transfer and take such other action as may be
reasonably necessary to carry out the purposes and intents of this Agreement.
Without limiting the generality of the preceding sentence, after the Closing,
and for no further consideration, Seller shall (a) use its reasonable efforts to
enable Buyer to accomplish the transfer or issuance of all authorizations of any
Government Authority and all other registrations, permits, approvals and the
like as contemplated by this Agreement and as shall be required from time to
time for Buyer to operate the Business, and (b) execute, acknowledge and deliver
such assignments, transfers, consents and other documents and instruments as
Buyer or its counsel may reasonably request, in each case, to vest in Buyer, and
protect Buyer's right,
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title and interest in, and enjoyment of, the Assets and the Business
intended to be conveyed, assigned, transferred and granted to Buyer pursuant to
this Agreement. If requested by Buyer, Seller further agrees to use its
reasonable best efforts to prosecute or otherwise enforce in its own name for
the benefit of Buyer any claims, rights or benefits that are transferred to
Buyer by this Agreement and that require prosecution or enforcement in any of
Seller's name. Any prosecution or enforcement of claims, rights or benefits
under this Section 5.2 shall be at Buyer's sole expense, unless the prosecution
or enforcement is made necessary by a breach of this Agreement by Seller.
Following the Closing, Seller shall refer to Buyer, as promptly as practicable,
any telephone calls, letters, orders, notices, requests, inquiries and other
communications relating to the Assets and the Business transferred or granted at
such Closing. Notwithstanding the generality of the foregoing, Seller
acknowledges and agrees that, if, after the Closing, Seller receives any
payments or other consideration attributable to the accounts receivable or notes
receivable included within the Assets, then Seller shall hold any and all such
payments or consideration in trust for the benefit of Buyer and Seller shall
immediately segregate and turn over to Buyer any and all such payments and
consideration. Seller further acknowledges and agrees that the agreements of
Seller contained in the preceding sentence shall be absolute and unconditional
obligations of Seller and shall not be subject to the thresholds, deductibles
and limitations set forth in Article X of this Agreement.
SECTION 5.3. PUBLIC ANNOUNCEMENTS. Seller and Buyer will consult with
each other before issuing, or permitting any agent or Affiliate to issue, any
press releases or otherwise making or permitting any agent or Affiliate to make,
any public statements with respect to this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, Seller and Buyer shall be
permitted to file any required disclosures relating to the Asset Purchase as may
be required by the federal securities laws or by any securities exchange on
which securities of Seller, Buyer or any of their respective Affiliates are
listed, and Seller and Buyer shall, upon the Closing of the Asset Purchase, be
permitted to issue the press release attached hereto as EXHIBIT 5.3.
SECTION 5.4. ACCOUNTS AND NOTES PAYABLE NOTICES. Seller shall assist
Buyer and Buyer's agents and representatives in delivering notices from Seller,
in form and substance reasonably satisfactory to Seller and Buyer, and at
Buyer's sole cost and expense, to each Person to whom Seller anticipates it will
owe an account payable or note payable as of the Closing Date notifying such
Person that Buyer has assumed liability for the payment of such account payable
or note payable pursuant to the terms hereof. Seller hereby covenants and agrees
that it will provide Buyer with a list of the Persons to whom such notice should
be addressed.
SECTION 5.5. POST-CLOSING CONFIDENTIALITY. After the Closing, Seller
shall not use or disclose to any Person any trade or business secrets relating
to the Business, and Seller shall not intentionally disclose, directly or
indirectly, any such information, and shall cause such information to be kept
confidential and not used in any way detrimental to Buyer; PROVIDED, that (i)
Seller may use or disclose any such information which has been publicly
disclosed (other than directly or indirectly by Seller after the Effective
Date), (ii) to the extent that Seller may become legally compelled to disclose
any of such information, Seller may disclose such information if Seller has used
its best efforts, and shall have afforded Buyer the opportunity, to obtain any
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appropriate protective order, or other satisfactory assurance of confidential
treatment, for the information to be so disclosed, (iii) Seller may disclose any
such information to Seller's agents and experts who agree to be bound by this
confidentiality provision, and (iv) Seller may disclose such confidential
information as may be necessary for Seller to prosecute or defend any Claims
related to or arising out of this Agreement.
SECTION 5.6. REGISTRATION OF AVS SHARES. Buyer hereby covenants and
agrees that Buyer will use its best efforts to see that the AVS Shares are
registered in a selling shareholder shelf registration as soon as Buyer is
legally able to effect such registration in accordance with the Securities Act
of 1933 (as amended, or any similar federal statute, and the rules and
regulations promulgated thereunder, all as the same shall be in effect at the
time), and to utilize Form S-3 for this purpose (which registration is legally
precluded until the one year anniversary of the effectiveness of Buyer's initial
S-1 registration statement filed with the Securities and Exchange Commission).
Buyer's obligations under this Section 5.6 will survive the Closing.
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ARTICLE VI
EMPLOYEE BENEFITS
SECTION 6.1. EMPLOYEE BENEFIT PLANS. Seller hereby represents and
warrants to Buyer as follows:
(a) SCHEDULE 6.1(A) lists all compensation and benefit plans, contracts
and arrangements (other than routine administrative procedures or
government-required programs) in effect as of the Effective Date sponsored or
maintained by Seller or its Affiliates including all pension, profit sharing,
savings and thrift, bonus, incentive or deferred compensation, severance pay and
medical and life insurance plans in which any current or former employees of
Seller or their respective dependents (collectively, "EMPLOYEES") participate
(collectively, "EMPLOYEE BENEFIT PLANS").
(b) All Employee Benefit Plans which are "employee benefit plans," as
defined in Section 3(3) of ERISA, are in compliance with and have been
administered in compliance with all applicable requirements of law, including
but not limited to the Code and ERISA, and all contributions or premiums
required to be made to each such plan under the terms of such Plan, ERISA or the
Code for all periods of time prior to the Effective Date and the Closing Date
have been or will be, as the case may be, made or accrued.
(c) Except as otherwise set forth on SCHEDULE 6.1(C), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any material payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due under any Employee Benefit Plan, (ii) materially increase any
benefits otherwise payable under any Employee Benefit Plan, or (iii) result in
the acceleration of the time of payment or vesting of any such benefits to any
material extent.
SECTION 6.2. TERMINATION OF PARTICIPATION. Except as otherwise provided
in this Article VI, the active participation of all Employees in each Employee
Benefit Plan shall cease as of the Closing Date and no additional benefits shall
be accrued thereunder for such employees.
SECTION 6.3. PROFIT SHARING PLAN. Effective as of the Closing Date,
Seller shall take, or shall cause to be taken, all action necessary to fully
vest all Active Employees in their accrued benefits, if any, under the Seller's
Profit Sharing Plan (the "PROFIT SHARING PLAN") and to provide for allocation of
contributions accrued prior to the Closing Date with respect to the Active
Employees who are participants in the Profit Sharing Plan as of the Closing
Date. As of the Closing Date, Seller shall make all contributions on behalf of
all Active Employees to the Profit Sharing Plan attributable to service and
compensation for such Active Employees through the Closing Date, whether or not
such contributions are due under the terms of the Profit Sharing Plan and
terminate Seller's Profit Sharing Plan. Seller shall, to the extent legally
permissible, cause a spin-off and transfer, in compliance with Section 414(l) of
the Code, from the trust for the Profit Sharing Plan to a trust established by
and for a defined contribution savings plan qualified under
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Sections 401(a) and 401(k) of the Code maintained or established by
Buyer ("BUYER'S 401(K) PLAN") of an amount in cash equal to the aggregate
account balances, as of the date of such transfer, of the Hired Employees (as
defined in Section 6.4) who are participants under the Profit Sharing Plan as of
such transfer date. Any such transfer shall occur as soon as practicable after
all of the following have occurred: (a) the Closing, (b) the designation (or
amendment, if necessary) of Buyer's 401(k) Plan, (c) the receipt by Seller of a
favorable determination letter issued by the Internal Revenue Service for
Buyer's 401(k) Plan or an opinion of counsel of Buyer reasonably satisfactory to
Seller opining that the Buyer's 401(k) Plan is a qualified plan under Sections
401(a) and 401(k) of the Code, and, if applicable, (d) the expiration of thirty
(30) days after both Buyer and Seller have filed Form 5310-A, if necessary, with
the Internal Revenue Service. From and after the date of such transfer, the
Hired Employees who are participants under the Profit Sharing Plan as of such
transfer date shall be participants under Buyer's 401(k) Plan. If such a
transfer to Buyer's 401(k) Plan is not legally permissible, then Seller shall
cause the amounts in Seller's Profit Sharing Plan to be distributed to the
participants therein upon termination.
SECTION 6.4. EMPLOYEES
(a) At Closing, Buyer agrees to offer employment to all Persons listed on
SCHEDULE 6.4(A) and any Persons which are hired by Seller to replace such
employees prior to the Closing Date (collectively, "ACTIVE EMPLOYEES") on such
terms and conditions as may be determined by Buyer in its sole discretion;
provided, however, that the base salary of such hired persons shall not be less
than their base salaries as of the Closing Date (the Persons actually hired by
Buyer are referred to herein as the "HIRED EMPLOYEES"). Buyer agrees to assume
all accrued but unpaid vacation time of the Hired Employees as of the Closing
Date.
(b) Buyer shall indemnify and shall hold Seller and the Seller Indemnified
Parties harmless from and against all Covered Liabilities with respect to all
Hired Employees for all actions of Buyer occurring after the Closing Date,
including any Covered Liabilities with respect to Hired Employees arising out of
the transactions contemplated by this Agreement. Without limiting the foregoing,
Buyer shall indemnify and shall hold Seller and the Seller Indemnified Parties
harmless from and against any claims asserted by any Hired Employee for any
severance package from Seller.
(c) Seller agrees that, without the prior written consent of Buyer, which
consent may be withheld in Buyer's sole discretion, neither Seller nor any
Affiliate will hire or offer to hire any of the Active Employees identified on
SCHEDULE 6.4(A) attached hereto, for a period of five (5) years after the
Closing Date. The agreements contained in this Section 6.4(c) shall be enforced
in accordance with the provisions of Section 11.13(c).
(d) Notwithstanding anything in this Agreement to the contrary, Seller and
Buyer covenant and agree to cooperate and to consult with each other to ensure
that neither Seller nor Buyer, nor both of them, violate any federal or state
equal opportunity anti-discrimination, wage and hour or any other employment
law, rule or regulation that is or may be applicable to the
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provisions hereof (collectively, "EMPLOYMENT LAWS"). Each of Seller and
Buyer covenant and agree that neither will take any separate actions or
omissions, or joint actions or omissions, which would cause either Seller or
Buyer, or both, to violate any of the Employment Laws. Seller and Buyer further
covenant and agree that in the event any of the Employment Laws are violated,
Seller shall be solely responsible and liable for any and all Claims relating to
any violation by Seller of the Employment Laws (except to the extent Seller is
indemnified by Buyer for violations of Employment Laws by Buyer with respect to
the Hired Employees pursuant to the terms of this Agreement), and Buyer shall be
solely responsible and liable for any and all Claims relating to any violation
by Buyer of the Employment Laws.
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ARTICLE VII
TAX MATTERS
SECTION 7.1. TAX RETURNS. Seller represents and warrants that all Tax
returns required to be filed for taxable periods ending on or prior to the
Closing Date by, or with respect to any activities of, the Business have been or
will be filed in accordance with all applicable laws. All Taxes with respect to
Seller (whether or not requiring the filing of a return and including any
interest, penalties and additions thereto) due and payable have been, and as of
the Closing Date will have been, timely paid in full. To Seller's knowledge,
neither Seller nor any Affiliate of Seller is a party to any threatened action
or proceeding for assessment or collection of Taxes and no claim for assessment
or collection of Taxes has been asserted against Seller, any Affiliate of Seller
or any member of such affiliated or combined group. Seller represents and
warrants that SCHEDULE 7.1 attached hereto sets forth the name, address and
account number of all taxing authorities for which Seller has paid Taxes related
to the Business since Seller's inception. Seller is not a foreign person within
the meaning of Section 1445 of the Code.
SECTION 7.2. SALES, TRANSFER AND SIMILAR TAXES. Buyer shall be liable
for, and shall hold harmless Seller and the Seller Indemnified Parties, from and
against any and all Taxes and fees levied in connection with the transfer of the
Assets to Buyer, including but not limited to sales, transfer, use, and filing
fees and Taxes. Buyer and Seller shall each be liable for, and shall hold
harmless the other party and the Seller Indemnified Parties and the Buyer
Indemnified Parties, as the case may be, from and against any income Taxes
levied against such party in connection with the transactions contemplated by
this Agreement.
SECTION 7.3. COOPERATION AND EXCHANGE OF INFORMATION
(a) As soon as practicable, but in any event within thirty (30) days after
Seller's request, from and after the Closing Date, Buyer shall provide Seller
with such cooperation and shall deliver to Seller such information and data
concerning the pre-Closing operations of the Business and make available such
knowledgeable Hired Employees as Seller may reasonably request, including
providing the information and data required by Seller's customary Tax and
accounting questionnaires, in order to enable Seller to complete and file all
Tax returns which it or its Affiliates may be required to file with respect to
the operations and business of Seller through the Closing Date or to respond to
audits by any taxing authorities with respect to such operations and to
otherwise enable Seller to satisfy its internal accounting and Tax requirements.
Such cooperation and information shall include promptly forwarding copies of
appropriate notices and forms or other communications received from or sent to
any taxing authority which relate to the operations and business of Seller
through the Closing Date, and providing copies of all relevant Tax returns,
together with accompanying schedules and related workpapers, documents relating
to rulings or other determinations by any taxing authority and records
concerning the ownership and Tax basis of property, which Buyer may possess and
which relate to the operation and business of Seller through the Closing Date.
Buyer shall make its employees and facilities
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available on a mutually convenient basis to provide explanation of any
documents or information provided hereunder.
(b) For a period of seven (7) years after the Closing Date or such
longer period as may be required by law, Buyer shall retain in accordance with
I.R.S. Rev. Proc. 86-19 and 91-59, and neither destroy nor dispose of, all Tax
returns, books and records (including computer files) of, or with respect to the
activities of, the Business for all taxable periods ending on or prior to the
Closing Date. Thereafter, Buyer shall not destroy or dispose of any such Tax
returns, books or records unless it first uses its best efforts to offer such
Tax returns, books and records to Seller in writing at least sixty (60) days
prior to such proposed destruction or disposition; PROVIDED, HOWEVER, that sixty
(60) days after Buyer offers such Tax returns, books or records to Seller in
writing, if Seller does not accept such offer, Buyer shall be free to dispose of
or destroy such records and if Seller accepts such offer, Buyer shall no longer
have any obligation hereunder with respect to records delivered to Seller.
(c) Buyer and Seller and their respective Affiliates shall cooperate in
the preparation of all Tax returns relating in whole or in part to taxable
periods ending on or before or including the Closing Date that are required to
be filed after such date, a list of which is set forth on SCHEDULE 7.3(C)
attached hereto. Such cooperation shall include, but not be limited to,
furnishing prior years' Tax returns or return preparation packages illustrating
previous reporting practices or containing historical information relevant to
the preparation of such Tax returns, and furnishing such other information
within such party's possession requested by the party filing such Tax returns as
is relevant to their preparation. In the case of any state, local or foreign
joint, consolidated, combined, unitary or group relief system Tax returns, such
cooperation shall also relate to any other taxable periods in which one party
could reasonably require the assistance of the other party in obtaining any
necessary information.
(d) Seller shall have the right, at its own expense, to control any
audit or examination by any taxing authority ("TAX AUDIT"), initiate any claim
for refund, contest, resolve and defend against any assessment, notice of
deficiency, or other adjustment or proposed adjustment relating to any and all
Taxes for any taxable period ending on or before the Closing Date with respect
to the Business. In this regard, Seller agrees, notwithstanding any other
provision of this Agreement, to indemnify, defend, and hold harmless Buyer and
the Buyer Indemnified Parties from and against any and all claims, liabilities,
damages, losses, actions, causes of action, costs fees and expenses, including
without limitation, court costs and attorney's fees and expenses, in any way
arising out of any such Tax Audit. The indemnities of Seller contained in this
Section 7.3(d) shall be absolute and unconditional obligations of Seller and
shall not be subject to the thresholds, deductibles and limitations set forth in
Article X.
(e) If either party fails to provide any information reasonably
requested by the other party that such other party is obligated to provide to
the requesting party pursuant to the terms of this Agreement in the time
specified herein, or if no time is specified pursuant to this Section 7.3,
within a reasonable period, or otherwise fails to do any act required of it
under this Section 7.3, then the other party shall be obligated, notwithstanding
any other provision of this Agreement,
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to indemnify the requesting party and the Seller Indemnified Parties or
the Buyer Indemnified Parties, as the case may be, and the other party shall so
indemnify and hold harmless the requesting party and the Seller Indemnified
Parties or the Buyer Indemnified Parties, as the case may be, from and against
any and all costs, claims or damages, including all Taxes or deficiencies
thereof, payable as a result of such failure.
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ARTICLE VIII
CONDITIONS OF BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to consummate the Asset Purchase shall be subject to
the satisfaction on or prior to the Closing Date, or waiver by Buyer, of all of
the following conditions:
SECTION 8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. The
representations and warranties of Seller contained in this Agreement shall have
been true on the Effective Date without regard to any schedule updates and shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, except for representations and warranties that speak as of
a specific date or time other than the Closing Date (which need only be true and
correct in all material respects as of such date or time), and the covenants and
agreements of Seller to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed or complied with in all
material respects.
SECTION 8.2. FILINGS; CONSENTS. All registrations, filings,
applications, notices, consents, assignments, approvals, estoppel certificates,
orders, qualifications and waivers either (a) listed on SCHEDULE 3.7(B) and
indicated thereon as being a condition to the Closing for Buyer or (b) described
in Section 5.1(a)(iv) shall have been filed, made or obtained.
SECTION 8.3. NO INJUNCTION OR PENDING LITIGATION. At the Closing Date,
there shall be no legislation, injunction, restraining order or decree of any
nature of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the Asset Purchase, and
there shall be no action, suit or proceeding, in law or in equity, instituted or
threatened before any federal, state, county or local court, department,
commission, agency or other instrumentality or arbitrator or similar entity
pertaining to the transactions contemplated by this Agreement or to their
consummation, excluding any action, suit or proceeding instituted or threatened
by Buyer.
SECTION 8.4. DELIVERY OF RECORDS. Seller shall have delivered all
Records in its possession to Buyer in accordance with the provisions of Section
2.9.
SECTION 8.5. RELEASES OF LIENS. Buyer shall have received releases of
all liens with respect to the Assets in recordable form executed by all holders
of liens that are of record in any jurisdiction; all of which shall operate to
release any and all liens and encumbrances affecting the Assets, except for
Permitted Liens.
SECTION 8.6. PERFORMANCE OF SELLER'S OBLIGATIONS. Seller shall have
furnished or caused to be furnished to Buyer, all items required to be furnished
to Buyer pursuant to other Sections of this Agreement, including without
limitation, the documents described in Sections 2.4(b) and 2.4(c), and otherwise
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with prior to the Closing.
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SECTION 8.7. NO MATERIAL ADVERSE CHANGE. Buyer shall have determined to
its satisfaction that there has been no material adverse change in the condition
of the Business or of Seller which would reasonably be expected to affect the
Business, except as may be contemplated by or result from any operations of the
Business to the extent such operations are consistent with the terms and
provisions of this Agreement.
SECTION 8.8. DUE DILIGENCE. Buyer shall be satisfied in its sole
discretion as to the results of its due diligence investigation of Seller,
including, without limitation, of the Business, the Assets, the Assumed
Liabilities, and its review of the Financial Information described on SCHEDULE
3.2.
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ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to consummate the Asset Purchase is subject to the
satisfaction on or prior to the Closing Date, or waiver by Seller, of all of the
following conditions:
SECTION 9.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date except for representations and warranties that speak as of a
specific date or time other than the Closing Date (which need only be true and
correct in all material respects as of such date or time) and the covenants and
agreements of Buyer to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed in all material respects.
SECTION 9.2. NO INJUNCTION OR LITIGATION. At the Closing Date, there
shall be no legislation, injunction, restraining order or decree of any nature
of any court or Government Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the Asset Purchase, excluding
any injunction, restraining order or decree resulting from action initiated by
Seller, and there shall be no action, suit or proceeding, in law or in equity,
instituted or threatened before any federal, state, county or local court,
department, commission, agency or other instrumentality or arbitrator or similar
entity pertaining to the transactions contemplated by this Agreement or to their
consummation, or challenging the legality or validity of this Agreement,
excluding any action, suit or proceeding instituted or threatened by Seller.
SECTION 9.3. DELIVERY OF INITIAL PURCHASE PRICE AND CLOSING DOCUMENTS.
Buyer shall have delivered to Seller the Initial Purchase Price and have
executed and delivered to Seller the documents described in Sections 2.4(b) and
2.4(d).
SECTION 9.4. PERFORMANCE OF BUYER'S OBLIGATIONS. Buyer shall have
furnished or caused to be furnished to Seller, all items required to be
furnished to Buyer pursuant to other Sections of this Agreement and otherwise
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with prior to the Closing.
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ARTICLE X
SURVIVAL; INDEMNIFICATION
SECTION 10.1. SURVIVAL
(a) Except as otherwise provided in Section 5.6 and Section 7.3(d), all
representations, warranties and (except as provided in Section 10.1(e))
covenants and agreements of the parties contained in this Agreement, or any
certificate, document or other instrument delivered in connection herewith (to
the extent not fully performed prior to the Closing Date), shall survive the
Closing only until the EARLIER OF (i) the twelfth (12th) month anniversary of
the Closing, and (ii) with regard to those items and matters that would be
discovered in the course of an audit conducted by Buyer's independent auditors,
the date on which Buyer releases its audited financial statements showing the
results of the combined operations of Buyer and the Business, except for the
liabilities or obligations of Seller relating to the payment of Taxes which
shall survive until the applicable statute of limitations shall have expired.
Notwithstanding the terms of this Section 10.1(a), Seller and Buyer hereby
acknowledge and agree that Seller's obligations with respect to the London
Matter (x) are NOT subject to the limitations on survival described in this
Section 10.1(a), and (y) shall continue as absolute obligations of Seller
following the Closing.
(b) No action or proceeding may be brought with respect to any of the
representations, warranties, covenants or agreements set forth in this
Agreement, unless written notice thereof, setting forth in reasonable detail the
claimed misrepresentation or breach of warranty, covenant or agreement, shall
have been delivered to the party alleged to have breached such representation,
warranty, covenant or agreement prior to the expiration of the survival time set
forth for such representation, warranty, covenant or agreement in Section
10.1(a) and Section 10.1(e).
(c) In calculating any amount of loss payable to Seller pursuant to
Section 10.2(a) or payable to Buyer pursuant to Section 10.2(b), amounts shall
not be included for special damages, consequential damages, incidental damages,
lost profits, damages for lost business opportunity, punitive damages or
exemplary damages.
(d) Notwithstanding any provision to the contrary contained in this
Agreement, neither Buyer nor Seller shall make any claim against the other party
for any breach of representation, warranty, covenant or agreement under this
Agreement until the dollar amount of all loss to such other party for such
breaches suffered after the Closing, shall exceed in the aggregate the amount of
$50,000, and, if such amount is exceeded, Buyer or Seller, as the case may be,
shall be required to pay the entire amount of such aggregate loss to the other
party for all such breaches; PROVIDED, HOWEVER, that, except as set forth below
with regard to the Retained Liabilities, Seller's obligations and liabilities
with respect to representations, warranties, covenants and agreements set forth
in this Agreement shall not exceed $1,000,000, and PROVIDED FURTHER, HOWEVER,
that the indemnities of Seller with respect to any Claims against any of the
Buyer Indemnified Parties relating to Seller's failure to satisfy the Retained
Labilities and of Buyer with respect to any Claims against any of the Seller
Indemnified Parties relating to Buyer's failure to satisfy the
42
<PAGE>
Assumed Liabilities, respectively, shall be absolute and unconditional
obligations of Seller and Buyer, respectively, and shall not be subject to the
thresholds and limitations set forth in this Article X.
(e) Those covenants or agreements that contemplate or may involve actions
to be taken or obligations in effect after the Closing shall survive in
accordance with their terms.
SECTION 10.2. GENERAL INDEMNIFICATION BY BUYER OR SELLER
(a) From and after the Closing Date, Buyer shall indemnify and hold
harmless Seller, Seller's Affiliates, and each of their respective directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "SELLER INDEMNIFIED PARTIES")
(i) subject to the applicable notification and timing requirements and the other
limitations provided in Section 10.1, from and against any and all Covered
Liabilities arising out of any breach of any representation or warranty or of
any covenant or agreement which survives the Closing made by Buyer under this
Agreement, (ii) from and against any and all Covered Liabilities arising out of
the failure of Buyer to pay, discharge or perform any of the Assumed
Liabilities, and (iii) the operation of the Business by Buyer after the Closing
Date.
(b) From and after the Closing Date, Seller shall indemnify and hold
harmless Buyer, Buyer's Affiliates, each of their respective directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "BUYER INDEMNIFIED PARTIES")
from and against (i) subject to the applicable notification and timing
requirements and other limitations and obligations provided in Sections 10.1 and
10.3, any and all Covered Liabilities arising out of any breach of any
representation or warranty or of any covenant or agreement which survives the
Closing made by or on behalf of Seller under this Agreement, and (ii) any and
all Covered Liabilities arising out of the failure of Seller to pay, discharge
or perform any of the Retained Liabilities, including, without limitation, the
London Matter.
(c) Except as may otherwise be provided herein, indemnification
pursuant to this Article X shall be the exclusive remedy for any breach by
either party of any representation or warranty contained in this Agreement.
SECTION 10.3. THIRD PARTY CLAIMS. If a claim by a third party is made
against an indemnified party (i.e., a Seller Indemnified Party or a Buyer
Indemnified Party), and if such indemnified party intends to seek indemnity with
respect thereto under this Article X, such indemnified party shall promptly
notify the indemnifying party in writing of such claims setting forth such
claims in reasonable detail. The indemnifying party shall have thirty (30) days
(or such shorter period as may be necessary to prevent the loss of any rights or
claims) after receipt of such notice to undertake, through counsel of its own
choosing (subject to the reasonable approval of the indemnified party) and at
its own expense, the settlement or defense thereof, and the indemnified party
shall cooperate with it in connection therewith; PROVIDED, HOWEVER, that the
indemnified party may participate in such settlement or defense through counsel
chosen by such
43
<PAGE>
indemnified party, PROVIDED that the fees and expenses of such counsel
shall be borne by such indemnified party. The indemnified party shall have the
right to pay or settle any such claim, PROVIDED that in such event it shall
waive any right to indemnity therefor by the indemnifying party unless the
indemnifying party has consented in writing to such payment or settlement. If
the indemnifying party does not notify the indemnified party within thirty (30)
days (or such shorter period as may be necessary to prevent the loss of any
rights or claims) after the receipt of the indemnified party's notice of a claim
of indemnity hereunder that it elects to undertake the defense thereof, the
indemnified party shall have the right to contest, settle or compromise the
claim but shall not thereby waive any right to indemnity therefor pursuant to
this Agreement.
SECTION 10.4. BULK SALES WAIVER; INDEMNIFICATION. Buyer hereby waives
compliance by Seller with the provisions of any applicable "bulk sales" or
similar laws, subject to the indemnity of Seller contained in this Section 10.4.
Seller hereby agrees to indemnify, defend, and hold harmless Buyer and the Buyer
Indemnified Parties from and against any and all claims, liabilities, damages,
losses, actions, causes of action, costs, fees and expenses, including, without
limitation, court costs and attorney's fees, in any way arising out of any "bulk
sales" or similar laws applicable to the Asset Purchase, unless the claim
relates to an Assumed Liability. Seller acknowledges and agrees that the
agreements of Seller contained in this Section 10.4 shall be absolute and
unconditional obligations of Seller and shall not be subject to the thresholds,
deductibles and limitations set forth in Article X of this Agreement.
44
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NON-ASSIGNABLE UNDERTAKINGS AND RIGHTS. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to assign any claim, contract, license, permit, lease, commitment,
sales order or purchase order which would otherwise be assigned hereunder if any
attempted assignment thereof without the consent of the other party thereto or
the grantor thereof would constitute a breach thereof or would in any way affect
the rights of Seller thereunder. If such consent is not obtained, Seller shall
act as the agent for Buyer in order to obtain for Buyer the benefits thereunder.
To the extent that consents or waivers are not obtained by Seller prior to
Closing but Buyer elects to consummate the Asset Purchase, Seller and Buyer
shall continue to seek such consents or waivers and to cooperate with each other
to establish, to the extent practicable, arrangements that are reasonable and
lawful as to both Seller and Buyer, and which result in the benefits and
obligations under such assumed contracts, leases and permits being apportioned
in a manner that is in accordance with the purpose and intention of this
Agreement.
SECTION 11.2. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 11.2, PROVIDED receipt of copies of such counterparts is confirmed.
SECTION 11.3. GOVERNING LAWS. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to the choice of law principles thereof.
SECTION 11.4. ENTIRE AGREEMENT. This Agreement (including agreements
incorporated herein), and the Schedules and Exhibits hereto and the London
Matter Memorandum supersede any and all previous agreements and understandings
between the parties and contain the entire agreement between the parties with
respect to the subject matter of this Agreement and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein. Except for Sections 2.2, 10.2, and 10.3,
which are intended to benefit, and to be enforceable by, any of the Seller
Indemnified Parties and the Buyer Indemnified Parties, as the case may be, and
Sections 2.4, 2.8, 5.2, 10.2 and 11.1, which are intended to benefit and be
enforceable by Seller and any Affiliate of Seller, as the case may be, this
Agreement is not intended to confer upon any Person not a party hereto (other
that the successors and assigns of the parties hereto as permitted by Section
11.8) any rights or remedies hereunder and no other Person, including any
present or future employees of Buyer or Seller, shall be treated as a
third-party beneficiary of any of the provisions of this Agreement.
45
<PAGE>
SECTION 11.5. EXPENSES. Whether or not the Asset Purchase is
consummated, all legal and other costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses. Notwithstanding the foregoing, Buyer
agrees to pay reasonable attorneys fees incurred by Seller in connection with
this Agreement and the Asset Purchase.
SECTION 11.6. NOTICES. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to
Seller shall be addressed to:
AvEng Trading Partners, Inc.
518 North J.M. Davis Boulevard
Claremore, Oklahoma 74107
Attn: Mr. James C. Stoecker
President
Telecopy Number: (918) 343-1413
with a copy to:
Jeffrey Rubenstein, Esq.
Much, Schelist, Freed, Denenberg, Ament, Bell & Rubenstein
200 North LaSalle
Chicago, Illinois 60601
Telecopy Number: (312) 621-1750
or at such other address and to the attention of such other Person as Seller may
designate by written notice to Buyer. Notices to Buyer shall be addressed to:
Aviation Sales Company
6905 N.W. 25th Street
Miami, Florida 33122
Attention: Dale S. Baker, President
Telecopy Number: (305) 599-6610
with a copy to:
Boyar, Simon & Miller, P.C.
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attention: J. William Boyar, Esq.
Telecopy Number: (713) 552-1758
46
<PAGE>
or at such other address and to the attention of such other Person as Buyer may
designate by written notice to Seller.
SECTION 11.7. [INTENTIONALLY LEFT BLANK]
SECTION 11.8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, including, without limitation, Seller's shareholders in
the event of a liquidation of Seller as described in Section 2.10; PROVIDED,
HOWEVER, that no party hereto will assign its rights or delegate its obligations
under this Agreement without the express prior written consent of each other
party hereto. Notwithstanding the provisions of the first sentence of this
Section 11.8, (a) on or after the Closing Date, Seller shall be entitled to
assign all of its rights and obligations to any successor entity that may
acquire all or substantially all its assets or business, by merger or otherwise,
without the prior written consent of Buyer, and (b) this Agreement, and all
agreements, documents and instruments contemplated hereby, may be assigned by
Buyer to (i) financial institutions (for the purposes of granting security
interests herein) and/or (ii) a wholly-owned subsidiary of Buyer (for the
purposes of assigning the Buyer's interest herein and therein) without the prior
written consent of the Seller; PROVIDED, HOWEVER, that any assignee of any
assignment shall be subject to all claims of offset and all defenses that may be
asserted by the other party to this Agreement against the assignor to such
assignment; and PROVIDED FURTHER, that no such assignment shall relieve Buyer of
its obligations hereunder.
SECTION 11.9. HEADINGS; DEFINITIONS. The Section, Article and other
headings contained in this Agreement are inserted for convenience of reference
only and will not affect the meaning or interpretation of this Agreement. All
capitalized terms defined herein are equally applicable to both the singular and
plural forms of such terms.
SECTION 11.10. AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
all parties hereto. Any party hereto may, only by an instrument in writing,
waive compliance by the other party hereto with any term or provision of this
Agreement on the part of such other party hereto to be performed or complied
with. The waiver by any party hereto of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
SECTION 11.11. INTERPRETATION; ABSENCE OF PRESUMPTION
(a) For the purposes of this Agreement, (i) "to Seller's knowledge"
shall mean the actual knowledge of James C. Stoecker after due inquiry, which
may be satisfied by consultation with Seller's Management Team, and, where
appropriate, outside legal counsel, (ii) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires, (iii) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any
47
<PAGE>
particular provision of this Agreement, and Article, Section, paragraph, Exhibit
and Schedule references are to the Articles, Sections, paragraphs, Exhibits and
Schedules to this Agreement unless otherwise specified, (iv) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified, (v) the word "or"
shall not be exclusive, and (vi) provisions shall apply, when appropriate, to
successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
SECTION 11.12. SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without affecting in any way the remaining provisions of
this Agreement.
SECTION 11.13. SETTLEMENT OF DISPUTES
(a) Except as provided in Section 2.7(b) and Section 11.13(c), any
dispute or controversy between the parties hereto arising from or relating to
this Agreement or the construction, validity, interpretation, meaning,
performance, non-performance, enforcement, operation or breach of this Agreement
shall be submitted to mediation, and if such mediation is unsuccessful then to
mandatory, final and binding arbitration. If there arises any dispute or
controversy arising from or relating to this Agreement in connection with which
a party seeks to impose personal liability upon a Seller Indemnified Party or a
Buyer Indemnified Party, the Seller Indemnified Party or the Buyer Indemnified
Party against whom such claim is made has the right, but is not required, to
require that such dispute or controversy be submitted to mediation, and if such
mediation is unsuccessful then to mandatory, final and binding arbitration, in
accordance with the provisions of this Section 11.13. Prior written notice of
any dispute or controversy described in the preceding sentence shall be
delivered to the Seller Indemnified Party or to the Buyer Indemnified Party,
who, within ten (10) days after delivery of the notice, shall deliver to the
demanding party a written statement of whether the mediation and arbitration
provisions of this Section 11.13 are elected. If the written response of the
Seller Indemnified Party or the Buyer Indemnified Party is not timely delivered
to the claiming party, the provisions of this Section 11.13 shall not apply to
such dispute or controversy.
(b) Any mediation or arbitration under this Agreement shall take place
pursuant to the following procedures:
(i) If a dispute or controversy arises, either party may, in a
written notice delivered to the other party, demand mediation. The
notice shall briefly state the matter in controversy.
(ii) If the parties do not resolve the dispute within ten (10)
days after delivery of the notice of mediation, either party may
request that Judicial Arbitration and Mediation
48
<PAGE>
Service ("JAMS") (or similar mediation service of a similar national
scope if JAMS no longer then exists) appoint an independent mediator,
who shall serve as mediator for all purposes hereof. Each party shall
pay one-half of the cost of the mediator's services, in advance upon
request by the mediator or any party.
(iii) Within ten (10) days after appointment of the mediator,
the mediator shall schedule a meeting among the parties and the
mediator for the purpose of mediating the dispute. If the parties do
not resolve the dispute with thirty (30) days after appointment of the
mediator, the dispute shall be resolved in arbitration and either party
may, in a written notice delivered to the other party, demand
arbitration. The notice shall name and appoint an arbitrator selected
by the party demanding arbitration.
(iv) Within thirty (30) days after receiving a demand for
arbitration, the receiving party shall, in a written notice delivered
to the demanding party, name and appoint its own arbitrator. If the
receiving party fails to name and appoint an arbitrator timely, then an
arbitrator shall be appointed for the receiving party by the Senior
United States District Judge for the Southern District of Florida. The
two arbitrators so appointed shall appoint a third arbitrator within
thirty (30) days, and the appointment may be made either by agreement
of the two arbitrators or by the Senior United States District Judge
for the Southern District of Florida at the request of the two
arbitrators.
(v) Each party shall bear its own arbitration fees, costs and
expenses; PROVIDED, HOWEVER, that fees, costs and expenses associated
with judicial proceedings may be awarded by a court under Section
11.13(b)(vii). The arbitration hearing shall be held in Miami, Florida
at a location designated by a majority of the arbitrators. The
Commercial Arbitration Rules of the American Arbitration Association,
as supplemented hereby, shall apply to the arbitration. The substantive
laws of the State of Delaware (excluding conflict of laws provisions)
shall also apply to the arbitration.
(vi) The arbitration hearing shall be concluded within ten
(10) days unless otherwise ordered by a majority of the arbitrators,
and the award thereon shall be made within fifteen (15) days after the
close of submission of evidence. An award rendered by a majority of the
arbitrators shall be final and binding on all parties to the
proceeding, except for any appeal rights available under applicable
law, and judgment on the award may be entered by either party in a
court of competent jurisdiction.
(vii) The parties stipulate that the provisions of this
Section 11.13 shall be a complete defense to any suit, action or
proceeding instituted in any federal, state or local court or before
any administrative tribunal with respect to any controversy or dispute
arising out of this Agreement between the parties. The arbitration
provisions of this Agreement shall, with respect to such controversy or
dispute, survive the termination or expiration of this Agreement.
Should any party institute judicial proceedings seeking to avoid the
mediation or arbitration provisions of this Agreement, or should any
party in judicial proceedings unsuccessfully contest an arbitration
award rendered under this Section
49
<PAGE>
11.13, the other party shall be entitled to recover reasonable
attorney's fees, costs and expenses associated with the judicial
proceedings, with the amount of attorney's fees, costs and expenses to
be determined by the court. If a party fails to comply with the terms
of an arbitration award made under this Agreement, the other party
shall be entitled to recover reasonable attorney's fees, costs and
expenses incurred in seeking judicial confirmation of the award, with
the amount of attorney's fees, costs and expenses to be determined by
the court. Failure to comply with the terms of an arbitration award
shall include without limitation the failure to pay the full amount due
under an arbitration award within the time specified in the arbitration
award.
Neither any party hereto nor the arbitrators may disclose the existence or
results of any arbitration hereunder without the prior written consent of the
other party; nor may any party hereto disclose to any third party any
confidential information disclosed by any other party hereto in the course of an
arbitration hereunder without the prior written consent of such other party.
(c) EMERGENCY RELIEF. Notwithstanding anything in this Section 11.13 to
the contrary, either party may seek from a court any provisional remedy that may
be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
(i) JURISDICTION. In connection only with the provisions of
Section 11.13, each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court for the
Southern District of Florida and, if such court does not have
jurisdiction, of the courts of the State of Florida in Dade County, for
the purposes of any Action arising out of this Agreement or the subject
matter of this Agreement brought by any other party under Section 11.13
of this Agreement.
(ii) WAIVER OF DEFENSES. In connection only with the
provisions of this Section 11.13, to the extent permitted by applicable
law, each party hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise, in any such Action under this
Section 11.13, any claim (A) that it is not personally subject to the
jurisdiction of the above-named courts, (B) that the Action is brought
in an inconvenient forum, (C) that it is immune from any legal process
with respect to itself or its property, (D) that the venue of the suit,
action or proceeding is improper, or (E) that this Agreement or the
subject matter of this Agreement may not be enforced in or by such
courts.
(iii) SERVICE OF PROCESS. In connection only with the
provisions of this Section 11.13, Buyer and Seller agree that, even if
at any time during the term of this Agreement Buyer is not qualified to
do business as a foreign corporation in the State of Florida, or Seller
is not qualified to do business as a foreign corporation in the State
of Florida, Buyer and Seller each shall and do hereby irrevocably
designate and appoint the Secretary of State of the State of Florida as
its agent for service of process in any Action with respect to any
matter as to which it submits to jurisdiction as set forth above; it
being agreed that any method of service upon such agent, with a copy
sent to Buyer or Seller,
50
<PAGE>
as the case may be, in the manner set forth in Section 11.7, shall
constitute valid service upon Buyer or Seller, as the case may be.
(iv) JUDICIAL RELIEF FOR BREACH OF NON-SOLICITATION
PROVISIONS. Notwithstanding anything in this Section 11.13 to the
contrary, a dispute or controversy relating to a violation or
threatened violation of Section 6.4(c) of this Agreement shall not be
subject to the mediation and arbitration provisions of this Section
11.13, and either party may seek from a court of law any available
judicial remedy, whether legal or equitable (including but not limited
to injunctive relief and damages), based on a breach or threatened
breach of Section 6.4(c) of this Agreement.
(d) DISCLOSURE OF ARBITRATOR'S FINDINGS. Notwithstanding any provision
to the contrary contained in this Agreement, the parties shall have the right to
make disclosure of the findings of the Arbitrator in any Mediation or
Arbitration conducted in accordance with this Section 11.13 to the extent
required or reasonably necessary in connection with any other Mediation or
Arbitration or as may be required by a court of law or equity.
SECTION 11.14. SURVIVAL. The disclaimers, waivers, releases,
renunciations and other rights and obligations of the parties under Sections
3.21 and 11.13 of this Agreement shall survive forever and shall specifically
survive any transfer of title or possession of any Purchased Inventory, any
termination or expiration of this Agreement or any impossibility of performance
of this Agreement or frustration of purpose of this Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties as of the Effective Date.
AVENG TRADING PARTNERS, INC.
By:______________________________
James C. Stoecker, President
AVIATION SALES COMPANY
By:______________________________
Dale S. Baker, President
The undersigned
Seller's Stockholders
hereby execute this
Agreement for the sole
purpose of evidencing
their agreement to the
provisions of Section
2.10
_________________________________
JAMES C. STOECKER
_________________________________
KATHRYN M. STOECKER
_________________________________
MARK F. STIEGAL
_________________________________
AL SHORT
Signature Page to
Asset Purchase Agreement
By and Between
AvEng Trading Partners, Inc. and
Aviation Sales Company
52
<PAGE>
SCHEDULE 2.10
LIST OF SELLER'S STOCKHOLDERS AND
SHARES DISTRIBUTED IN CONNECTION WITH SELLER'S LIQUIDATION
James C. Stoecker 23,320 Shares
Kathryn M. Stoecker 256,680 Shares
Mark F. Stiegal 80,000 Shares
Al Short 40,000 Shares
53
<PAGE>
EXHIBIT 2.4(C)(II)
FORM OF MATERIALS CERTIFICATION
The undersigned hereby certifies that, to the undersigned's knowledge
without independent investigation, the material supplied to Aviation Sales
Operating Company d/b/a Aviation Sales Company ("AVS") and filed under P. O.
#____________, T/C _________________, (i) were originally manufactured by the
original equipment manufacturer, any of their designated licensees, or parts
manufacturing authorization; (ii) were manufactured in accordance with the
aircraft, engine, or appliance manufacturer's specification; or (iii) were not
obtained from any U.S. government or military source.
The representations contained in this Materials Certification are
hereby made expressly subject to the terms and conditions of that certain Asset
Purchase Agreement dated as of November 30, 1996, by and between AvEng Trading
Partners, Inc., as seller, and Aviation Sales Company, as buyer.
AVENG TRADING PARTNERS, INC.
Date: December ___, 1996 By:____________________________________
Name:__________________________________
Title:_________________________________
54
AVIATION SALES COMPANY AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF REGISTRANT
Aviation Sales Operating Company (wholly-owned subsidiary)
Aviation Sales Leasing Company (wholly-owned subsidiary of Aviation Sales
Operating Company)
Aviation Sales Bearings Company (wholly-owned subsidiary of Aviation Sales
Operating Company)
Aviation Sales Finance Company (wholly-owned subsidiary)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, to the Company's
previously filed Form S-8 registration statement (File #333-07021).
ARTHUR ANDERSEN LLP
Miami, Florida,
March 3, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-31-1996
<CASH> 1,262,149
<SECURITIES> 0
<RECEIVABLES> 37,086,899<F1>
<ALLOWANCES> 3,779,580
<INVENTORY> 72,974,397
<CURRENT-ASSETS> 117,363,187
<PP&E> 4,333,070
<DEPRECIATION> 2,027,197
<TOTAL-ASSETS> 145,182,548
<CURRENT-LIABILITIES> 48,364,216
<BONDS> 14,857,143<F2>
0
0
<COMMON> 8,563
<OTHER-SE> 81,062,561
<TOTAL-LIABILITY-AND-EQUITY> 145,182,548
<SALES> 151,407,093
<TOTAL-REVENUES> 161,943,869
<CGS> 110,358,502
<TOTAL-COSTS> 110,358,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,350,020
<INCOME-PRETAX> 16,933,815<F3>
<INCOME-TAX> 6,604,188<F4>
<INCOME-CONTINUING> 10,329,627<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 1,862,140
<CHANGES> 0
<NET-INCOME> 8,467,487<F6>
<EPS-PRIMARY> 1.21<F7>
<EPS-DILUTED> 1.21<F8>
<FN>
<F1>Net of allowance for doubtful accounts of $3,779,580
<F2>Comprised of long-term debt
<F3>Excludes income tax benefit of $426,033. (See Note 10 to Financial Statements)
<F4>Pro forma income taxes. (See Note 10 to the Financial Statements)
<F5>Pro forma income before extraordinary item after giving effect to pro forma
income taxes. (See Note 10 to Financial Statements)
<F6>Net income after giving effect to pro forma income taxes. (See Note 10 to
Financial Statements)
<F7>Net income after giving effect to pro forma income taxes. (See Note 10 to
Financial Statements)
<F8>Net income after giving effect to pro forma income taxes. (See Note 10 to
Financial Statements)
</FN>
</TABLE>
