As Filed with the Securities and Exchange Commission on March 26, 1998.
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
AVIATION SALES COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 5088 65-0665658
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6905 N.W. 25th Street
Miami, Florida 33122
(305) 592-4055
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(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
--------------------
Dale S. Baker
President and Chief Executive Officer
6905 N.W. 25th Street
Miami, Florida 33132
(305) 592-4055
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(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Philip B. Schwartz, Esq.
Akerman, Senterfitt & Eidson, P.A.
One S.E. Third Avenue
28th Floor
Miami, FL 33131
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
<PAGE>
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<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
PROPOSED
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
BE REGISTERED REGISTERED(1) PER UNIT (1) FEE
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<S> <C> <C> <C> <C>
8 1/8% Senior $165,000,000 100% $165,000,000 $48,675
Subordinated Notes
due 2008
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
ii
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION ON AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 26, 1998
OFFER TO EXCHANGE
81/8% SENIOR SUBORDINATED NOTES DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE ACT, FOR ANY AND ALL
OUTSTANDING 81/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE NOT BEEN SO REGISTERED
OF
AVIATION SALES COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
Aviation Sales Company (the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange $1,000 principal amount of 81/8% Senior Subordinated Notes due 2008 of
the Company (the "New Notes") which have been registered under the Securities
Act of 1933, as amended (the "Securities Act") for each $1,000 principal amount
of the issued and outstanding 81/8% Senior Subordinated Notes due 2008 which
have not been registered under the Securities Act (the "Old Notes," and
collectively with the New Notes, the "Notes"). Interest on the Notes is payable
semi-annually commencing August 15, 1998 with a final maturity date of February
15, 2008. As of the date of this Prospectus, $165.0 million aggregate principal
amount of the Old Notes is outstanding. The terms of the New Notes and the Old
Notes are substantially identical in all material respects, except for certain
transfer restrictions and registration rights; and except that holders of Old
Notes are entitled to receive Liquidated Damages (as defined) if (a) the Company
fails to file any of the registration statements required by the Registration
Rights Agreement (as defined) on or before the date specified for such filing,
(b) any of such registration statements is not declared effective by the
Securities and Exchange Commission (the "Commission") on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the registration statement of which
this Prospectus forms a part (the "Exchange Offer Registration Statement"), or
(d) a shelf registration statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities (as defined) during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above is a "Registration Default"). In
the event of a Registration Default, the Company is required to pay Liquidated
Damages to each holder of Transfer Restricted Securities with respect to the
first 90-day period immediately following the occurrence of such Registration
Default, in an amount equal to $.05 per week per $1,000 principal amount of Old
Notes held by such holder. The amount of the Liquidated Damages will increase by
an additional $.05 per week per $1,000 principal amount of Old Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.50 per week per
$1,000 principal amount of Old Notes. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease. See "Description of
Notes--Registration Rights; Liquidated Damages."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
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The Exchange Offer is being made to satisfy certain obligations of the
Company under the Registration Rights Agreement, dated as of February 17, 1998,
among the Company and the Initial Purchasers (the "Registration Rights
Agreement"). Upon consummation of the Exchange Offer, holders of Old Notes that
were not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon.
Based on interpretations by the staff of the Commission with respect to
similar transactions, including no-action letters, the Company believes that the
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the distribution
of such New Notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
its New Notes. A broker-dealer which acquired Old Notes directly from the
Company cannot exchange such Old Notes in the Exchange Offer. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the New Notes received in exchange for the Old Notes acquired by
the broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that they will make this Prospectus available
to any broker-dealer for use in connection with any such resale for a period of
180 days after the Exchange Date (as defined) or, if earlier, until all
participating broker-dealers have so resold. See "Plan of Distribution."
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture (as defined). For a more complete
description of the terms of the new Notes, see "Description of Notes." There
will be no cash proceeds to the Company from the Exchange Offer. The New Notes
will be subordinated in right of payment to all current and future Senior Debt
(as defined) of the Company. The New Notes will also be effectively subordinated
to all indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of the Company's subsidiaries. At September 30,
1997, after giving effect to the completion of the Offering, and the application
of the net proceeds therefrom, the New Notes would have been subordinated to
approximately $9.7 million of Senior Debt of the Company and indebtedness and
other obligations of the Company's subsidiaries which have not guaranteed the
Notes. In addition, after completion of the Offering, the Company had
availability of approximately $91.4 million under the Credit Facility (as
defined). The Indenture permits the Company and its subsidiaries to incur
additional indebtedness, including additional Senior Debt, in the future.
The Old Notes were originally issued and sold on February 11, 1998 in
an offering of $165.0 million aggregate principal amount (the "Offering," as
defined). The Offering was exempt from registration under the Securities Act in
reliance upon the exemptions provided by Rule 144A and Section 4(2) of the
Securities Act. Accordingly, the Old Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an exemption from the registration requirements of the
Securities Act and applicable state securities laws is available.
The Company has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes to be received in the Exchange Offer. Any
person participating in the Exchange Offer who does not acquire the Exchange
Notes in the ordinary course of business: (i) cannot rely on the above
referenced no-action letters; (ii) cannot tender its Old Notes in the Exchange
Offer; and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act.
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions which may be waived by the
Company. The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, unless extended (as it may be so extended, the "Expiration Date"),
provided that the Exchange Offer shall not be extended beyond 30 business days
from the date of this Prospectus. The date of acceptance for exchange of the Old
Note for the New Notes (the "Exchange Date") will be the first business day
following the Expiration Date or as soon as practicable thereafter. Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders are irrevocable.
2
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There has not previously been any public market for the Notes. If a
market for the New Notes should develop, the New Notes could trade at a discount
from their initial offering price. The Company does not intend to apply for
listing of the New Notes on any securities exchange or in any automated
quotation system. There can be no assurance that an active trading market for
the New Notes will develop.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-4 under the Securities Act with respect to the
Exchange Offer. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Exchange Offer, reference is made to such Registration
Statement and the exhibits and schedules filed as part thereof.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected and copied without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and will also be available for inspection and copying at
the regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048, and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission upon payment of certain prescribed fees. Electronic registration
statements made through the Electronic Data Gathering, Analysis, and Retrieval
system are publicly available through the Commission's web site
(http://www.sec.gov.), which is maintained by the Commission and which contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Company's common
stock is traded on the New York Stock Exchange ("NYSE"). Information filed by
the Company with the NYSE may be inspected at the offices of the NYSE at 20
Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM JOSEPH E. CIVILETTO, CORPORATE SECRETARY, AVIATION SALES COMPANY,
6905 N.W. 27TH STREET, MIAMI, FLORIDA 33122, TELEPHONE NUMBER (305) 592-4055. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NO
LATER THAN 5 BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
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SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE FINANCIAL STATEMENTS AND THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
REQUIRES OTHERWISE, REFERENCES TO THE "COMPANY" MEAN AVIATION SALES COMPANY AND
ITS SUBSIDIARIES. REFERENCES HEREIN TO VARIOUS INFORMATION ON A PRO FORMA BASIS"
(I) GIVES EFFECT TO THE ACQUISITION OF KRATZ-WILDE MACHINE COMPANY AND APEX
MANUFACTURING, INC. BUT NOT TO THE ACQUISITION OF CARIBE AVIATION, INC., ALL AS
FURTHER DESCRIBED BELOW, AND (II) REFLECTS CERTAIN ADJUSTMENTS DESCRIBED IN
"SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA" AND IN UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS.
THE COMPANY
GENERAL
Aviation Sales Company is a leading provider of fully integrated
aviation inventory services and a recognized worldwide leader in the
redistribution of aircraft spare parts. The Company sells aircraft spare parts
and provides inventory and repair services 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. Inventory management
services offered by the Company include purchasing services, repair management.
warehouse management, aircraft disassembly services, and consignment and leasing
of inventories of aircraft parts and engines. The Company also manufactures
certain aircraft parts for sale to original equipment manufacturers ("OEMs"),
including precision engine parts, and provides certain aircraft parts repair
services at its FAA licensed repair facility.
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
market for spare parts and the redistribution market in particular are growing
due to (i) the increasing size and the age of the worldwide airline fleet (the
worldwide fleet of commercial airplanes is expected to double from 1996 to
2016). and (ii) increased outsourcing by airlines of inventory management
functions in response to cost control pressures. These pressures have also
contributed to a reduction in the number of approved vendors utilized by the
airlines and maintenance and repair facilities, which in turn has led to
consolidation in the redistribution market. The aircraft spare parts
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
its diverse product and service offerings, superior management information
systems, financial strength and access to capital markets allow it to capitalize
on the current industry environment.
The Company's strategy is to increase revenues and operating income
through internal growth combined with new product and service offerings. Growth
is expected to be achieved through continued customer penetration in existing
markets, expansion into new product areas. continued investment in the size and
breadth of its inventory and by continuing to offer customers a broad array of
inventory management services. These services allow 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
parts inventory. The Company further intends to increase the types of aircraft
parts which it manufactures for its OEM customers and the repair services which
it offers to its customers. The Company will seek to develop new products and
services internally, as well as through acquisitions of other companies, assets
or product lines. The Company believes that a diversified platform of services
will better allow it to serve the needs of its larger customers, and to benefit
from the continuing consolidation of vendor by the airlines.
Since completion of its initial public offering in July 1996, the
Company has acquired six businesses which leveraged the Company's product and
service base beyond the redistribution of aircraft spare parts into new parts
distribution, manufacturing and maintenance, and repair and overhaul. During
1996, the Company acquired the aircraft bearings division of Dixie Bearings,
Inc. ("Dixie"), a leading provider of aircraft bearings and related products to
4
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commercial airlines, cargo carriers and overhaul service facilities, and AvEng
Trading Partners, Inc. ("AvEng"), a redistributor of aircraft engine parts.
During 1997, the Company acquired Aerocell Structures, Inc. ("Aerocell"), an
FAA-certified maintenance, overhaul and repair facility, Kratz-Wilde Machine
Company ("Kratz"), a manufacturer of specialty machined metal parts for jet
engines, and Apex Manufacturing, Inc. ("Apex"), a precision manufacturer of
specialty machined metal parts including shafts, fuel shrouds, housings and
couplings for aerospace actuating systems. In March 1998, the Company acquired
Caribe Aviation, Inc. ("Caribe") and its subsidiary, Aircraft Interiors, Inc.
("Aircraft"). Caribe is an FAA-certified repair station specializing in the
maintenance, repair and overhaul of hydraulic, pneumatic, electrical and
electromagnetic aircraft components, and Aircraft manufacturers plastic cabin
interior replacement parts under FAA-PMA approval and refurbishes aircraft
interior components. See "Management's Discussion of Financial Condition and
Results of Operations--Overview" and "Business--Operations."
INDUSTRY OVERVIEW
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS. According to Boeing's 1997
Current Market Outlook (the "Boeing Report"). the worldwide fleet of commercial
airplanes is expected to double from approximately 11,500 airplanes at the end
of 1996 to approximately 23,000 airplanes by 2016. Further, the Boeing Report
projects that cargo jet aircraft will increase from approximately 1,230
airplanes in 1996 to approximately 2,350 airplanes by 2016. The majority 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 causing many airlines and repair and
maintenance facilities which had historically purchased their parts 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 pans from the redistribution market.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT FUNCTIONS. 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
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 less expensively and more 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. Other airlines, including
several large airlines, have begun to outsource portions of their purchasing
services, repair management and warehouse management.
CONSOLIDATION IN THE AIRCRAFT PARTS MARKET. 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. 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. Further, 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.
CONSIGNMENT AND BULK PURCHASES. 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 a 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
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it is noted that approximately 4,070 aircraft will be removed from active
commercial service between 1997 and 2016. Many of these aircraft will be
disassembled in order to sell their parts.
COMPETITIVE STRENGTHS
The Company believes that its strong competitive position in the
markets which it serves is based on its diverse product offerings, sophisticated
inventory management information systems and a consistent record of meeting
rigorous customer requirements.
DIVERSIFIED PLATFORM OF PRODUCTS AND SERVICES. The Company believes
that the breadth of inventory management services which it provides to its
customers, including a wide range of repair and overhaul services and
specialized manufacturing, allows the Company to be a vendor of choice to its
customers in a highly fragmented industry. The Company has over 1,000 customers,
including commercial passenger airlines, air cargo carriers and maintenance and
repair facilities.
LARGE INVENTORY BASE. The Company believes that it has one of the
largest inventories of aircraft spare parts in the world. with over 552.000 line
items currently in stock. The Company's inventory supports the worldwide
commercial fleet of over 11,500 aircraft including Airbus A300, A31x, A32x and
A340 series aircraft. Boeing 707, 727, 737, 747, 757, 767 and 777 series
aircraft. McDonnell Douglas DC-8, DC-9, DC-10, MD-8x and MD-11 series aircraft.
and the Lockheed L-1011 aircraft. In addition, the Company has parts available
for the following engine types: General Electric CF6, SNECMA CFM-56, Pratt and
Whitney JT-3, JT-8, JT-9 and PW-2000 and the Rolls Royce RB-211.
PROPRIETARY MANAGEMENT INFORMATION SYSTEMS. The Company's proprietary
management information systems comprise an integral component of the Company's
position as a leader in its industry. As industry, regulatory and public
awareness have focused on safety, documentation and traceability of aircraft
parts have become key factors ID competitiveness. The Company's MIS systems
collect and report data regarding inventory turnover, documentation, pricing,
market availability and customer demographic information on more than 3.7
million line items. Access to such information enables the Company to be aware
of and to capitalize on the changing trends in the marketplace. The Company
utilizes electronic data scanning and document image storage technology for
rapid and accurate retrieval of inventory traceability documents. The Company is
continuing to invest in technology in order to allow the Company to maintain its
strength in this area.
WORLDWIDE MARKETING PRESENCE. The Company conducts business in more
than 100 countries and utilizes sales representatives in 23 countries. lilts
international presence allows the Company to meet the demands of its global
customer base and provides for a timely supply of parts and services. During the
nine months ended September 30, 1997, 30% of the Company's revenues were derived
from sales to international customers and 70% were derived from sales to
domestic customers.
SIGNIFICANT FINANCIAL AND OTHER RESOURCES. As a result of the Company,
strong capital position, the Company is able to take advantage of opportunities
which arise in the market from time to time to expand its products and services.
make selected acquisitions and evaluate bulk purchases of inventory. The
Company's market presence, industry experience, sophisticated MIS systems and
capital strength enable the Company to quickly analyze and complete purchases,
giving the Company a competitive advantage in the market.
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, manufactures certain aircraft parts for its OEM customers and repairs
certain aircraft parts at its FAA licensed repair facility. The Company believes
that providing its customers with a diversified platform of services will allow
the Company to significantly expand its business in the future. See
"Business--Operations."
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
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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. The Company's
inventory consists in large part of rotable and repairable parts which are
regularly required by its customers. The Company also maintains an inventory of
expendable parts.
INVENTORY SALES
The daily operations of the Company encompass inventory sales,
brokering and exchanging aircraft spare pans. 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 552,000 line items in stock with market
availability, pricing and historical data available on more than 3.7 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.
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. Such services
include consignment, purchasing services and repair management, leasing,
aircraft disassembly and warehouse management. See "Business,
Operations-Inventory Management Services."
MANUFACTURING AND REPAIR SERVICES
The increase in passenger travel and the growing number of aircraft in
service increases the demand for manufacture and repair services. Consequently,
the Company foresees the manufacture and repair of aircraft parts as a profit
center with significant growth opportunity, and as an integral component of its
expansion strategy. During the last half of 1997 and the first quarter of 1998,
the Company completed four acquisitions towards its objective of expanding the
services which it offers to its customers to include manufacturing of aircraft
parts for sale to OEMs and repair services, as follows:
Aerocell specializes in the maintenance, repair and overhaul of
airframe components, including bonded and structural assemblies for
commercial aircraft. Aerocell is an FAA licensed repair facility with
limited airframe ratings for flight controls, doors, fairing panels,
nacelle systems and exhaust systems.
Kratz specializes in the manufacture of machined components primarily
for jet engines, and also produces automotive and faucet components.
Kratz is a leading supplier of CFMS6 and CF6 engine components to
General Electric's Aircraft Engine business, with three manufacturing
facilities in the greater Cincinnati area. The acquisition of Kratz
provides the Company with precision manufacturing capabilities which
the Company believes will allow it to expand its relationship with its
current and future OEM customers.
7
<PAGE>
Apex, located in Phoenix, Arizona, manufactures precision aerospace
parts and specializes in the machining of metal parts, including
precision shafts, fuel shrouds, housings and couplings for aerospace
actuating systems, fuel controls and engines.
Caribe, located in Miami, Florida, is an FAA licensed repair station
specializing in the maintenance, repair and overhaul of hydraulic,
pneumatic, electrical and electromagnetic aircraft components, as well
as avionics and instruments on Airbus and Boeing aircraft. Caribe's
wholly-owned subsidiary, Aircraft, manufactures plastic cabin interior
replacement parts under FAA-PMA approval and refurbishes aircraft
interior components, including passenger and crew seats.
RECENT DEVELOPMENTS
The Company recently reported that its operating revenues and net
income for the year ended December 31, 1997 were approximately $256.9 million
and $16.8 million, respectively.
COMPANY ORGANIZATION
The operations of the business are conducted by the Company and its
wholly-owned subsidiaries, Aviation Sales Operating Company ("ASOC") (and its
wholly-owned subsidiary, Aviation Sales Bearings Company), Aviation Sales
Leasing Company, Aviation Sales Finance Company and Aviation Sales Manufacturing
& Repair Company ("ASMRC") (and its wholly-owned subsidiaries, Kratz, Apex,
Aerocell and Caribe (and Caribe's wholly-owned subsidiary, Aircraft)).
Substantially all of the operating assets of the Company are owned by ASOC and
ASMRC and a substantial portions of the operating revenues and net income
derived during by the Company during 1996 and during the nine months ended
September 30, 1997 were derived from the operations of ASOC.
The Company's principal executive offices are located at 6905 N.W. 25th
Street, Miami, Florida 33122. The Company's telephone number is (305) 592-4055.
8
<PAGE>
THE INITIAL OFFERING
Pursuant to a Purchase Agreement dated as of February 11, 1998 (the
"Purchase Agreement"), the Company sold Old Notes in an aggregate principal
amount of $165.0 million to the Initial Purchasers on February 17, 1998. The
Initial Purchasers subsequently resold the Old Notes purchased from the Company
to qualified institutional buyers pursuant to Rule 144A under the Securities
Act. A portion of the net proceeds from the Offering, estimated to have been
approximately $158.9 million after deducting discounts to the Initial Purchasers
and estimated Offering expenses, were used to repay approximately $138.8 million
of outstanding indebtedness under the Credit Facility. The remaining net
proceeds from the Offering were used in connection with the Company's
acquisition of Caribe and for general corporate purposes.
<TABLE>
<CAPTION>
THE EXCHANGE OFFER
<S> <C>
Securities Offered.................. Up to $165.0 million aggregate principal amount of 81/8% Senior Notes due
2008 of the Company (the "New Notes," and collectively with the Old Notes,
the "Notes"). The terms of the New Notes and the Old Notes are substantially
identical in all material respects, except for certain transfer restrictions,
registration rights and liquidated damages ("Liquidated Damages") for
Registration Defaults relating to the Old Notes which will not apply to the New
Notes. See "Description of Notes."
The Exchange Offer.................. The Company is offering to exchange $1,000 principal amount of New Notes
for each $1,000 principal amount of Old Notes. See "The Exchange Offer" for
a description of the procedures for tendering Old Notes. The Exchange Offer
satisfies the registration obligations of the Company under the Registration
Rights Agreement. Upon consummation of the Exchange Offer, holders of Old
Notes that were not prohibited from participating in the Exchange Offer and did
not tender their Old Notes will not have any registration rights under the
Registration Rights Agreement with respect to such nontendered Old Notes and,
accordingly, such Old Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon.
Tenders, Expiration Date;
Withdrawal; Exchange Date......... The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, or such later date and time to which it is extended (as it may be so
extended, the "Expiration Date"), provided that the Exchange Offer shall not be
extended beyond 30 business days from the date of this Prospectus. Tender of
Old Notes pursuant to the Exchange Offer may be withdrawn and retendered at
any time prior to the Expiration Date. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder as
promptly as practicable after the expiration or termination of the Exchange
Offer. The date of acceptance for exchange of all Old Notes properly tendered
and not withdrawn for New Notes (the "Exchange Date") will be the first
business day following the Expiration Date or as soon as practicable thereafter.
9
<PAGE>
Accrued Interest on the
New Notes......................... Each New Note will bear interest from the most recent date to which interest
has been paid on the Old Note or, if no such payment has been made, from
February 17, 1998.
Federal Income
Tax Considerations................ The Exchange Offer will not result in any income, gain or loss to the holders of
Notes or the Company for federal income tax purposes. See "Certain Federal
Income Tax Considerations."
Use of Proceeds..................... There will be no proceeds to the Company from the exchange of New Notes for
the Old Notes pursuant to the Exchange Offer.
Exchange Agent...................... SunTrust Bank, Central Florida, National Association, the Trustee under the
Indenture, is serving as exchange agent (the "Exchange Agent") in connection
with the Exchange Offer.
</TABLE>
CONSEQUENCES OF EXCHANGING OR FAILURE TO
EXCHANGE OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchange their Old Notes for New Notes pursuant to the Exchange Offer
may offer their New Notes for resale, resell their New Notes, and otherwise
transfer their New Notes without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided such New Notes are acquired
in the ordinary course of the holder's business, such holders have no
arrangement with any person to participate in a distribution of such New Notes
and neither the holder nor any other person is engaging in or intends to engage
in a distribution of the New Notes. A broker-dealer who acquired Old Notes
directly from the Company cannot exchange such Old Notes in the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that it will deliver a prospectus in connection with
any resale of its New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes. The
Company is required, under the Registration Rights Agreement, to register the
New Notes in any jurisdiction requested by the holders, subject to certain
limitations. Upon consummation of the Exchange Offer, holders that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes, and accordingly, such old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. See "The Exchange Offer--Consequences of Failure to
Exchange."
<TABLE>
<CAPTION>
SUMMARY DESCRIPTION OF THE NOTES
<S> <C>
Issuer.............................. Aviation Sales Company
Securities Offered.................. $165.0 million aggregate principal amount of 81/8% Senior Subordinated Notes
due 2008 (the "New Notes," and collectively with the Old Notes, the "Notes").
The terms of the New Notes and the Old Notes are substantially identical in all
material respects, except for certain transfer restrictions, registration rights and
Liquidated Damages for Registration Defaults relating to the Old Notes which
will not apply to the New Notes. See "Description of Notes."
10
<PAGE>
Maturity Date....................... February 15, 2008.
Interest Rate and
Payment Dates..................... The Notes bear interest at a rate of 81/8% per annum, payable semi-annually in
arrears on February 15 and August 15 of each year, commencing August 15,
1998.
Subordination....................... The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company,
including indebtedness outstanding under the Company's existing term and
revolving credit facility (the "Credit Facility"). For a description of the Credit
Facility, see "Description of Other Indebtedness." In addition, the Notes are
effectively subordinated to all secured obligations to the extent of the assets
securing such obligations, including the Credit Facility. At September 30,
1997, after giving effect to the Offering and the application of the net proceeds
therefrom, and the acquisitions of Kratz and Apex, the Company and the
Subsidiary Guarantors would have had approximately $9.7 million of Senior
Debt outstanding, all of which is secured. The indenture pursuant to which the
Notes have been issued (the "Indenture") permits the Company and its
subsidiaries to incur additional indebtedness, including Senior Debt, subject to
certain limitations. The Notes are also effectively subordinated in right of
payment to all existing and future liabilities of any subsidiaries of the Company
which do not guarantee the Notes. See "Description of Notes-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock."
Subsidiary Guarantees............... The Notes are unconditionally guaranteed, on a senior subordinated basis, by
substantially all of the Company's existing subsidiaries and each subsidiary that
is organized in the future by the Company, unless such subsidiary is designated
as an Unrestricted Subsidiary (as defined) (collectively, the "Subsidiary
Guarantors"). The Subsidiary Guarantees are joint and several, general
unsecured obligations of the Subsidiary Guarantors. The Subsidiary Guarantees
are subordinated in right of payment to all existing and future Senior Debt of the
Subsidiary Guarantors, including the Credit Facility, and are also effectively
subordinated to all secured obligations of the Subsidiary Guarantors to the
extent of the assets securing such obligations, including the Credit Facility.
Furthermore, the Indenture permits the Subsidiary Guarantors to incur
additional indebtedness, including Senior Debt subject to certain limitations.
Optional Redemption................. The Notes will be redeemable, at the option of the Company, in whole or in
part, at any time after February 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date. In addition, on or prior to February 15, 2001, the Company
may redeem up to 35% of the aggregate principal amount of the Notes at a
redemption price of 1081/8 of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date
with the net proceeds of a public offering of common stock of the Company;
provided, that at least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding immediately after the occurrence of such
redemption. See "Description of Notes - Optional Redemption."
11
<PAGE>
Change of Control................... Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase all or any part of holder's Notes to repurchase such
holder's Notes at a repurchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the repurchase date. There can be no assurance that the Company
will have the financial resources necessary to purchase the Notes upon a Change
of Control or that such repurchase will be permitted under the Credit Facility.
See "Description of Notes - Optional Redemption."
Certain Covenants................... The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness and
issue preferred stock, pay dividends or make other distributions, make
investments, dispose of assets, issue capital stock of subsidiaries, create certain
liens securing indebtedness, enter into certain transactions with affiliates, sell
assets or enter into certain mergers and consolidations or sell all or substantially
all of their assets. See "Description of Notes - Certain Covenants."
Registration Rights,
Liquidated Damages................ Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") among the Company, the Subsidiary Guarantors and the Initial
Purchasers, the Subsidiary Guarantors and the Initial Purchasers, the Company
and the Subsidiary Guarantors have agreed (a) to file a registration statement
(the "Exchange Offer Registration Statement") on or prior to 45 days after the
closing of the Offering (the "Closing") with respect to an offer to exchange the
Old Notes for a new issue of debt securities of the Company (the "New Notes")
registered under the Securities Act, with terms substantially identical to those
of the Old Notes (the "Exchange Offer") and (b) use their best efforts to cause
the Exchange Offer Registration Statement to be declared effective by the
Securities and Exchange Commission (the "SEC" or the "Commission") on or
prior to 120 days after the Closing. If (i) the Exchange Offer is not permitted
by applicable law or (ii) any holder of Transfer Restricted Securities (as
defined) notifies the Company that (A) it is prohibited by law or policy from
participating in the Exchange Offer, (B) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and holds Notes acquired directly from the Company or an
affiliate of the Company, the Company will be required to provide a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
the Notes by the holders thereof. If the Company fails to satisfy these
registration obligations, it will be required to pay liquidated damages
("Liquidated Damages") to holders of Notes under certain circumstances.
</TABLE>
RISK FACTORS
Prospective participants in the Exchange Offer should take into account
the specific considerations set forth under "Risk Factors" as well as the other
information set forth in this Prospectus. See "Risk Factors."
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical unaudited financial data for the three
years ended December 31, 1996, has been derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent certified public accountants, and are included elsewhere herein. The
following summary historical unaudited financial data of the Company as of
September 30, 1996 and 1997 and for the nine months ended September 30, 1996 and
1997, has been derived from the unaudited historical financial statements of the
Company included elsewhere herein which, in the opinion of management, include
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair and consistent presentation of such data. See footnote (1) on the
following page.
The following unaudited condensed consolidated pro forma financial data
present: (i) the pro forma financial position of the Company at September 30,
1997 as if the Kratz and Apex acquisitions (which were acquired after the date
of the latest financial data presented) had been consummated on September 30,
1997 and on an as adjusted basis giving effect to the Offering, and (ii) the pro
forma results of operations of the Company for the nine months ended September
30, 1997 and the year ended December 31, 1996, as if the acquisitions of Kratz
and Apex had been consummated as of January 1, 1997 and as if the acquisition of
Kratz had been consummated as of January 1, 1996, respectively. The pro forma,
as adjusted results of operations for the nine months ended September 30, 1997
are further adjusted as if the Offering had occurred on January 1, 1997. Neither
the selected historical consolidated data nor the selected pro forma
consolidated financial data reflects the March 1998 acquisition of Caribe.
Neither the summary historical consolidated financial data nor the summary pro
forma consolidated financial data are necessarily indicative of either the
future results of operations or the results of operations that would have
occurred if the events described had been consummated on the indicated dates.
The following summary historical and pro forma consolidated financial data
should be read in conjunction with "Selected Historical and Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the audited and unaudited historical and pro forma financial
statements of the Company and Kratz which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, (UNAUDITED)
------------------------------------------- -----------------------------------------------
1994(1) 1995(1) 1996(1) 1996 1996(1) 1997(1) 1997 1997
-------- --------- -------- ------------- -------- -------- ------------ -------------
PRO FORMA(2) PRO FORMA(3) PRO FORMA
(UNAUDITED) AS ADJUSTED(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues............. $ 28,191 $ 113,803 $ 161,944 $ 186,539 $112,894 $174,477 $ 208,786 $ 208,786
Gross profit................... 16,174 42,489 51,585 54,557 37,059 51,765 62,760 62,760
Operating expenses............. 10,525 23,916 29,301 32,933 20,694 28,939 32,541 32,541
Income from operations......... 5,649 18,573 22,284 21,624 16,364 22,826 30,219 30,219
Interest and other expenses, net 4,458 8,287 5,350 8,449 4,615 4,331 6,552 10,901
Income before taxes and
extraordinary item........... 1,191 10,286 16,934 13,175 11,749 18,495 23,667 19,318
Extraordinary item, net of taxes -- -- 1,862 1,862 1,862 -- -- --
Net income(5).................. 726 6,274 8,468 6,174 5,305 11,282 14,413 11,761
OTHER DATA:
EBITDA(6)...................... 6,064 20,039 24,607 26,639 17,926 24,984 34,473 34,473
Depreciation and amortization.. 415 1,466 2,323 5,015(7) 1,562(7) 2,158(7) 4,254(7) 4,254(7)
Capital expenditures........... 535 898 1,111 1,317 943 3,851 4,235 4,235
Cash interest(8)............... 3,676 7,621 4,734 7,854 4,153 4,075 6,296 10,441
EBITDA/cash interest expense... 5.5x 3.3x
Total debt/annualized EBITDA(9) 2.8x 3.8x
Ratio of earnings to
fixed charges................ (10)1.3x 2.2x 3.8x 3.3x 4.7x 4.6x 2.7x
BALANCE SHEET DATA (END OF PERIOD):
Working capital................ $ 51,871 $ 46,641 $ 68,999 $ 66,174 $ 78,997 $ 85,728 $ 196,272
Total assets................... 89,265 93,478 145,183 127,283 215,902 266,590 308,479
Total debt..................... 69,152 62,043 38,984 29,264 86,112 129,734 173,660
Stockholders' equity........... 7,079 14,199 81,071 77,506 93,196 95,448 94,206
</TABLE>
- --------------------------
(FOOTNOTES ON FOLLOWING PAGE)
13
<PAGE>
(FOOTNOTES FROM PRIOR PAGE)
(1) Dixie, which was acquired on August 9,1996, Kratz, which was acquired on
October 17, 1997 and Caribe, which was acquired in March 1998, are
accounted for under the purchase method of accounting and accordingly,
Dixie's results of operations have been included in the Company's
historical results of operations from the date of acquisition. As the
acquisition of Kratz and Caribe occurred after September 30, 1997, Kratz
and Caribe are not included in the historical results of operations or
financial position for any of the periods presented.
AvEng which was acquired on December 10, 1996, Aerocell, which was
acquired on September 30, 1997 and Apex, which was acquired on December
31, 1997, were accounted for under the pooling of interests method of
accounting. As such, AvEng is included in the Company's historical
financial result for all periods presented subsequent to 1995, and
Aerocell is included for all periods presented subsequent to 1996.
Historical operating results and financial position for the periods
presented prior to 1996 have not been restated to give retroactive
effect to the acquisition of AvEng and historical operating results for
periods presented prior to 1997 have not been restated to give
retroactive effect to the acquisition of Aerocell, due to the
immaterially of the restated amount. As the acquisition of Apex occurred
after September 30, 1997, Apex is not included in the historical results
of operation or financial position of the Company for any of the periods
presented.
(2) Reflects the acquisition of Kratz as if it had been consummated at
January 1, 1996. Does not reflect the March 1998 acquisition of Caribe
due to the immateriality of the restated amounts.
(3) Reflects the acquisitions of Kratz and Apex as if such acquisitions had
been consummated on January 1, 1997 for Statement of Income Data and
Other Data and on September 30, 1997 for Balance Sheet Data. Does not
reflect the March 1998 acquisition of Caribe due to the immateriality of
the restated amounts.
(4) Further adjusted to reflect the consummation of the Offering and the
application of the net proceeds therefrom, as if such events had
occurred on January 1, 1997 for Statement of Income Data and Other Data
and on September 30, 1997 for Balance Sheet Data.
(5) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as the Company conducted its business as a partnership
prior to June 26, 1996.
(6) EBITDA represents net income plus the provision for income taxes plus
consolidated interest expense plus depreciation and amortization, as
described in footnote (7). The Company has included information
concerning EBITDA because it is commonly used by certain investors as a
measure of a company's ability to service debt. However, EBITDA should
not be considered as a substitute for net income or cash flows prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(7) Depreciation and amortization includes amounts allocated to cost of
goods sold. These amounts were $1.7 million, $1.3 million and $1.4
million for the year ended December 31,1996 and the nine months ended
September 30, 1996 and 1997, respectively.
(8) Cash interest represents total interest expense less amortization of
deferred financing fees.
(9) Represents total debt outstanding divided by the annualized nine months
ended EBITDA (nine months ended September 30, 1997 EBITDA divided by
nine and the results multiplied by twelve).
(10) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest expense, amortization of deferred debt
issuance costs and the interest portion of the Company's rent expense.
14
<PAGE>
RISK FACTORS
THIS PROSPECTUS AND OTHER REPORTS AND STATEMENTS FILED BY THE COMPANY
FROM TIME TO TIME WITH THE COMMISSION (COLLECTIVELY, "COMMISSION FILINGS")
CONTAIN OR MAY CONTAIN FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS REGARDING
THE COMPANY'S GROWTH STRATEGY AND ANTICIPATED TRENDS IN THE INDUSTRIES AND
ECONOMIES IN WHICH THE COMPANY OPERATES. THESE FORWARD-LOOKING STATEMENTS ARE
BASED ON THE COMPANY'S CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF
RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO THE COMPANY'S OPERATIONS AND
RESULTS OF OPERATIONS, COMPETITIVE FACTORS, SHIFTS IN MARKET DEMAND, AND OTHER
RISKS AND UNCERTAINTIES, INCLUDING IN ADDITION TO THOSE DESCRIBED BELOW AND
ELSEWHERE IN THIS PROSPECTUS OR ANY COMMISSION FILING, UNCERTAINTIES WITH
RESPECT TO CHANGES OR DEVELOPMENTS IN SOCIAL, BUSINESS, ECONOMIC, INDUSTRY,
MARKET, LEGAL AND REGULATORY CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR
OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING THE COMPANY'S CONTRACTORS,
CUSTOMERS, SUPPLIERS, COMPETITORS, STOCKHOLDERS, LEGISLATIVE, REGULATORY AND
JUDICIAL AND OTHER GOVERNMENTAL AUTHORITIES. SHOULD ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM RESULTS EXPRESSED OR
IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY IN THIS PROSPECTUS
OR ANY COMMISSION FILING. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR
CIRCUMSTANCES. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PARTICIPATING IN THE EXCHANGE
OFFER.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not intend
to register the Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission with respect to similar transactions, the Company
believes that the New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by any holder of such New Notes
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business, such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes and neither the holder nor any
other person is engaging in or intends to engage in a distribution of the New
Notes. A broker-dealer who acquired Old Notes directly from the Company cannot
exchange such Old Notes in the Exchange Offer. Each broker-deal that receives
New Notes for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of its New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of the New Notes received in exchange for the Old
Notes acquired by the broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale for a certain period of time after the Exchange Date or, if earlier,
until all participating broker-dealers have so resold. See "Plan of
Distribution." The New Notes may not be offered or sold unless they have been
registered or qualified for sale under applicable state securities laws or an
exemption from registration or qualification is available and is complied with.
The Company is required, under the Registration Rights Agreement, to register
the New Notes in any jurisdiction requested by the holders, subject to certain
limitations.
SUBORDINATION AND LEVERAGE
The Notes and the Subsidiary Guarantees are subordinated in right of
payment to all existing and future Senior Debt. The Company currently has
significant outstanding indebtedness, and subsequent to the Offering, the
Company will be significantly leveraged. As of September 30, 1997, after giving
effect to the Offering and the application of the net proceeds
15
<PAGE>
therefrom and the acquisitions of Kratz and Apex, but not Caribe, the Company
would have had outstanding indebtedness of approximately 174.7 million, of which
approximately $9.7 million would have been Senior Debt. See "Capitalization." In
addition, subject to the limitations set forth in the Indenture, the Company and
its Subsidiaries (as defined) may incur substantial amounts of additional
indebtedness, much of which is expected to constitute Senior Debt. By reason of
the subordination of the Notes and the Subsidiary Guarantees, in the event of
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of the Company or any Subsidiary Guarantor, or upon default in
payment with respect to or acceleration of any Senior Debt of the Company or any
Subsidiary Guarantor or an event of default with respect to certain Senior Debt,
the assets of the Company or the Subsidiary Guarantor would be available to pay
the amounts due on the Notes and the Subsidiary Guarantees only after such
Senior Debt had been paid in full. The Company had availability of approximately
$91.4 million under its Credit Facility after completion of the Offering. The
Credit Facility is secured by substantially all of the assets of the Company.
See "Description of Other Indebtedness." Subject to the limitations set forth in
the Indenture, the Company may have additional amounts of secured indebtedness
in the future. The Notes and the Subsidiary Guarantees are effectively
subordinated to all such secured obligations to the extent of the collateral,
irrespective of whether payments on the Notes and the Subsidiary Guarantees are
otherwise permitted to be made under the subordination provisions in the
Indenture prior to payment of such other indebtedness in full. Upon certain
events of default under such facilities, the lenders could elect to declare all
amounts outstanding, together with accrued and unpaid interest thereon, to be
immediately due and payable. If the Company were unable to repay those amounts,
the lenders could proceed against the collateral granted them to secure that
indebtedness. If any of such indebtedness were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes. In addition, the Indenture permits the subsidiaries of the Company to
incur debt under certain circumstances. Any such debt incurred by a subsidiary
of the Company that is not a Subsidiary Guarantor could be structurally senior
to the Notes. To the extent the Subsidiary Guarantees are not enforceable, the
Notes and the Subsidiary Guarantees would be effectively subordinated to all
liabilities of the Subsidiary Guarantors, including trade payables of such
Subsidiary Guarantors, whether or not such liabilities otherwise constitute
Senior Debt of the Subsidiary Guarantor under the Indenture.
The Company's ability to make payments of principal and interest on, or
to refinance its indebtedness (including the Notes), depends on its future
operating performance, which to a certain extent is subject to economic,
financial, competitive and other factors beyond its control. The degree to which
the Company is leveraged could have important consequences to the holders of the
Notes, including (i) the Company's vulnerability to adverse general economic and
industry conditions, (ii) the Company's ability to obtain additional financing
for future working capital expenditures, general corporate purposes or other
purposes and (iii) the dedication of a substantial portion of the Company's cash
flow from operations to the payment of principal and interest on indebtedness,
thereby reducing the funds available for operations and future business
opportunities.
RESTRICTIONS IMPOSED BY LENDERS
The instruments governing the indebtedness of the Company impose
significant operating and financial restrictions on the Company. Such
restrictions will affect, and in many respects, significantly limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends, repay indebtedness prior to its stated maturity, sell assets or
engage in mergers or acquisitions. These restrictions could also limit the
ability of the Company to effect future financings, make needed capital
expenditures, withstand a future downturn in the business or the economy, or
otherwise conduct necessary corporate activities.
CONSEQUENCES OF CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the holders of the Notes
would be entitled to require the Company to repurchase up to all outstanding
Notes of the holders requiring such repurchase at a purchase price equal to 101%
of the principal amount of such Notes plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase. Failure by the
Company to make such a repurchase would result in a default under the Indenture.
In addition, the Credit Facility contains and the future indebtedness of the
Company and the Subsidiaries may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of the Notes of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness due to the financial
effect of such repurchase on the
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Company or otherwise, even if the Change of Control itself does not cause a
default. In the event of a Change of Control, there can be no assurance that the
Company would have sufficient funds to repurchase the Notes and to satisfy its
other obligations under the Notes and any such other indebtedness or would be
permitted to make such repurchase in compliance with the subordination
provisions in the Indenture. See "Description of the Notes-Repurchase at Option
of Holders-Change of Control."
EFFECTS OF THE ECONOMY ON THE COMPANY'S SPARE PARTS BUSINESS
Since the Company's customers consist of airlines, maintenance and
repair facilities that service airlines and other aircraft spare parts
redistributors, as well as original equipment manufacturers, 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 may affect the airline industry
will not have an adverse impact on the Company's business, financial condition
or results of operations.
RISKS REGARDING THE COMPANY'S SPARE PARTS INVENTORY
The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft parts that are purchased from many sources.
Before parts may be installed in an aircraft, they must meet certain standards
of condition established by the 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 also be traceable to sources deemed acceptable by such
agencies. Parts owned or acquired by the Company may not meet applicable
standards or standards may change 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.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the
FAA and in other country by similar agencies. While the Company's spare parts
business is not regulated, the aircraft spare parts which it sells to its
customers must be accompanied by documentation which enables the customer to
comply with applicable regulatory requirements. Additionally, the Company must
be certified by the FAA and, in some cases, by original equipment manufacturers
in order to manufacture or repair aircraft components. Although the Company
believes that its newly acquired manufacturing and repair operations are in
material compliance with applicable regulations, there can be no assurance of
this fact. Further, there can be no assurance that new and more stringent
government regulations will not be adopted in the future or that any such new
regulations, if enacted, would not have a material adverse effect on the
Company's business, financial condition or results of operations.
FLUCTUATIONS IN OPERATING RESULTS
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 discussions 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 or results of operations.
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GROWTH STRATEGY AND RISKS RELATING TO 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 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.
RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES
The continued success of the Company is dependent to a significant
degree upon the services of its executive officers and upon the Company's
ability to attract and retain qualified personnel experienced in the various
phases of the Company's business. The Company has employment agreements with all
of its executive officers. The employment agreements between the Company and its
executive officers are individually terminable by each executive officer upon a
change of control of the Company. The ability of the Company to operate
successfully could be jeopardized if one or more of its executive officers were
unavailable and capable successors were not found. See "Management."
COMPETITION
The markets for the Company's product and services are extremely
competitive, and the Company faces competition from a number of sources. These
include aircraft and aircraft part manufacturers, airline and aircraft service
companies, and aircraft spare parts redistributors. Certain of the Company's
competitors have substantially 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. See "Business-Competition."
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,
manufactured or repaired 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 Company's business, financial condition or results of operations. See
"Business-Product Liability."
POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS
As of March 11, 1998, two of the Company's stockholders beneficially own
25.0% and 15.9%, respectively, of the outstanding common stock and the Company's
executive officers, as a group, beneficially own an aggregate of 33.3%
(including the 25.0% referred to above) of the outstanding common stock. While
each of these stockholders is an independent party, if these parties were to act
together as a group, they would have the ability to control the election of all
of the members of the Company's Board of Directors and, therefore, to control
the business, policies and affairs of the Company. See "Principal Stockholders."
FRAUDULENT CONVEYANCES AND PREFERENTIAL TRANSFERS
The ability of the holders of the Notes or the Trustee (as defined
herein) to enforce the Notes and the Subsidiary Guarantees may be limited by
certain fraudulent conveyance and similar laws. Various fraudulent conveyance
and similar laws have been enacted for the protection of creditors and may be
utilized by a court of competent jurisdiction to avoid the Notes and the
Subsidiary Guarantees or to further subordinate the obligations of the Company
under the Notes or the obligations of any Subsidiary Guarantor under its
Subsidiary Guarantee to obligations (including trade payables) that do not
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otherwise constitute Senior Debt. The requirements for establishing a fraudulent
conveyance vary depending on the law of the jurisdiction which is being applied.
Generally, if in a bankruptcy, reorganization, rehabilitation or similar
proceeding in respect of the Company or a Subsidiary Guarantor, or in a lawsuit
by or on behalf of creditors against the Company or a Subsidiary Guarantor, a
court were to find that (i) the Company or a Subsidiary Guarantor, as the case
may be, incurred indebtedness in connection with the Notes or the Subsidiary
Guarantees with the intent of hindering, delaying or defrauding current or
future creditors of the Company or the Subsidiary Guarantor, as the case may be,
or (ii) the Company or a Subsidiary Guarantor, as the case may be, received less
than reasonable equivalent value or fair consideration for incurring such
indebtedness, and (a) was insolvent at the time of the incurrence of such
indebtedness, (b) was rendered insolvent by reason of incurring such
indebtedness, (c) was at such time engaged or about to engage in a business or
transaction for which its assets constituted unreasonably small capital or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could, with respect to the Company or
the Subsidiary Guarantor, as the case may be, declare void in whole or in part
the obligations of the Company or such Subsidiary Guarantor in connection with
the Notes or the Subsidiary Guarantees and/or further subordinate claims with
respect to the Notes and the Subsidiary Guarantees to all other debts of the
Company or the Subsidiary Guarantors, as applicable. If the obligations of the
Company or the Subsidiary Guarantors were further subordinated, there can be no
assurance that after payment of the other debts of the Company or the Subsidiary
Guarantors, there would be sufficient funds to pay the subordinated claims with
respect to the Notes and the Subsidiary Guarantees.
Generally, for purposes of the foregoing, an entity will be considered
insolvent if the sum of its respective debts is greater than the fair saleable
value of all of its property at a fair valuation or if the present fair saleable
value of its assets is less than the amount that will be required to pay its
probable liability on its existing debts, as they become mature and absolute.
Additionally, under federal bankruptcy or applicable state insolvency
law, if certain bankruptcy or insolvency proceedings were initiated by or
against the Company or any Subsidiary Guarantor within 90 days after any payment
by the Company or such Subsidiary Guarantor with respect to the Notes or a
Subsidiary Guarantee, respectively, or the incurrence. of a Subsidiary Guarantee
or if the Company or such Subsidiary Guarantor anticipated becoming insolvent at
the time of such payment or incurrence, all or a portion of such payment or
guarantee could be avoided as a preferential transfer and the recipient of such
payment could be required to return such payment.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The New Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to apply for listing of
the New Notes on any securities exchange. The Initial Purchasers have informed
the Company that they currently intend to make a market in the New Notes.
However, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. In addition, any such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer or the pendency of the
Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the New Notes or as to the
liquidity of or the trading market for the New Notes. If a trading market does
not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If a
market for the New Notes develops, any such market may be discontinued at any
time.
If a public trading market develops for the New Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount from their
principal amount.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On February 17, 1998, the Company issued $165.0 million aggregate
principal amount of Old Notes to Salomon Brothers Inc, BT Alex Brown
Incorporated and Citicorp Securities, Inc. (collectively, the "Initial
Purchasers"). The issuance was not registered under the Securities Act in
reliance upon the exemption under Rule 144A and Section 4(2) of the
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Securities Act. In connection with the issuance and sale of the Old Notes, the
Company entered into a Registration Rights Agreement with the Initial Purchasers
dated as of February 17, 1998 (the "Registration Rights Agreement"), which
requires the Company to cause the Old Notes to be registered under the
Securities Act or to file with the Commission a registration statement under the
Securities Act with respect to an issue of new notes of the Company identical in
all material respects to the Old Notes, and use its best efforts to cause such
registration statement to become effective under the Securities Act and, upon
the effectiveness of that registration statement, to offer to the holders of the
Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes, which will be issued without a restrictive legend and may
be reoffered and resold by the holder without restrictions or limitations under
the Securities Act. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made pursuant to the Registration Rights Agreement
to satisfy the Company's obligations thereunder.
Based on no-action letters issued by the staff of the Commission to
third parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder of such New Notes (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement or understanding with any person to participate in the
distribution of such New Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. A
broker-dealer who acquired Old Notes directly from the Company can not exchange
such Old Notes in the Exchange Offer. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes cannot
rely on such interpretations by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date (as defined herein). The Company will issue a principal
amount of New Notes in exchange for an equal principal amount of outstanding Old
Notes tendered and accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. The date of acceptance
for exchange of the Old Notes for the New Notes (the "Exchange Date") will be
the first business day following the Expiration Date or as soon as practicable
thereafter.
The terms of the New Notes and the Old Notes are substantially identical
in all material respects, except for certain transfer restrictions, registration
rights and Liquidated Damages for Registration Defaults relating to the Old
Notes which will not apply to the New Notes. See "Description of Notes." The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture pursuant to which the Old
Notes were issued.
As of the date of this Prospectus, $165.0 million aggregate principal
amount of the Old Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Old Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under state
law or the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder. Old Notes which
are not tendered and were not prohibited from being tendered for exchange in the
Exchange Offer will remain outstanding and continue to accrue interest and to be
subject to transfer restrictions, but will not be entitled to any rights or
benefits under the Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
on the Exchange Date the Company will accept all Old Notes properly tendered and
not withdrawn and will issue New Notes in exchange therefor. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and
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if the Company had given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders for the purposes
of receiving the New Notes from the Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
the Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offer. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or nonexchanged Old Notes or
substitute Old Notes evidencing the unaccepted portion, as appropriate, will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended; provided that the Exchange Offer shall not
be extended beyond 30 business days after the date of this Prospectus.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions" shall
not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holder of Old Notes of
such amendment.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
New Notes will bear interest at the rate of 8 1/8% per annum, payable
semi-annually, in cash, on February 15 and August 15 of each year, from the most
recent date to which interest has been paid on the Old Notes or, if no such
payment has been made, from February 17, 1998.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to exchange any new Notes for any Old Notes, and may terminate
or amend the Exchange Offer before the acceptance of any Old Notes for exchange,
if:
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(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which
seeks to restrain or prohibit the Exchange Offer or, in the Company's judgment,
would materially impair the ability of the Company to proceed the Exchange
Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule, order or regulation is interpreted,
by any government or governmental authority which, in the Company's judgment,
would materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) the Exchange Offer or the consummation thereof would otherwise
violate or be prohibited by applicable law.
If the Company determines in its sole discretion that any of these
conditions is not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders who tendered such Old
Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in their sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by the Company
concerning the events described above shall be final and binding on all parties.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder as set forth below (including the
tender of Old Notes by book-entry delivery pursuant to the procedures of the
Depository Trust Company ("DTC")) and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth in this Prospectus and in the
Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must (i) complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below) and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date, or (ii) comply with the guaranteed delivery procedures described below.
Delivery of all documents must be made to the Exchange Agent at its address set
forth herein.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
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registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owners' own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering of
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes,
with the signature thereon guaranteed by an Eligible Institution. If the Letter
of Transmittal or any Old Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
Any financial institution that is a participant in the book-entry
transfer facility for the Old Notes, DTC, may make book-entry delivery of Old
Notes by causing DTC to transfer such Old Notes into the Exchange Agent's
account with respect to the Old Notes in accordance with DTC's procedures for
such transfer, including if applicable the procedures under the Automated Tender
Offer Program ("ATOP"). Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be, or be deemed to be, transmitted to and
received and confirmed by the Exchange Agent at its address set forth below on
or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel of the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth below under "Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder will also represent to the Company (i) that
the New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder, (ii) that neither the holder nor any such person
has an arrangement or understanding with any
23
<PAGE>
person to participate in the distribution of such New Notes and (iii) that
neither the holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company, or that if it is an
"affiliate," it will comply with the registration and prospective delivery
requirements of the Securities Act to the extent applicable.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, or (iii) who cannot complete the procedures for book-entry
transfer of Old Notes to the Exchange Agent's account with DTC prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of such Old
Notes (if possible) and the principal amount of Old Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within five business
trading days after the Expiration Date, (i) the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old Notes
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, or (ii) that book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC will be
effected and confirmation of such book-entry transfer will be delivered to the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer and all other documents required by the Letter
of Transmittal, or confirmation of book-entry transfer of the Old Notes into the
Exchange Agent's account at DTC, are received by the Exchange Agent within five
business trading days after the Expiration Date. Upon request to the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to
tender their Old Notes according to the guaranteed delivery procedures set forth
above.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer:
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to the Company and irrevocably constitutes and appoints the Exchange Agent
as the holder's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The holder represents and warrants to the
Company and the Exchange Agent that (i) its has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire the New Notes
in exchange for the Old Notes, (ii) when the Old Notes are accepted for
exchange, the Company will acquire good and unencumbered title to the Old Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, (iii) it will, upon request, execute and deliver
any additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Notes and (iv)
acceptance of any tendered Old Notes by the Company and the issuance of New
Notes in exchange therefor will constitute performance in full by the Company of
its obligations under the Registration Rights Agreement and the Company will
have no further obligations or liabilities thereunder to such holders (except
with respect to accrued and unpaid Liquidated Damages, if any). All authority
conferred by the holder will survive the death or incapacity of the holder and
every obligation of the holder will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or that, if it
is an "affiliate," it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii) is acquiring
the New Notes in the ordinary course of its business and (iii) has no
arrangement with any person or intent to participate in, and is not
participating in, the distribution of the New Notes.
24
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram
telex, facsimile transmission or letter indicating notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC's procedures. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for payment will be returned to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering" at any time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered
but not accepted in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no further
obligations to such holders, other than the Initial Purchasers, to provide for
the registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected.
EXCHANGE AGENT
SunTrust Bank, Central Florida, National Association, the Trustee under
the Indenture, has been appointed as Exchange Agent of the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Registered or Certified Mail, by hand or by
Overnight Courier:
SunTrust Bank, Central Florida, National Association
225 E. Robinson Street, Suite 250
Orlando, FL 32802-0044
Attention: Corporate Trust Division
By Facsimile:
SunTrust Bank, Central Florida, National Association
Attention: Corporate Trust Division
(407) 237-5299
Confirm by Telephone:
(407) 237-4791
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
25
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers, regular employees
or agents of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and will
pay the reasonable fees and expenses of holders in delivering their Old Notes to
the Exchange Agent.
The cash expenses of the Company to be incurred in connection with the
Company's performance and completion of the Exchange Offer will be paid by the
Company. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not intend
to register the Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission with respect to similar transactions, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
holder of such New Notes (other than any such holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business, such holder has no arrangement or understanding with
any person to participate in the distribution of such New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, the holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of its New Notes. See
"Plan of Distribution." The New Notes may not be offered or sold unless they
have been registered or qualified for sale under applicable state securities
laws or an exemption from registration or qualification is available and is
complied with. The Company is required, under the Registration Rights Agreement,
to register the New Notes in any jurisdiction requested by the holders, subject
to certain limitations.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
26
<PAGE>
Upon consummation of the Exchange Offer, holders of the Old Notes that
were not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. However, in the event the Company fails to
consummate the Exchange Offer or a holder of Old Notes notifies the Company in
accordance with the Registration Rights Agreement that it will be unable to
participate in the Exchange Offer due to circumstances delineated in the
Registration Rights Agreement, then the holder of the Old Notes will have
certain rights to have such Old Notes registered under the Securities Act
pursuant to the Registration Rights Agreement and subject to conditions
contained therein.
The Company has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in it ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes to be received in the Exchange Offer. In
this regard, the Company will make each person participating in the Exchange
Offer aware (through this Prospectus or otherwise) that if the Exchange Offer is
being registered for the purpose of secondary resale, any holder using the
Exchange Offer to participate in a distribution of New Notes to be acquired in
the registered Exchange Offer (i) may not rely on the staff position enunciated
in Morgan Stanley and Co. Incorporated (available June 5, 1991) and Exxon
Capital Holdings Corporation (available May 13, 1988) or similar letters and
(ii) must comply with registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes as reflected in the Company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be expensed over the term of
the New Notes.
USE OF PROCEEDS
The net proceeds from the sale of the Old Notes in the Offering were
approximately $158.9 million (after deducting discounts to the Initial
Purchasers and estimated Offering expenses). The Company will not receive any
proceeds from the Exchange Offer. Approximately $138.9 million of the net
proceeds from the sale of the Old Notes in the Offering was used to repay
outstanding indebtedness under the Credit Facility, in connection with the
Company's acquisition of Caribe and for general corporate purposes. See
"Description of Other Indebtedness."
27
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1997, the consolidated
historical capitalization of the Company, the pro forma capitalization
reflecting the acquisitions of Kratz and Apex, but not Caribe, and the pro
forma, as adjusted capitalization to reflect the issuance of the Notes offered
hereby and the application of the net proceeds therefrom. This table should be
read in conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(2)(3)(4)
------------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................ $1,802 $5,705 $44,507(4)
============= ================ ===============
Long-term debt including current maturities
Existing revolving credit facilities..................... 60,383 60,383(4) --(4)
Existing term loan....................................... 18,571 59,693(4) --(4)
Other debt............................................... 7,158 9,658 9,658
Notes offered hereby..................................... -- -- 164,002
------------- ---------------- ---------------
Total long-term debt................................. 86,112 129,734 173,660
------------- ---------------- ---------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding......... -- -- --
Common stock, $.001 par value, 30,000,000 shares
authorized, 9,202,499 issued actual, and 9,441,071
issued pro forma and pro forma as adjusted........... 9 9 9
Additional paid-in capital............................... 71,773 72,857 72,857
Retained earnings(3)..................................... 21,414 22,582 21,340
------------- ---------------- ---------------
Total stockholders' equity........................... 93,196 95,448 94,206
------------- ---------------- ---------------
Total capitalization............................ $179,308 $225,182 $267,866
============= ================ ===============
</TABLE>
- ----------------------
(1) Reflects the acquisitions of Kratz (which occurred on October 17, 1997)
and Apex (which occurred on December 31, 1997) as if such acquisitions
had been consummated on September 30, 1997. See Unaudited Condensed
Consolidated Pro Forma Financial Statements. Does not reflect the March
1998 acquisition of Caribe, due to the immateriality of the restated
amounts. Caribe was acquired within the last 60 days, its results of
operations are not included in pro forma financial information.
(2) Reflects the issuance of $165.0 million of Notes, net of a discount of
$l.0 million, and the application of the net proceeds therefrom as if
such events had occurred at September 30, 1997.
(3) Includes an adjustment of $1.2 million for the write off of deferred
financing costs as of September 30, 1997, net of taxes of $0.8 million.
(4) As of February 10, 1998, there was approximately $138.8 million
outstanding under the Credit Facility, all of which was repaid with the
proceeds of the Offering. See "Use of Proceeds."
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected historical financial data has been derived from the
Company's consolidated financial statements. The financial statements of the
Company as of December 31, 1992, 1993, 1994, 1995 and 1996, and for the period
from inception (February 28, 1992) to December 31, 1992, and the years ended
December 31, 1993, 1994, 1995 and 1996 have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their report included
elsewhere herein. The following unaudited historical financial data as of
September 30, 1996 and 1997 and for the nine months ended September 30, 1996 and
1997 has been derived from the unaudited historical financial statements of the
Company included elsewhere herein which, in the opinion of management, include
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair and consistent presentation of the information set forth therein. The pro
forma as adjusted financial information as of and for the nine months ended
September 30, 1997 reflects the acquisitions of Kratz and Apex and the
completion of the Offering and the application of the net proceeds therefrom as
if such events had occurred on January 1, 1997 for Statement of Income and Other
Data and on September 30, 1997 for Balance Sheet Data. Neither the selected
historical consolidated data nor the selected pro forma consolidated financial
data reflects the March 1998 acquisition of Caribe. Neither the selected
historical consolidated financial data nor the selected pro forma consolidated
financial data are necessarily indicative of either the future results of
operations or the results of operations that would have occurred if the events
described had been consummated on the indicated dates. The financial data set
forth below should be read in conjunction with the historical and pro forma
financial statements and notes thereto contained elsewhere in this Prospectus:
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 28, NINE MONTHS ENDED
1992) TO YEAR ENDED DECEMBER 31, (1) SEPTEMBER 30, (UNAUDITED)(1)
DECEMBER 31, ------------------------------------- --------------------------------
1992(1) 1993 1994 1995 1996 1996 1997 1997
------------- --------- -------- -------- -------- -------- --------- -------------
PRO FORMA
(IN THOUSANDS) AS ADJUSTED(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues............. $ 32,227 $ 23,429 $ 28,191 $113,803 $161,944 $112,894 $ 174,477 $ 208,786
Cost of sales.................. 16,697 11,162 12,017 71,314 110,359 75,835 122,712 146,026
------------ --------- -------- -------- -------- -------- --------- -------------
Gross profit 15,530 12,267 16,174 42,489 51,585 37,059 51,765 62,760
------------ --------- -------- -------- -------- -------- --------- -------------
Operating expenses
Operating................... 2,970 3,121 2,900 8,989 9,320 6,864 11,027 11,027
Selling..................... 3,590 1,845 2,043 4,820 6,977 5,111 6,859 6,932
General and administrative.. 5,057 4,199 5,167 8,641 10,681 7,157 8,895 11,694
Depreciation and amortization 2,063 217 415 1,466 2,323 1,562 2,158 2,888
------------ --------- -------- -------- -------- -------- --------- -------------
Total operating expenses....... 13,680 9,382 10,525 23,916 29,301 20,694 28,939 32,541
------------ --------- -------- -------- -------- -------- --------- -------------
Income from operations......... 1,850 2,885 5,649 18,573 22,284 16,364 22,826 30,219
Interest and other expenses, net 3,806 6,041 4,458 8,287 5,350 4,615 4,331 10,901
------------ --------- -------- -------- -------- -------- --------- -------------
Net income (loss) before taxes (1,956) (3,156) 1,191 10,286 16,934 11,749 18,495 19,318
Benefit (provision) for income
taxes(3)................. 763 1,231 (465) (4,012) (6,604) (4,582) (7,213) (7,557)
------------ --------- -------- -------- -------- -------- --------- -------------
Income (loss) before extraordinary
item..................... (1,193) (1,925) 726 6,274 10,330 7,167 11,282 11,761
Extraordinary item, net of income
taxes.................... - - - - 1,862 1,862 - -
------------ --------- -------- -------- -------- -------- --------- -------------
Net income (loss)........... $ (1,193)$ (1,925)$ 726 $ 6,274 $ 8,468 $ 5,305 $ 11,282 $ 11,761
============ ========= ======== ======== ======== ======== ========= =============
OTHER DATA:
EBITDA(4)...................... 3,913 3,102 6,064 20,039 24,607 17,926 24,984 34,473
Depreciation and amortization.. 2,063 217 415 1,466 2,323 1,562 2,158 4,254(5)
Capital expenditures........... 1,335 33 535 898 1,111 943 3,851 4,235
Cash interest(6)............... 2,634 3,890 3,676 7,621 4,734 4,153 4,075 10,441
EBITDA/cash interest expense... 3.3x
Total debt/annualized EBITDA(7) 3.8x
Ratio of earnings to fixed charges(8) 0.5x 0.5x 1.3x 2.2x 3.8x 3.3x 4.7x 2.7x
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 28, NINE MONTHS ENDED
1992) TO YEAR ENDED DECEMBER 31, (1) SEPTEMBER 30, (UNAUDITED)(1)
DECEMBER 31, ------------------------------------- --------------------------------
1992(1) 1993 1994 1995 1996 1996 1997 1997
------------- --------- -------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues............. $ 32,227 23,429 28,191 113,803 161,944 112,894 174,477 208,786
Cost of sales.................. 16,697 11,162 12,017 71,314 110,359 75,835 122,712 146,026
------------ -------- ------- ------- ------- ------- -------- ------------
Gross profit 15,530 12,267 16,174 42,489 51,585 37,059 51,765 62,760
------------ -------- ------- ------- ------- ------- -------- ------------
Operating expenses
Operating................... 2,970 3,121 2,900 8,989 9,320 6,864 11,027 11,027
Selling..................... 3,590 1,845 2,043 4,820 6,977 5,111 6,859 6,932
General and administrative.. 5,057 4,199 5,167 8,641 10,681 7,157 8,895 11,694
Depreciation and amortization 2,063 217 415 1,466 2,323 1,562 2,158 2,888
------------ -------- ------- ------- ------- ------- -------- ------------
Total operating expenses....... 13,680 9,382 10,525 23,916 29,301 20,694 28,939 32,541
------------ -------- ------- ------- ------- ------- -------- ------------
Income from operations......... 1,850 2,885 5,649 18,573 22,284 16,364 22,826 30,219
Interest and other expenses, net 3,806 6,041 4,458 8,287 5,350 4,615 4,331 10,901
------------ --------- -------- -------- -------- -------- --------- -------------
Net income (loss) before taxes (1,956) (3,156) 1,191 10,286 16,934 11,749 18,495 19,318
Benefit (provision) for income
taxes(3)................. 763 1,231 (465) (4,012) (6,604) (4,582) (7,213) (7,557)
------------ -------- ------- ------- ------- ------- -------- ------------
Income (loss) before extraordinary
item..................... (1,193) (1,925) 726 6,274 10,330 7,167 11,282 11,761
Extraordinary item, net of income
taxes.................... - - - - 1,862 1,862 - -
------------ --------- -------- -------- -------- -------- --------- -------------
Net income (loss)........... $ (1,193) (1,925) 726 6,274 8,468 5,305 11,282 11,761
============ ======== ======= ======= ======= ======= ======== ============
OTHER DATA:
EBITDA(4)...................... 3,913 3,102 6,064 20,039 24,607 17,926 24,984 34,473
Depreciation and amortization.. 2,063 217 415 1,466 2,323 1,562 2,158 4,254(5)
Capital expenditures........... 1,335 33 535 898 1,111 943 3,851 4,235
Cash interest(6)............... 2,634 3,890 3,676 7,621 4,734 4,153 4,075 10,441
BALANCE SHEET DATA (END OF PERIOD):
Accounts receivable............ $ 4,705 $ 4,166 $ 16,980 $ 23,776 $ 37,087 $ 33,057 $ 57,259 $ 63,899
Inventories.................... 44,473 34,025 52,765 48,957 72,974 63,160 114,823 122,204
Working capital................ 33,946 24,519 51,871 46,641 68,999 66,174 78,997 196,272
Total assets................... 55,688 42,401 89,264 93,478 145,183 127,283 215,902 308,479
Total debt..................... 44,472 31,992 69,152 62,043 38,984 29,264 86,112 173,660
Stockholders' equity........... 6,044 2,888 7,079 14,199 81,071 77,506 93,196 94,206
</TABLE>
- --------------------------
(1) Dixie, which was acquired on August 9, 1996, Kratz, which was acquired
on October 17, 1997, and Caribe, which was acquired in March 1998, were
accounted for under the purchase method of accounting and accordingly,
Dixie's results of operations have been included in the Company's
historical results of operations from the date of acquisition. As the
acquisition of Kratz and Caribe occurred after September 30, 1997,
Kratz are Caribe are not included in the historical results of
operations or financial position for any of the periods presented.
AvEng, which was acquired on December 10, 1996, Aerocell, which was
acquired on September 30, 1997, and Apex, which was acquired on
December 31, 1997, were accounted for under the pooling of interest
method of accounting. As such AvEng is included in the Company's
historical financial results for all periods presented subsequent to
1995, and Aerocell is included for all periods presented subsequent to
1996. Historical operating results and financial position for periods
presented prior to 1996 have not been restated to give retroactive
effect to the acquisition of AvEng and historical operating results for
periods presented prior to 1997 have not been restated to give
retroactive effect to the acquisition of Aerocell, due to the
immateriality of the restated amounts. As the acquisition of Apex
occurred after September 30, 1997, Apex is not included in the
historical results of operations or financial position of the Company
for any of the periods presented.
(2) Reflects the acquisitions of Kratz and Apex as if such acquisitions had
been consummated on January 1, 1997 for Statement of Income Data and
Other Data and on September 30, 1997 for Balance Sheet Data, and
reflects the consummation of the Offering, and the application of the
net proceeds therefrom, as if the Offering had occurred on January 1,
1997 for Statement of Income Data and Other Data and on September 30,
1997 for Balance Sheet Data. Pro Forma Statement of Income, Balance
Sheet and Other Data has not been adjusted to reflect the acquisition
of Caribe due to immateriality of the adjusted amounts.
(3) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as the Company conducted its business as a partnership
prior to June 26, 1996.
(4) EBITDA represents net income plus the provision for income taxes plus
consolidated interest expense plus depreciation and amortization, as
described in footnote (5). The Company has included information
concerning EBITDA because it is commonly used by certain investors as a
measure of a company's ability to service debt. However, EBITDA should
not be considered as a substitute for net income or cash flows prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(5) Cost of goods sold includes depreciation and amortization expense of
$1.4 million for the nine months ended September 30, 1997.
(6) Cash interest represents total interest expense less amortization of
deferred financing fees.
(7) Represents total debt outstanding divided by the annualized nine months
ended EBITDA (nine months ended September 30, 1997 EBITDA divided by
nine and the result multiplied by twelve).
30
<PAGE>
(8) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest expense, amortization of deferred debt
issuance costs and the interest portion of the Company's rent expense.
31
<PAGE>
MANAGEMENTS 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 ("ASC") from Aviall Services, Inc. ("Aviall") for an aggregate
purchase price of $46.8 million.
On July 2, 1996, the Company completed an initial public offering
("IPO") 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 IPO, 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
575,000 shares of common stock sold in the offering.
The Company received aggregate net proceeds in the IPO of $64.6
million. Of this amount, $10.2 million was used to repay the indebtedness
incurred to one of the stockholders of the Company in connection with the
formation of the Company and the balance was used to repay senior and
subordinated indebtedness.
Subsequent to the completion of the IPO, 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 $9.0 million. 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 of approximately $8.0
million, payable by the issuance of an aggregate of 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.
During 1997, the Company completed three acquisitions. The first
acquisition, which was completed in September 1997, was a merger accounted for
as a pooling of interests with Aerocell. Aerocell operates an FAA licensed
overhaul and repair facility. The purchase price paid for Aerocell was
approximately $18.8 million, payable by issuance of an aggregate of 620,970
shares of the Company's common stock. As a result of the acquisition, the
Company's operating revenues include Aerocell's revenues for the nine months
ended September 30, 1997, amounting to approximately $14.3 million. The second
acquisition, which was completed in October 1997, was of the assets of Kratz, a
company which specializes in the manufacture of machined components primarily
for jet engines (and also produces certain automotive and faucet components).
The Company paid approximately $42.5 million to acquire the assets of Kratz and
accounted for the acquisition under the purchase method of accounting. In
December 1997, the Company completed the acquisition, in a transaction accounted
for as a pooling of interests, of Apex, a precision aerospace manufacturer
specializing in the machining of metal parts, including precision shafts, fuel
shrouds, housings and couplings for aerospace actuating systems, fuel controls
and engines. The purchase price paid to acquire Apex was $8.4 million, payable
by the issuance of an aggregate of 238,572 shares of the Company's common stock.
32
<PAGE>
The Company completed an acquisition on March 6, 1998 of Caribe and its
wholly-owned subsidiary Aircraft. The acquisition was accounted for as a
purchase. Caribe is engaged in the business of maintenance, repair and overhaul
of aircraft parts. The purchase price paid to acquire Caribe and Aircraft
consisted of the following: (i) $5.0 million in cash; (ii) $5.0 million in the
form of a promissory note payable over two years; and (iii) $7.0 million in
shares of the Company's authorized but unissued common stock (186,939 shares).
Additionally, the Company repaid approximately $7.5 million of Caribe's and
Aircraft's indebtedness due to a financial institution. The Company paid the
cash portion of the purchase price and repaid Caribe's outstanding indebtedness
from cash on hand.
As the acquisitions of Kratz, Apex and Caribe occurred after September
30, 1997, their historical results of operations and financial position are not
included in the Company's historical financial data.
RECENT DEVELOPMENTS
The Company recently reported that its operating revenue and net income
for the year ended December 31, 1997 was approximately $256.9 million and $16.8
million, respectively.
RESULTS OF OPERATIONS
Operating revenues consist primarily of gross sales, net of allowances
for returns. 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 discussions 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.
33
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30,1997
The following table sets forth certain information relating to the
Company's operations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1997
------------------------- ----------------------
$ % $ %
----------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues.............................................. 112,894 100.0% 174,477 100.0%
Cost of sales................................................... 75,835 67.2% 122,712 70.3%
----------- ---------- ---------- ---------
Gross profit.................................................... 37,059 32.8% 51,765 29.7%
----------- ---------- ---------- ---------
Operating Expenses
Operating.................................................... 6,864 6.1% 11,027 6.3%
Selling...................................................... 5,111 4.5% 6,859 3.9%
General and administrative................................... 7,157 6.3% 8,895 5.1%
Depreciation and amortization................................ 1,562 1.4% 2,158 1.3%
----------- ---------- ---------- ---------
Total........................................................ 20,694 18.3% 28,939 16.6%
----------- ---------- ---------- ---------
Income from operations.......................................... 16,364 14.5% 22,826 13.1%
Interest and other expenses, net................................ 4,615 4.1% 4,331 2.5%
----------- ---------- ---------- ---------
Income before income taxes and extraordinary item............... 11,749 10.4% 18,495 10.6%
----------- ---------- ---------- ---------
Income tax expense (benefit).................................... (2,491) 2.2% 7,213 4.1%
----------- ---------- ---------- ---------
Income before extraordinary item................................ 14,240 12.6% 11,282 6.5%
----------- ---------- ---------- ---------
Extraordinary item, net of income taxes......................... 1,862 1.6% --- ---
----------- ---------- ---------- ---------
Net income...................................................... $ 12,378 11.0% $11,282 6.5%
=========== ========== ========== =========
</TABLE>
Operating revenues for the nine months ended September 30, 1997
increased 54.6% to $174.5 million, compared with $112.9 million, for the same
period in 1996. On September 30, 1997, the Company acquired Aerocell for
consideration of 620,970 shares of the Company's common stock. The acquisition
was accounted for using the pooling of interests method of accounting, and
therefore, the Company's consolidated statement of income and cash flows for the
nine months ended September 30, 1997 reflect the results of operations for
Aerocell. The consolidated statement of income and cash flows for the nine
months ended September 30,1996 has not been restated to give retroactive effect
for the acquisition due to the immateriality of the prior year amounts.
Operating revenues from Aerocell were $14.3 million for the nine months ended
September 30,1997. Operating revenues also increased due to the inclusion of a
full nine months of sales in the Company's bearings distribution business which
was acquired during the third quarter of 1996, increased revenues from leasing
activities, increased customer penetration, increased sales due to the Company's
investment in and availability of increased amounts of inventory and the
continued expansion of inventory management services being offered to and
utilized by the Company's customers.
Gross profit for the nine months ended September 30, 1997 increased
39.7% to $51.8 million compared with $37.1 million for the same period in 1996.
Gross margin declined to 29.7% for the first nine months of 1997 from 32.8% for
the same period in 1996. The decline in gross profit margin compared to 1996 was
expected as the mix of inventories sold during the 1997 period continued to
reflect a declining contribution from bulk inventories acquired prior to 1995
and an increase in revenues from the Company's lower margin bearings
distribution business acquired in August 1996.
The Company's operating expenses increased $8.2 million for the first
nine months of 1997 compared with the first nine months of 1996, due to costs of
$0.9 million associated with Aerocell's operations and due to higher sales
levels resulting in higher selling and operating expenses. Operating expenses as
a percentage of sales declined, however, to 16.6% in the 1997 nine month period
from 18.3% in the corresponding period of 1996, reflecting the continuing
benefits of economies of scale and operating efficiencies.
34
<PAGE>
Interest and other expenses, net decreased from period to period due to
decreased interest expense during the third quarter of 1996 resulting from
repayment of outstanding debt with the proceeds of the IPO, partially offset by
increased interest expense on net borrowings of $47.1 million during the first
nine months of 1997. Borrowings during 1997 were primarily used to purchase
inventory and spare parts and engines held for lease.
As a result of the above factors, income before income taxes and
extraordinary item for the first nine months of 1997 increased 57.4% to $18.5
million, compared with $11.7 million, for the same period in 1996.
In connection with the IPO, the Company repaid certain debt. As a
result, during the third quarter of 1996, the Company wrote-off approximately
$3.1 million in deferred financing costs relating to that debt ($1.9 million net
of income taxes). See Note 5 to Notes to the Company's Consolidated Financial
Statements for the three years ended December 31, 1996.
After accounting for pro forma income taxes (as if the Company had been
taxed as a C Corporation) and the extraordinary item described above, pro forma
net income for the nine months ended September 30, 1996 was $5.3 million, as
compared to net income of $11.3 million, for the nine months ended September 30,
1997. See Note 3 to Notes to the Company's Consolidated Financial Statements for
the nine months ended September 30, 1997.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following table sets forth certain information relating to the
Company's operations for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
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 taxes and extraordinary item.......... 10,286 9.0% 16,934 10.5%
Income tax expense (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
the expansion of the Company's customer base
35
<PAGE>
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
the Aviation Sales Company business unit of Aviall Services, Inc. ("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.
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 credit
facility during 1996.
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.
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 the Company's Consolidated Financial Statements for
the three years ended December 31, 1996.
Based on all of the above factors, including the extraordinary charge
resulting from the write off of deferred financing costs as a result of the
repayment of debt with the proceeds of the IPO, the Company's 1996 net income
was $15.5 million, an increase of $5.2 million, or 51%, as compared to 1995 net
income of $10.3 million.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain information relating to the
Company's operations for the 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>
36
<PAGE>
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 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. Based on all of the above
factors, the Company's net income increased by $9.1 million from 1994 to 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $12.1 million, $14.0 million and $0.9
million for the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996, respectively. Cash used in operations was $8.0 million
and $37.1 million for the year ended December 31,1996 and for the nine months
ended September 30, 1997, respectively. Cash used in investing activities for
the years ended December 31, 1994, 1995 and 1996 and for the nine month periods
ended September 30, 1996 and 1997 was $47.1 million, $4.7 million, $17.8
million, $16.8 million, and $8.5 million, respectively. Cash provided by
financing activities was $35.6 million, $26.8 million, $17.3 million and $46.1
million for the years ended December 31, 1994 and 1996 and for the nine month
periods ended September 30, 1996 and 1997, respectively. Cash used in financing
activities for the year ended December 31, 1995 was $10.5 million.
At February 10, 1998, the Company had approximately $138.8 million
outstanding under the Credit Facility, all of which was repaid from the proceeds
of the Offering. The Company believes that its anticipated working capital needs
will require it in the future to reuse availability under the Credit Facility.
Subsequent to the completion of the Offering, the Company will have availability
of approximately $91.4 million under the Credit Facility. See "Description of
Other Indebtedness." The Company believes that cash flow from operations and
borrowing availability under the Credit Facility will be sufficient to satisfy
the Company's anticipated working capital requirements over the next twelve
months.
During the years ended December 31, 1994, 1995 and 1996, and during the
nine month periods ended September 30, 1996 and 1997, the Company incurred
capital expenditures of approximately $0.5 million, $0.9 million, $1.1 million,
$0.9 million and $3.9 million, respectively, primarily to make enhancements to
the Company's management information systems, telecommunications systems and
other capital equipment and improvements. The Company is currently in the early
stages of purchasing and implementing a new management information system, which
among other things, will allow the Company to continue to maintain its
competitive advantage resulting from the availability of information regarding
its market and will mitigate any Year 2000 issues currently inherent in the
Company's existing systems. The cost of the new MIS system is expected to be
approximately $8.0 million, which will be incurred over approximately a two year
period. Financing for the new system will be provided from operations and from
borrowings under the Credit Facility.
As part of its growth strategy, the Company intends to continue to
pursue acquisitions of bulk inventories of aircraft spare parts and
complementary businesses. Additionally, the Company is currently evaluating the
prospect of consolidating its various facilities into a single warehouse
facility. Financing for such activities would be provided from operations and
from borrowings under the Credit Facility. The Company may also in the future
issue additional debt and/or equity securities in connection with financing one
or more of its activities.
37
<PAGE>
BUSINESS
GENERAL
Aviation Sales Company is a leading provider of fully integrated
aviation inventory services and a recognized worldwide leader in the
redistribution of aircraft spare parts. The Company sells aircraft spare parts
and provides inventory and repair services to major commercial passenger
airlines, air cargo carriers, maintenance and repair facilities and other
redistribution 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. Inventory management
services offered by the Company include purchasing services, repair management,
warehouse management, aircraft disassembly services, and consignment and leasing
of inventories of aircraft parts and engines. The Company also manufactures
certain aircraft parts for sale to original equipment manufacturers ("OEMs"),
including precision engine parts, and provides certain aircraft parts repair
services at its FAA licensed repair facility.
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
market for spare parts and the redistribution market in particular are growing
due to (i) the increasing size and the age of the worldwide airline fleet (the
worldwide fleet of commercial airplanes is expected to double from 1996 to
2016), and (iii) increased outsourcing by airlines of inventory management
functions in response to cost control pressures. These pressures have also
contributed to a reduction in the number of approved vendors utilized by the
airlines and maintenance and repair facilities, which in turn has led to
consolidation in the redistribution market. The aircraft spare parts
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
its diverse product and service offerings, superior specialized niches. The
Company believes its diverse product and service offerings, superior management
information systems, financial strength and access to capital markets allow it
to capitalize on the current industry environment.
The Company's strategy is to increase revenues and operating income
through internal growth combined with new product and service offerings. Growth
is expected to be achieved through continued customer penetration in existing
markets, expansion into new product areas, continued investment in the size and
breadth of its inventory and by continuing to offer customers a broad array of
inventory management services. These services allow 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 further intends to increase the types of
aircraft parts which it manufactures for its OEM customers and the repair
services which it offers to its customers. The Company will seek to develop new
products and services internally, as well as through acquisitions of other
companies, assets or product lines that would expand the products and services
which the Company offers to its customers. The Company believes that a
diversified platform of services will better allow it to serve the needs of its
larger customers, and to benefit from the continuing consolidation of vendors by
the airlines.
Since completion of its initial public offering in July 1996, the
Company has acquired six businesses which leveraged the Company's product and
service base beyond the redistribution of aircraft spare parts into new parts
distribution, manufacturing and maintenance, and repair and overhaul. During
1996, the Company acquired the aircraft bearings division of Dixie Bearings,
Inc. ("Dixie"), a leading provider of aircraft bearings, and related products to
commercial airlines, cargo carriers and overhaul service facilities, and AvEng
Trading Partners, Inc. ("AvEng"), a redistributor of aircraft engine parts.
During 1997, the Company acquired Aerocell Structures, Inc., an FAA-certified
maintenance, overhaul and repair facility, Kratz-Wilde Machine Company
("Kratz"), a manufacturer of specialty machined metal parts for jet engines, and
Apex Manufacturing, Inc. ("Apex"), a precision manufacturer of specialty
machined metal parts including shafts, fuel shrouds, housings and couplings for
aerospace actuating systems. In March 1998, the Company acquired Caribe and its
subsidiary, Aircraft. Caribe is an FAA-certified repair station specializing in
the maintenance, repair and overhaul of hydraulic, pneumatic, electrical and
electromagnetic aircraft components, and Aircraft manufacturers plastic cabin
interior replacement parts under FAA-PMA approval and refurbishes aircraft
interior components.
38
<PAGE>
INDUSTRY OVERVIEW
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS. According to Boeing's 1997
Current Market Outlook (the "Boeing Report"), the worldwide fleet of commercial
airplanes is expected to double from approximately 11,500 airplanes at the end
of 1996 to approximately 23,000 airplanes by 2016. Further, the Boeing Report
projects that cargo jet aircraft will increase from approximately 1,230
airplanes in 1996 to approximately 2,350 airplanes by 2016. The majority 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 causing many airlines and repair and
maintenance facilities which had historically purchased their parts 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.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT FUNCTIONS. 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
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 less expensively and more efficiently by a
redistributor like the Company that can achieve economies of scale unavailable
to individual airlines. Several small 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. Other airlines, including several
large airlines, have begun to outsource portions of their purchasing services,
repair management and warehouse management.
CONSOLIDATION IN THE AIRCRAFT PARTS MARKET. 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. 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. Furthermore, 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.
CONSIGNMENT AND BULK PURCHASES. 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 a 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 approximately 4,070 aircraft will be removed from active
commercial service between 1997 and 2016. Many of these aircraft will be
disassembled in order to sell their parts.
COMPETITIVE STRENGTHS
The Company believes that its competitive position in the markets which
it serves is based on its diverse product offerings, sophisticated inventory
management information systems and a consistent record of meeting rigorous
customer requirements.
DIVERSIFIED PLATFORM OF PRODUCTS AND SERVICES. The Company believes
that the breadth of inventory management services which it provides to its
customers, including a wide range of repair and overhaul services and
specialized
39
<PAGE>
manufacturing, allows the Company to be a vendor of choice to its customers in a
highly fragmented industry. The Company has over 1,000 customers, including
commercial passenger airlines, air cargo carriers and maintenance and repair
facilities.
LARGE INVENTORY BASE. The Company believes that it has one of the
largest inventories of aircraft spare parts in the world, with over 552,000 line
items currently in stock. The Company's inventory supports the worldwide
commercial fleet of over 11,500 aircraft including Airbus A300, A31x, A32x and
A340 series aircraft, Boeing 707, 727, 737, 747, 757, 767 and 777 series
aircraft, McDonnell Douglas DC-8, DC-9, DC-10, MD-8x and MD-11 series aircraft,
and the Lockheed L-1011 aircraft. In addition, the Company has parts available
for the following engine types: General Electric CF6, SNECMA CFM-56, Pratt and
Whitney JT-3, JT-8, JT-9 and PW-2000 and the Rolls Royce RB-211.
PROPRIETARY MANAGEMENT INFORMATION SYSTEMS. The Company's proprietary
management information systems comprise an integral component of the Company's
position as a leader in its industry. As industry, regulatory and public
awareness have focused on safety, documentation and traceability of aircraft
parts have become key factors in competitiveness. The Company's MIS systems
collect and report data regarding inventory turnover, documentation, pricing,
market availability and customer demographic information on more than 3.7
million line items. Access to such information enables the Company to be aware
of and to capitalize on the changing trends in the marketplace. The Company
utilizes electronic data scanning and document image storage technology for
rapid and accurate retrieval of inventory traceability documents. The Company is
continuing to invest in technology in order to allow the Company to maintain its
strength in this area
WORLDWIDE MARKETING PRESENCE. The Company conducts business in more
than 100 sales countries and utilizes sales representatives in 23 countries.
This international presence allows the Company to meet the demands of its global
customer base and provides for a timely supply of parts and services. During the
nine months ended September 30, 1997, 30% of the Company's revenues were derived
from sales to international customers and 7090 were derived from sales to
domestic customers.
SIGNIFICANT FINANCIAL AND OTHER RESOURCES. As a result of the Company's
strong capital position, the Company is able to take advantage of opportunities
which arise in the market from time to time to expand its products and services,
make selected acquisitions and evaluation bulk favorably purchase of inventory.
The Company's market presence, industry experience, sophisticated MIS systems
and capital strength enable the Company to quickly analyze and complete
purchases, giving the Company a competitive advantage in the market.
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. The Company's inventory consists in large part of rotable and
repairable parts which are regularly required by its customers.
The Company also maintains an inventory of expendable parts.
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 stack 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 part designation indicates that the part is eligible for immediate
use on an aircraft. A part in an as removed condition requires functional
testing, repair or overhaul by a licensed facility prior to being returned to
service in an aircraft.
40
<PAGE>
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, manufactures aircraft parts for its OEM customers and repairs
aircraft parts at its FAA licensed repair facilities. The Company believes that
providing its customers with a diversified platform of services will allow the
Company to significantly expand its 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 add 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 552,000 line items in stock with market
availability, pricing and historical data available on more than 3.7 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 FAA and/or the equivalent regulatory agencies in
other countries. Specific regulations vary Tom 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 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.
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
41
<PAGE>
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 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 maintain
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 stand-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 engines and 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 September 30,1997, the Company had $21.9 million of inventories on long-term
lease.
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.
MANUFACTURING AND REPAIR SERVICES
The Boeing Report projects that global air travel will increase by
close to 75% in the aggregate by the year 2006. In addition, average passenger
fleet miles flown are also expected to increase significantly over the next-few
years, requiring current operators to increase the size of their fleets.
Further, many new airlines are expected to commence operations in the United
States and abroad. These increases in passenger travel and the number of
aircraft in service increases the demand for manufacture and repair services.
Consequently the Company foresees the manufacture and repair of aircraft parts
as a profit center with significant growth opportunity, and as an integral
component of the Company's expansion strategy.
During the last half of 1997, the Company completed three acquisitions
towards its objective of expanding the services which it offers to its customers
to include manufacturing of aircraft parts for sale to OEMs and repair services,
as follows:
Aerocell specializes in the maintenance, repair and overhaul of
airframe components, including bonded and structural assemblies for
commercial aircraft. Aerocell is an FAA certified repair facility with
limited airframe ratings for flight controls, doors, fairies panels,
nacelle systems and exhaust systems.
Kratz specializes in the manufacture of machined components primarily
for jet engines, and also produces automotive and faucet components.
Kratz is a leading supplier of CFM56 and CF6 engine components to
General Electric's Aircraft Engine business, with three manufacturing
facilities in the greater Cincinnati area. The acquisition of Kratz
provides the Company with precision manufacturing capabilities which
the Company believes will allow it to expand its relationship with its
current and future OEM customers.
Apex, located in Phoenix, Arizona, manufactures precision aerospace
parts and specializes in the machining of metal parts, including
precision shafts, fuel shrouds, housings and couplings for aerospace
actuating systems, fuel controls and engines.
Caribe, located in Miami, Florida, is an FAA certified repair station
specializing in the maintenance, repair and overhaul of hydraulic,
pneumatic, electrical and electromagnetic aircraft components, as well
as avionics and instruments on Airbus and Boeing aircraft. Caribe's
wholly-owned subsidiary, Aircraft, manufactures plastic cabin
42
<PAGE>
interior replacement parts under FAA-PMA approval and refurbishes
aircraft interior components, including passenger and crew seats.
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 ten customers
accounted for approximately 28% of operating revenues for the nine months ended
September 30, 1977. No single customer accounted for more than 10% of operating
revenues for the nine months ended September 30, 1997.
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 system collects and reports 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 3.7 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 interchange ability 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 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, 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 foreseeable
future. In that regard, the Company is currently in the early stages of
purchasing and implementing a new management information system. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
COMPETITION
There are numerous suppliers of aircraft 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.
43
<PAGE>
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 aircraft 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 aircraft 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, the Company utilizes FAA
and/or Joint Aviation Authority certified repair stations (including the
Company's FAA licensed repair facilities) 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 airframe and/or power plant 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, manufactured or repaired 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.
The Company will have exposure to product liability claims in the event
that the use of its leased aircraft, aircraft engines or aircraft spare parts
inventory is alleged to have resulted in bodily injury or property damage. See
"Risk Factors-Product Liability."
EMPLOYEES
As of December 31, 1997, the Company employed approximately 850
persons. None of the Company's employees are covered by collective bargaining
agreements. The Company believes that its relations with its employees are good.
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<PAGE>
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, as of March 18, 1998, the principal
properties utilized by the Company.
<TABLE>
<CAPTION>
APPROXIMATE SQUARE OWNED
FACILITY DESCRIPTION LOCATION FOOTAGE OR LEASED
- -------------------------------------------------------- ---------------------- ------------- -------------
<S> <C> <C> <C>
Corporate Headquarters and Central Warehouse Miami, FL 166,000 Leased
Office and Repair Facility Hot Springs, AK 140,000 Owned
Aircraft Disassembly and Storage Ardmore, OK 130,000 Leased
Warehouse Pearland, TX 100,000 Leased
Office and Manufacturing Facility Miami, FL 55,000 Leased
Office and Manufacturing Facility Westchester, OH 47,400 Owned
Warehouse Miami, FL 40,000 Leased
Office and Manufacturing Facility Covington, KY 38,200 Owned
Manufacturing Facility Fairfield, OH 30,500 Owned
Office and Manufacturing Facility Miami, FL 30,000 Leased
Office and Manufacturing Facility Phoenix, AZ 25,000 Leased
Warehouse Miami, FL 11,200 Leased
Warehouse Miami, FL 10,000 Leased
Regional Purchasing Office Van Nuys, CA 6,300 Leased
Office and Warehouse College Park, GA 6,000 Leased
Warehouse Claremore, OK 1,000 Leased
</TABLE>
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 product liability insurance.
45
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
The following table sets forth the names and ages of the directors of
the Company. The Company's Board of Directors is divided into three classes, as
nearly equal in size as possible, with staggered terms of three years. At the
date of this Prospectus, the current members of the Board and the expiration of
their terms as Directors were as follows:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
- ---- --- -------- -------
<S> <C> <C> <C>
Dale S. Baker(1)(4).................... 40 Chairman of the Board, President and Chief 1999
Executive Officer
Harold M. Woody(4)..................... 52 Director and Executive Vice President of the 1999
Company and President of Aviation Sales Leasing
Company
Robert Alpert(1)(2)(3)(4).............. 48 Director 1998
Sam Humphreys(2)(3).................... 37 Director 2000
Tim Watkins(1)(3)...................... 54 Director 1998
Kazutami Okui(2)....................... 56 Director 2000
</TABLE>
- ----------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating Committee.
DALE S. BAKER has been the President and Chief Executive Officer of the
Company since February 1992. Prior thereto, Mr. Baker was Senior Vice President
and Manager of GE Capital's Corporate Investment Finance Group.
HAROLD M. WOODY has been the Executive Vice President of the Company
since February 1992 and he became the President of Aviation Sales Leasing
Company, a subsidiary of the Company, in early 1997. Prior thereto, from 1989 to
1992, Mr. Woody was Senior Vice President-Sales and Marketing for Japan Fleet
Service (Singapore) Pte Ltd ("JFSS") and from 1987 to 1989, Mr. Woody was
Executive Vice President of ASC.
ROBERT ALPERT is a private investor. In addition to his investment in
the Company, Mr. Alpert has invested significantly in business ventures in the
steel, environmental and waste industries, and oil service industries.
SAM HUMPHREYS is a Managing Director of Main Street Merchant Partners,
a merchant banking firm, and has been a partner in that firm and its
predecessor since January 1996. Since March 1997, Mr. Humphreys has also been
the Chairman of PalEx, Inc., the largest manufacturer of pallets in the United
States. From April 1993 until March 1997, Mr. Humphreys held various executive
positions with U.S. Delivery Systems, Inc., a provider of same-day local
delivery services, and Envirofil, Inc., an environmental services company.
Prior thereto, Mr. Humphreys was a partner in the law firm of Andrews & Kurth.
TIM WATKINS has served as the President and Chief Executive Officer of
JFSS since 1989. Prior thereto, Mr. Watkins was President and Chief Executive
Officer of Ryder's Aviation Sales and Leasing Division.
46
<PAGE>
KAZUTAMI OKUI has served as the General Manager of the Electronics and
Aircraft Department of Tomen Corporation, located in Tokyo, Japan, for more than
five years.
JFSS and Tomen Corporation are the ultimate beneficial owners of the
general partnership interests in J/T Aviation Partners, a Delaware general
partnership ("J/T"). J/T is a principal stockholder of the Company. See
"Principal Stockholders."
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives an annual
retainer fee at the rate of $12,000 per year for serving in such capacity. In
addition, each director who is not an employee of the Company receives $1,000
for each meeting of the Board of Directors attended and $1,000 for each
committee meeting attended.
All directors receive on an annual basis mandatory stock option grants
under the 1996 Director Stock Option Plan for serving on the Board. Five-year
options to purchase 5,000 shares of the Company's common stock are automatically
granted to each director on July 1 of each year, at an option exercise price
equal to the closing price of the Company's common stock on such date. All such
options are immediately exercisable on the date of grant. Existing directors,
upon the organization of the Company, were granted five-year options to purchase
10,000 shares of the Company's common stock, all of which are immediately
exercisable, at an option exercise price equal to the initial public offering
price. Additionally, directors appointed to the Board in the future will be
granted options to purchase 10,000 shares of the Company's common stock at the
time they are appointed to the Board, at an option exercise price equal to the
closing price of the Company's common stock on the date of their appointment to
the Board.
EXECUTIVE OFFICERS
Executive Officers hold their positions until the annual meeting of the
Board of Directors or until their respective successors are elected and
qualified. At the date of this Offering Memorandum, the following persons
constituted the Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dale S. Baker..................................... 40 President and Chief Executive Officer
Harold M. Woody................................... 52 Executive Vice President of the Company and
President of Aviation Sales Leasing Company
William H. Alderman............................... 35 Senior Vice President, Corporate Development
Michael A. Saso................................... 42 Senior Vice President, Purchasing
Joseph E. Civiletto............................... 38 Vice President and Chief Financial Officer
James D. Innella.................................. 37 Vice President and Chief Operating Officer
</TABLE>
BUSINESS EXPERIENCE
DALE S. BAKER. See the biographical information contained in "Board of
Directors" above.
HAROLD M. WOODY. See the biographical information contained in "Board
of Directors" above.
WILLIAM H. ALDERMAN has been the Senior Vice President, Corporate
Development since September 1996. Prior to joining the Company, from May 1995 to
September 1996, Mr. Alderman was a Managing Director and principal of the
financial advisory firm of International Aviation Management Group. Prior
thereto, Mr. Alderman was Vice President of Structured Finance at GE Capital
Aviation Services.
47
<PAGE>
MICHAEL A. SASO has been the Senior Vice President, Purchasing of the
Company since December 1994. From 1986 until December 1994, Mr. Saso served as
Vice President-Purchasing for ASC.
JOSEPH E. CIVILETTO has been the Vice President and Chief Financial
Officer of the Company since February 1992. Prior thereto from 1982 to 1992, Mr.
Civiletto held various financial, planning and audit positions with Baker Hughes
Inc. and Arthur Andersen LLP.
JAMES D. INNELLA has been the Vice President and Chief Operating
Officer of the Company since December 1994. Prior thereto: (i) from July 1993 to
December 1994, Mr. Innella served as General Manager of ASC; (ii) from 1991 to
July 1993, Mr. Innella was a Director of Operations for Ryder Airlines Services;
and (iii) from 1988 to 1991, Mr. Innella was the Director of Operations and
Purchasing for Aviparts, Inc., a subsidiary of Ryder Airline Services.
EXECUTIVE COMPENSATION
The following table sets forth information about the compensation paid
or accrued during 1996, 1995 and 1994 to the Company's Chief Executive Officer
and to each of the four other most highly compensated executive officers of the
Company whose aggregate direct compensation exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
SALARY BONUS OTHER ANNUAL
NAME YEAR ($) ($) COMPENSATION
- ---------------------------------------------------------- ------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Dale S. Baker............................................. 1996 248,416 124,208 (1)
1995 237,500 118,750 (1)
1994 175,000 -- (1)
Harold M. Woody(2)........................................ 1996 222,267 111,134 --
1995 212,500 106,250 --
1994 175,000 -- --
Michael A. Saso(3)........................................ 1996 160,510 80,255 --
1995 125,000 62,500 --
1994 8,231 -- --
Joseph E. Civiletto....................................... 1996 135,975 67,988 --
1995 130,000 65,000 --
1994 90,000 -- --
James D. Innella(3) 1996 141,977 70,959 --
1995 125,000 62,500 --
1994 9,105 -- --
</TABLE>
- --------------------
(1) Mr. Baker also receives $5,000 per year for life insurance premiums.
See "Employment Agreements with Named Executive Officers" below.
(2) During 1994, Mr. Woody was employed by JFSS. The compensation set forth
above was paid to IFSS in return for Mr. Woody's services.
(3) Compensation for 1994 represents one month of service.
48
<PAGE>
No long-term compensation awards were made to management during the
three years ended December 31, 1996. However, during 1994, Messrs. Baker, Woody,
Civiletto and Innella received payments of $250,000. $75,000, $50,000 and
$25,000 respectively in connection with and as a result of the acquisition of
ASC by the Company in December 1994.
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information concerning options granted
during the fiscal year ended December 31, 1996 to those persons named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL OPTIONS APPRECIATION
SHARES UNDERLYING RANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION FOR OPTION TERM(1)
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- --------------------------- ------------------ -------------------- -------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dale S. Baker.............. 10,000 5.1 19.06/26/2001 46,720 102,088
Harold M. Woody............ 10,000 5.1 19.06/26/2001 46,720 102,088
Michael A. Saso............ -- -- -- -- -- --
Joseph E. Civiletto........ 10,000 5.1 19.06/26/2001 46,720 102,088
James D. Innella........... 5,000 2.6 19.06/26/2001 23,360 51,044
</TABLE>
- ---------------------
(1) These amounts represent assumed rates of appreciation in the price of
the Common Stock during the term of the options in accordance with
rates specified in applicable federal securities regulations. Actual
gains. if any, on stock option exercises will depend on the future
price of the Common Stock and overall stock market conditions. There is
no representation that the rates of appreciation reflected in the table
will be achieved.
AGGREGATED OPTIONS EXERCISED DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning the exercise of
stock options during the 1996 fiscal year and the value of unexercised stock
options at the end of the 1996 fiscal year for the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END($)*
SHARES UNDERLYING VALUE ------------------------- -------------------------
NAME OPTIONS GRANTED(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dale S. Baker................... -- -- 10,000/0 15,000/0
Harold M. Woody................. -- -- 10,000/0 15,000/0
Michael A. Saso................. -- -- -- --
Joseph E. Civiletto............. -- -- 3,333/6,667 5,000/10,000
James D. Innella................ -- -- 1,666/3,334 2,500/5,000
</TABLE>
- -------------------
* Computed based upon the difference between the closing price of the
Common Stock at December 31. 1996 and the exercise price. No value has
been assigned to options which are not in-the-money.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Effective December 2, 1994, the Company entered into an employment
agreement with Mr. Baker. The employment agreement provides for an annual base
salary of $237,500 (to be increased annually by a cost of living adjustment). In
addition, the Company agreed to provide Mr. Baker with all employee benefits
established by the Company,
49
<PAGE>
and to pay Mr. Baker an additional sum of $5,000 per year for insurance premiums
to maintain a whole life insurance policy. The employment agreement requires Mr.
Baker to use his best efforts to perform the duties of President and Chief
Executive Officer.
Mr. Woody has an employment agreement with the Company under which he
is entitled to an annual base salary of $212,500 (to be increased annually by a
cost of living adjustment), and all employee benefits established by the
Company.
The employment agreements between the Company and Messrs. Baker and
Woody each provide for an initial term expiring on December 31, 1999.
Thereafter, the respective agreements each shall run for successive one-year
periods unless terminated by the Company upon six months' prior written notice,
or by Messrs. Baker or Woody upon three months' prior written notice.
Mr. Saso has an employment agreement with the Company to serve as
Senior Vice President, Purchasing under which he is entitled to an annual base
salary of $185,000 (to be increased annually by a cost of living adjustment),
and all employee benefits established by the Company. The agreement provides for
an initial term expiring on May 31, 2001, running for successive one-year terms
thereafter, unless terminated by the Company upon six months' prior written
notice, or by Mr. Saso upon three months' prior written notice.
Mr. Civiletto has an employment agreement with the Company to serve as
Vice President and Chief Financial Officer under which he is entitled to an
annual base salary of $130,000 (to be increased annually by a cost of living
adjustment), and all employee benefits established by the Company. The agreement
provides for an initial term which expired on December 31, 1997, and runs for
successive one-year terms thereafter, unless terminated by the Company upon six
months' prior written notice, or by Mr. Civiletto upon three months' prior
written notice.
Mr. Innella has an employment agreement with the Company to serve as
Vice President and Chief Operating Officer under which he is entitled to an
annual base salary of $150,000 (to be increased annually by a cost of living
adjustment), and all employee benefits established by the Company. The agreement
provides for an initial term expiring on May 31, 2001, running for successive
one-year terms thereafter, unless terminated by the Company upon six months'
prior written notice, or by Mr. Innella upon three months' prior written notice.
Each of Messrs. Baker, Woody, Saso, Civiletto and Innella has further
agreed in his respective employment agreement that he shad refer to the Company
all opportunities in the aerospace industry relating to parts purchasing,
leasing, financing, repair, distribution and manufacturing, and aircraft
purchasing, leasing and financing to which he might become exposed in carrying
out his duties and responsibilities.
Each of the employment agreements for Messrs. Baker, Woody, Saso,
Civiletto and Innella also provides for participation in the Company's EBITDA
Incentive Compensation Plan whereby each of them has the opportunity to earn an
incentive bonus of between 20% and 250% of their base salary (under the
Company's 1997 EBITDA Incentive Compensation Plan, such percentages increase to
between 20% and 250% of base salary for calendar years commencing January 1,
1997 or thereafter). 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 principal
stockholders; (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 shad be payable to the executive officer as a termination
fee.
Section 162(m) of the Code generally disavows an income tax deduction
to public companies for compensation over $1.0 million paid in a year to any one
of the chief executive officer or the four most highly compensated other
executive officers, to the extent that this compensation is not "performance
based" within the meaning of Section 162(m). As a result of this limitation,
there can be no assurance that all of the compensation paid to the Company's
executive officers in the future will be deductible.
50
<PAGE>
STOCK OPTIONS
The Company's Board of Directors and stockholders have 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, options to acquire a maximum of the greater of 650,000 shares 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
386,057 shares at exercise prices ranging from $19.00 per share to $25.25 per
share are currently outstanding under the Plans, 254,800 of which are
immediately exercisable.
The Plans are administered by the Compensation Committee of the Board
of Directors. The Compensation Committee was formed in January 1997. Prior to
the formation of the Compensation Committee, the Board of Directors administered
the Plans. The Compensation Committee determines which persons will receive
options and the number of options to be granted to such persons. The Director
Plan also provides for annual mandatory grants of options to directors. See
"Compensation of Directors." The Compensation Committee will also interpret the
provisions of the Plans and make all other determinations that it may deem
necessary or advisable for the administration of the Plans.
Pursuant to the Plans, the Company may grant Incentive Stock Options
("ISOs") as defined in Section 422(b) of the Internal Revenue Code of 1986, as
amended, (the "Code"), and Non-Qualified Stock Options ("NQSOs"), not intended
to qualify under Section 422(b) of the Code. 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 and
are not transferable, except by will or the laws of descent and distribution.
None of the ISOs under the Plans may be granted to an individual owning more
than 10% of the total combined voting power of all classes of stock issued by
the Company unless the purchase price of the common stock under such option is
at least 110% of the fair market value of the shares issuable on exercise of the
option determined as of the date the option is granted, and such option is not
exercisable more than five years after the grant date.
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 to an individual 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. A "change in control" of
the Company generally is deemed to occur when (a) any person becomes the
beneficial owner of or acquires voting control with respect to more than 20% of
the common stock (or 35% if such person was a holder of Common Stock on July 2,
1996 of the Company's initial public offering); (b) a change occurs in the
composition of a majority of the Company's Board of Directors during a two-year
period, provided that a change with respect to a member of the Company's Board
of Directors shall be deemed not to have occurred if the appointment of a member
of the Company's Board of Directors is approved by a vote of at least 75% of the
individuals who constitute the then existing Board of Directors; or (c) the
Company's stockholders approve the sale of all or substantially all of the
Company's assets.
ISOs granted under the Plans are subject to the restriction that the
aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.
The Plans provide for appropriate adjustments in the number and type of
shares covered by the Plans and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions involving
the Company.
51
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, the Company did not
have a Compensation Committee. In January 1997, the Board organized a
Compensation Committee. During the past fiscal year' none of the Company's
directors or executing officers served as a member of the compensation committee
or similar committee of another entity, one of whose executive officers served
on the Company's Board; served as a director of another entity, one of whose
executive officers served on the Company's Board or served as a member of the
compensation committee or similar committee of any other entity, one of whose
executive officers served as a director of the Company.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 11, 1998, certain
information regarding the common stock, owned of record or beneficially by (i)
each person who owns beneficially more than 5% of the outstanding common stock;
(ii) each of the Company's directors and named executive officers; and (iii) all
directors and executive officers as a group. The address for each beneficial
owner is c/o the Company, 6905 N.W. 25th Street, Miami, Florida
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
- ---- -------- -----
<S> <C> <C>
Robert Alpert(2)(8)........................................................... 2,362,000 25.0%
J/T Aviation Partners(3)...................................................... 1,501,000 15.9%
Tomen Corporation(3)(4)....................................................... 750,500 7.9%
JFSS(3)(4).................................................................... 750,500 7.9%
Dale S. Baker(5)(6)(8)........................................................ 321,333 3.4%
Harold M. Woody(5)(6)(8)...................................................... 221,333 2.3%
Tim Watkins(7)(8)............................................................. 15,000 *
Kazutami Okui(7)(8)........................................................... 15,000 *
Sam Humphreys(8).............................................................. 15,000 *
Michael A. Saso(5)(6)......................................................... 81,333 *
James D. Innella(5)(6)........................................................ 86,333 *
Joseph E. Civiletto(5)(10).................................................... 46,333 *
All directors and executive officers as a group (10 persons)(7)............... 3,189,798 33.3%
</TABLE>
- -----------------------------
* Less than one percent
(1) Unless otherwise indicated, each person named in the table has the sole
voting and investment power with respect to the shares beneficially
owned.
(2) Shares are owned of record by three corporate entities controlled by
Mr. Alpert.
(3) J/T Aviation Partners is a general partnership, the ultimate beneficial
owners of which are Tomen Corporation and JFSS.
(4) Reflects shares beneficially owned by virtue of its ultimate beneficial
ownership of a general partnership interest in J/T Aviation Partners.
(5) Shares shown as beneficially owned, except for currently exercisable
options, are pledged to secure payment of the certain promissory notes
representing the purchase price paid for their interest in the Company.
(6) Includes five-year options to purchase 3,333 shares at an option
exercise price of $25.25 per share.
53
<PAGE>
(7) Messrs. Watkins and Okui disclaim beneficial ownership of the shares
owned by J/T Aviation Partners.
(8) Includes five-year options to purchase 10,000 shares at an option
exercise price of $19.00 per share and five-year options to purchase
5,000 shares at an option exercise price of $24.38 per share.
(9) Includes (i) five-year options to purchase 1,666 shares at an option
exercise price of $19.00 per share, and (ii) five-year options to
purchase 6,667 shares at an option exercise price of $25.25 per share.
(10) Includes (i) five-year options to purchase 10,000 shares at an option
exercise price of $19.00 per share, (ii) five-year options to purchase
3,333 shares at an option exercise price of $25.25 per share and (iii)
five-year options to purchase 5,000 shares at an option exercise price
of $35.62 per share. Excludes five-year option to purchase 10,000
shares at an option exercise price of $35.62, which options have not
vested.
54
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of 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. 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 and Aviation Properties entered into a loan agreement (the "Loan
Agreement") whereby the Company made a $2.5 million loan to Aviation Properties,
which loan bears interest at 8.0% per annum, with principal and interest due in
a single payment on December 2, 2004.
As of 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 make
annual 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 Agreement and the terms of
the leases with Aviation Properties and AVTEX are no less favorable than could
be obtained from an unaffiliated third party.
At January 1, 1995, Messrs. Baker, Woody, Saso, Civiletto and Innella
were granted options (the "Options") by the partners of ASC Acquisition
Partners, L.P. d/b/a Aviation Sales Company (the "Partnership") (AVAC and J/T)
to purchase an aggregate of 13.5% of the outstanding limited partnership
interests in the Partnership for an exercise price greater than the fair market
value of the interests in the Partnership at that date. At January 1, 1996, the
Options were exercised in full by delivery to AVAC and J/T of full recourse
promissory notes (the "Promissory Notes") in the aggregate principal amounts set
forth below, representing the payment in full of the exercise price of the
Options:
<TABLE>
<CAPTION>
LIMITED PARTNER'S
PERCENTAGE INTEREST IN
PARTNERSHIP ACQUIRED PRINCIPAL AMOUNT
NAME UPON EXERCISE OF OPTIONS OF PROMISSORY NOTES
- ---- ------------------------ -------------------
<S> <C> <C>
Dale S. Baker ......................................... 6.0% $638,678.75
Harold M. Woody ....................................... 4.0% 425,785.83
James D. Innella....................................... 1.5% 159,669.69
Michael A. Saso........................................ 1.5% 159,669.69
Joseph E. Civiletto.................................... 0.5% 53,223.23
</TABLE>
Management's interests in the Partnership were subject to a first
priority pledge to the lenders under the Company's revolving credit facility and
a second priority pledge to AVAC and J/T to secure the repayment of their
respective Promissory Notes. The Promissory Notes bear interest at the rate of
8.0% per annum, with principal and interest due and payable on the earlier of
January 1, 2001 or from the net proceeds available upon the sale of any portion
of the collateral securing the Promissory Notes. Immediately prior to the
Company's initial public offering in June 1996, management contributed their
interests in the Partnership to the Company in exchange for shares of the common
stock. At such time, management pledged their shares of the common stock to
secure the repayment of their respective Promissory Notes. The exercise price of
the Options after giving effect to the exchange of Partnership interests for
shares of common stock would effectively have been $2.13 per share.
The Company was 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 expired in February 1997.
In July 1996, $10.2 million of the net proceeds of the Company's
initial public offering were used to pay in full subordinated indebtedness due
to J/T.
55
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The Company and its subsidiaries have entered into a Third Amended
and Restated Credit Agreement dated October 17, 1997 (the "Credit Facility")
with certain financial institutions including an affiliate of one of the Initial
Purchasers, which consists of (a) a term loan facility (the "Term Loan") in a
principal amount of $18.6 million, and (b) a $131.4 million revolving loan,
letter of credit and acquisition loan facility, subject to an availability
calculation based on the eligible borrowing base (the "Revolving Credit
Facility"). The eligible borrowing base includes certain receivables and
inventories of the Company. The letter of credit portion of the Revolving Credit
Facility is subject to a $15.0 million sublimit and the acquisition loan portion
of the Revolving Credit Facility is subject to a $40.0 million sublimit (all of
which was borrowed in connection with the acquisition of Kratz and converted to
term debt), with the imposition of certain borrowing criteria based on the
satisfaction of certain debt ratios. The interest rate on the 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 a 12 month period (ranging from 0.0% to 1.25% in the
event prime is utilized, or 1.50% to 2.75% in the event LIBOR is utilized). At
December 31, 1997, the margin was .25% for prime rate loans and 1.75% for LIBOR
rate loans.
The 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 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 requires mandatory
repayments from the proceeds of a sale of assets or an issuance of equity or
debt securities or as a result of insufficient collateral to meet the borrowing
base requirements thereunder. Substantially all of the Company's assets are
pledged as collateral for amounts borrowed.
The Term Loan, as well as the $40.0 million acquisition sublimit
portion of the Revolving Credit Facility, amortizes in equal
quarterly-installments and terminates on July 31, 2002. Interim payments under
the Revolving Credit Facility are made from daily collections of the Company's
accounts receivable. The Revolving Credit Facility will terminate on July 31,
2002. At December 31, 1997, the Company was in compliance with all covenants of
the Credit Facility.
The Company used $138.8 million of the net proceeds of the Offering to
repay amounts outstanding under the Credit Facility. The amounts repaid under
the Credit Facility include borrowings during the last year used to repay
assumed indebtedness of Aerocell and Apex in connection with those acquisitions
and borrowings incurred in connection with the acquisition of Kratz. The Company
had availability of approximately $91.4 million under the Credit Facility after
completion of the Offering.
On August 5, 1997, a subsidiary of the Company, Aviation Sales SPS I,
Inc., entered into a term loan agreement in a principal amount of $7.2 million
which was guaranteed by the Company, to finance certain equipment and rotable
parts on long-term lease, which secure the loan. This loan is payable in 59
consecutive equal monthly payments of $91,750 commencing September 14, 1997,
with a final balloon payment due on August 14, 2002. Interest on this term loan
is fixed at 8.21%. The Company has leased the underlying equipment and rotable
parts to unrelated third parties. Interim payments under the term loan will be
made from the proceeds of these parts leases. This term loan contains financial
and other covenants and mandatory prepayment events, as defined. At December 31,
1997, the Company was in compliance with all covenants of this term loan.
In connection with its acquisition of Kratz, a subsidiary of the
Company, AVS/Kratz-Wilde Machine Company delivered a non-interest bearing
promissory note in the original principal amount of $2.5 million, which was
guaranteed by the Company, to the seller.
In connection with the acquisition of Caribe, on March 6, 1998, a
subsidiary of the Company, ASMRC, delivered a promissory note in the original
principal amount of $5.0 million, which was guaranteed by the Company, to the
seller. The note is payable over a two-year period with interest at the rate of
8% per annum.
56
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The New Notes, like the Old Notes, will be issued pursuant to the
Indenture dated February 17, 1998 (the "Indenture") among the Company, the
Subsidiary Guarantors and SunTrust Bank Central Florida, National Association,
as trustee (the "Trustee"). The terms of the New Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act") except with respect to
Registration Defaults will have been deemed satisfied. The New Notes are subject
to all such terms, and Holders of Old Notes are referred to the Indenture and
the Trust Indenture Act for a statement thereof. The terms of the New Notes are
substantially identical to the terms of the Old Notes in all material respects
(including interest rate and maturity), except that the New Notes will not be
subject to (i) the restrictions on transfer (other than with respect to holders
that are broker-dealers, persons who participated in the distribution of the Old
Notes or affiliates) and (ii) the Registration Rights Agreement covenants
regarding registration and the related Liquidated Damages (other than those that
have accrued and were not paid, if any). The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the Indenture and Registration Rights
Agreement are available as set forth below under "-Additional Information." The
definitions of certain terms used in the following summary are set forth below
under "-Certain Definitions." For purposes of this summary, the term "Company"
refers only to Aviation Sales Company and not to any of its Subsidiaries.
The Notes are and will be general unsecured obligations of the Company
and will be subordinated in right of payment to all current and future Senior
Debt. As of September 30, 1997, on a pro forma basis giving effect to the
Offering, and the application of the proceeds therefrom, and the acquisitions of
Kratz and Apex, but not Caribe, the Company and the Subsidiary Guarantors would
have had Senior Debt of approximately $9.7 million outstanding and the Company
and its Subsidiaries would have had additional liabilities (including trade
payables, accrued expenses, income taxes payable and deferred income)
aggregating approximately $40.6 million. The Indenture permits the incurrence of
additional Senior Debt in the future.
As of the date of the Indenture, substantially all of the Company's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $250.0 million,
of which $165.0 million was outstanding as of the date of this Prospectus, and
will mature on February 15, 2008. Interest on the Notes accrues at the rate of
8-1/8% per annum and is payable semi-annually in arrears on February 15 and
August 15, commencing on August 15, 1998, to Holders of record on the
immediately preceding February 1 and August 1. Interest on the Notes accrues
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest is computed on the basis
of a 360 day year comprised of twelve 30 day months. Principal, premium, if any,
and interest and unpaid Liquidated Damages, if any, on the Notes is payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments of principal, premium, interest and Liquidated
Damages with respect to Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The Notes
are issued in denominations of $1,000 and integral multiples thereof.
57
<PAGE>
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Notes may receive and retain Permitted
Junior Securities and payments made from the trust described under "-Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Notes (except in Permitted Junior Securities or from the trust described under
"-Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt occurs
and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new Payment Blockage Notice
shall be effective unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been waived for a period of not less than 90
days.
The Indenture requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. On a pro forma
basis, after giving effect to the Offering and the application of the proceeds
therefrom and the acquisitions of Kratz and Apex, the principal amount of Senior
Debt of the Company and the Subsidiary Guarantors outstanding at September 30,
1997 would have been approximately $9.7 million. The Indenture limits, subject
to certain financial tests, the amount of additional Indebtedness, including
Senior Debt, that the Company and its subsidiaries can incur. See "-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary Guarantors;
The Subsidiary Guarantee of each Subsidiary Guarantor is unsecured and is
subordinated to the prior payment in full in cash of all Senior Debt of such
Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee are limited so as not to constitute a fraudulent conveyance
under applicable law. See, however, "Risk Factors-Fraudulent Conveyances and
Preferential Transfers."
The Indenture provides that no Subsidiary Guarantor may consolidate
with or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another corporation, Person or entity whether or not
affiliated with such
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Subsidiary Guarantor unless (i) except in the case of a merger of a Subsidiary
Guarantor with or into the Company or another Subsidiary Guarantor but subject
to the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Subsidiary Guarantor)
assumes all the obligations of such Subsidiary Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) except in the case of a merger of a Subsidiary Guarantor,
with or into the Company or another Subsidiary Guarantor such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; and (iv) except in
the case of a merger of a Subsidiary Guarantor with or into the Company or
another Subsidiary Guarantor, the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the covenant described
below under the caption"-Incurrence of Indebtedness and Issuance of Preferred
Stock."
The Indenture provides that in the event of (i) a sale or other
disposition of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise; (ii) a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor; or (iii) such Subsidiary Guarantor is
designated as an Unrestricted Subsidiary in accordance with the Indenture, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Subsidiary Guarantor or designation as a Unrestricted Subsidiary) or the
corporation acquiring the property (in the event of a sale or other disposition
of all of the assets of such Subsidiary Guarantor) will be released and relieved
of any obligations under its Subsidiary Guarantee; provided that, in the case of
a sale or other disposition, the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. See
"Redemption or Repurchase at Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to February
15, 2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on February 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------------
<S> <C> <C>
2003.............................................................. 104.063%
2004.............................................................. 102.708%
2005.............................................................. 101.354%
2006 and thereafter............................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to February 15, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Notes originally issued under the Indenture at a redemption
price of 1081/8% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the redemption date, with
the net cash proceeds of a public offering of common stock of the Company;
provided that at least 65% of the aggregate principal amount of Notes originally
issued under the Indenture remain outstanding immediately after the occurrence
of such redemption (excluding Notes held by the Company and its Subsidiaries);
and PROVIDED, further, that such redemption shall occur within 45 days of the
date of the closing of such public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by
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first class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. Notices
of redemption may not be conditional. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay or
cause to be repaid all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Facility currently prohibits the Company from purchasing any
Notes prior to maturity, and also provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes
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would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Notes.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"CHANGE OF CONTROL' means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares). or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Restricted Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to another Person or group may
be uncertain.
"CONTINUING DIRECTORS" means, as of-any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election:
ASSET SALES
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed of
and (ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; provided that the amount of
(x) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet), of the Company or any Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to repay or
cause to be repaid Senior Debt, or (b) to the acquisition of a majority of the
assets of, or a majority of the Voting Stock of, another Permitted Business, the
making of a capital expenditure or the acquisition of other long-term assets
that are used or useful in a Permitted Business. Pending the final application
of any such Net Proceeds, the Company may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first
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sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
be required to make an offer to all Holders of Notes and all holders of pari
passu Indebtedness containing provisions similar to those set forth in the
Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets (an "Asset Sale Offer") to purchase the maximum principal amount
of Notes and such other Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase, in accordance with the procedures set forth in
the Indenture and such other Indebtedness. To the extent that any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may use
such Excess Proceeds for any purpose not otherwise prohibited by the Indenture.
If the aggregate principal amount of Notes and such other Indebtedness tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero. In determining the fair
market value of any assets or Equity Interests issued, sold or otherwise
disposed of, such determination shall be evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee if
such fair market value exceeds $15.0 million.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is PARI PASSU with
or subordinated to the Notes, except a payment of interest or principal at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments") unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption"-Incurrence
of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of the Indenture (excluding
Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of
the next succeeding paragraph), is less than the sum, without
duplication, of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company since the date of
the Indenture as a contribution to its common equity capital or from
the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt
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securities) sold to a Subsidiary of the Company), plus (iii) to the
extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B)
the initial amount of such Restricted Investment, plus (iv) 50% of any
dividends received by the Company or a Subsidiary Guarantor after the
date of the Indenture from an Unrestricted Subsidiary of the Company,
to the extent that such dividends were not otherwise included in
Consolidated Net Income of the Company for such period, plus (v) to the
extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the date of the Indenture, the lesser of (A) the fair
market value of the Company's Investment in such Subsidiary as of the
date of such redesignation or (B) such fair market value as of the date
on which such Subsidiary was originally designated as an Unrestricted
Subsidiary.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any PARI PASSU or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of PARI PASSU or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (v) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of the Indenture; PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $3.0 million in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; (vi) the making and consummation of (A) an Asset Sale
Offer to holders of Indebtedness PARI PASSU with or subordinate to the Notes in
accordance with the provisions described above under "Asset Sales", or (B) a
Change of Control Offer to holders of indebtedness PARI PASSU with or
subordinate to the Notes at a price not greater than 101% of the principal
amount of such Indebtedness in accordance with provisions similar to those
described above under "Change of Control"; PROVIDED, that prior to consummation
of a Change of Control Offer with respect to subordinated Indebtedness and
concurrently with consummation of a Change of Control Offer with respect to PARI
PASSU Indebtedness, the Company shall have consummated the Change of Control
Offer with respect to the Notes; and (vii) the making of additional Restricted
Payments in an amount not to exceed $10.0 million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments (to the
extent they otherwise fall within the definition thereof) at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment in excess of $10.0 million shall
be determined by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $15.0 million. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will no, permit any of its Subsidiaries to issue any
shares of preferred stock, PROVIDED, HOWEVER, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and
the Subsidiary Guarantors may incur Indebtedness or issue preferred stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1 if such Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued on or prior to February 15, 2000, or would have been
at least 2.25 to 1 if such Indebtedness is incurred or such Disqualified Stock
or preferred stock is issued thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom) as if the
additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the. following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness under the Credit Facility; PROVIDED that the aggregate principal
amount of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company and the
Subsidiary Guarantors thereunder) outstanding under the Credit Facility after
giving effect to such incurrence does not exceed an amount equal to $150.0
million less the aggregate amount of all Net Proceeds of Asset Sales applied to
repay such Indebtedness;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of the Subsidiary Guarantors
of Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Subsidiary Guarantor, in an aggregate principal amount not to exceed $10.0
million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clause (ii) of this paragraph;
(vi) the incurrence by the Company or any of the Subsidiary Guarantors
of intercompany Indebtedness or preferred stock between or among the Company and
any of the Subsidiary Guarantors; PROVIDED, HOWEVER, that (A) any subsequent
issuance or transfer of Equity Interests that results in any such Indebtedness
or preferred stock being held by a Person other than the Company or a Subsidiary
Guarantor and (B) any sale or other transfer of any such Indebtedness or
preferred stock to a Person that is not either the Company or a Subsidiary
Guarantor shall be deemed, in each case, to constitute an incurrence of such
Indebtedness or an issuance of such Preferred Stock by the Company or such
Subsidiary Guarantor, as the case may be, that was not permitted by this clause
(vi);
(vii) the incurrence by the Company or any of the Subsidiary Guarantors
of Hedging Obligations;
(viii) the guarantee by the Company or any of the Subsidiary Guarantors
of Indebtedness of the Company or a Subsidiary Guarantor that was permitted to
be incurred by another provision of this covenant; and
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(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (ix);
(x) the incurrence by the Company or any of the Subsidiary Guarantors
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (x), not to exceed $30.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges bf the Company as accrued.
LIENS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries. However, the foregoing restrictions will not apply to encumbrances
or restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Credit Facility as in effect as of
the date of the Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Credit Facility as in effect on the
date of the Indenture, (c) the Indenture and the Notes, (d) applicable law, (e)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (h) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced, (j) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"-Liens" that limits the right of the debtor to dispose of the assets securing
such
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Indebtedness, (k) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (1) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary after the date of the
Indenture (other than an Unrestricted Subsidiary properly designated as such),
then such newly acquired or created Subsidiary shall become a Subsidiary
Guarantor and execute a Supplemental Indenture and deliver an Opinion of
Counsel, in accordance with the terms of the Indenture.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Subsidiary Guarantor, the Company or the entity or Person formed by or surviving
any such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption"- Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million (or, in the case of a
purchase of inventory from JFSS in the ordinary course of business, $15.0
million) an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (ii) transactions between
or among the Company and/or its Restricted Subsidiaries, (iii) payment of
reasonable directors fees to Persons who are not otherwise Affiliates of the
Company, (iv) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-Restricted Payments,"and (v) any
transactions undertaken pursuant
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to any contractual obligations in existence on the date of the Indenture (as in
effect on such date) as described herein under the caption "Certain
Relationships and Related Transactions."
NO SENIOR SUBORDINATED DEBT
The Indenture provides that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to the Senior
Debt of such Subsidiary Guarantor and senior in any respect in right of payment
to the Subsidiary Guarantees.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, following the consummation of the exchange offer
contemplated hereby, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Subsidiary
Guarantors have agreed that, for so long as any Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Subsidiaries to comply with the provisions described under the
captions "--Change of Control," "--Asset Sales," "--Restricted Payments" or
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by
the Company or any of its Subsidiaries for 60 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a f failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of f the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the f principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments (including foreign judgments only
to the extent enforcement thereof is sought in the United States or in any
foreign jurisdiction where the Company owns assets of $10.0 million or more)
aggregating in excess of $10.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries;
and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Subsidiary Guarantor, or
any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
February 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in. the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants
described above under the caption"-Repurchase at the Option of Holders") (viii)
make any change in the foregoing amendment and waiver provisions or (ix) release
any Subsidiary Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture, except in accordance with the terms of the
Indenture. In addition, any amendment to the provisions of Article 10 or Article
12 of the Indenture (which relate to subordination) will require the consent of
the Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Company, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets, to make any change that would provide
any additional rights or benefits to the Holders of Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act to provide for the
issuance of additional Notes in accordance with the limitations set forth in the
Indenture or to provide for additional Subsidiary Guarantors in accordance with
the terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
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The Holders of a majority in principal amount of the then outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to
Aviation Sales Company, 6905 N.W. 25th Street, Miami, Florida 33122, Attention:
Joseph E. Civiletto, Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes will initially
be issued in the form of one or more Global Notes (the "Global Notes"). The
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder").
New Notes that are issued as described below under"-Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless all Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred,
subject to the transfer restrictions set forth in the Indenture.
The Depositary is a limited-purpose trust company that was created to
hold securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants. The
Depositary's Participants include securities brokers and dealers (including the
Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that dear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only thorough
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the trans&r of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes,
the Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by
the Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
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Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest
in a Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors."In addition, if
(i) the Company notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor entity 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in the form
of Certificated Securities under the Indenture, then, upon surrender by the
Global Note Holder of its Global Note, Notes in such form will be issued to each
person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global Note Holder.
With respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect
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to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales or leases of inventory in the ordinary course of
business or sales of leases or of assets subject to leases in the ordinary
course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "-Change of Control" and/or the
provisions described above under the caption "-Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sate covenant), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $2.0 million or (b)
for net proceeds in excess of $2.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, and
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "-Restricted Payments."
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisitioD, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i) - (v) of this definition.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and
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other intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) an amount equal to
1/3 of the Consolidated Lease Expense of such Person and its Restricted
Subsidiaries for such period, to the extent that any such expense was deducted
in computing such Consolidated Net Income, minus (vi) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted- Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"CONSOLIDATED LEASE EXPENSE" means, with respect to any Person for any
period, the aggregate rental obligations of such Person and its consolidated
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP payable in respect of such period under leases of real and/or personal
property (net of income from subleases thereof, but including taxes, insurance,
maintenance and similar expenses that the lessee is obligated to pay under the
terms of such leases), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such Person and
its Restricted Subsidiaries or in the notes thereto.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CREDIT FACILITY" means that certain Third Amended Credit Agreement.
dated as of October 17, 1997, by and among the Company, Aviation Sales Operating
Company, Aerocell Structures. Inc. and AVS/Kratz-Wilde Machine Company, the
Institutions from time to time party thereto as Lenders, the Institutions from
time to time party thereto as Issuing Banks, Citicorp USA. Inc.. as Agent, and
Citicorp Securities, Inc., as Arranger, including any related notes.
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guarantees, collateral documents, instruments and agreements executed in
connection therewith. and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) any Indebtedness outstanding under
the Credit Facility and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as Designated Senior Debt.
"DISQUALIFIED STOCK" means any Capital Stock that. by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof). or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"-Certain Covenants-Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants. options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means up to $9.5 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person and its Restricted
Subsidiaries for any period, the sum. without duplication, of (i) the
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued (including, without limitation.
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations. commissions. discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon). (iv) the product of (a) all dividend
payments. whether or not in cash. on any series of preferred stock of such
Person or any of its Restricted Subsidiaries. other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary "of the
Company. times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person expressed as a decimal. in each case. on a
consolidated basis and in accordance with GAAP and (v) an amount equal to 1/3 of
the Consolidated Lease Expense of such Person and its Restricted Subsidiaries
for such period. whether paid or accrued.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person for such period. In the event that the referrent Person
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to date on which the event
for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning
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of the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary' of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or
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give a security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax audits or deductions
and any tax sharing arrangements), any business or activities conducted by the
Company on the date of the Indenture and any business or activities reasonably
related, ancillary or complementary to such business or activities amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any business or activities conducted by the
Company on the date of the Indenture and any business or activities related,
ancillary or complementary to such business or activities.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Subsidiary Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment
by the Company or any Subsidiary of the Company in a Person, if as a result of
such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of
the Company or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption"-Repurchase at the Option of
Holders-Asset Sales"; (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company; and
(f) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (f) that are at the time outstanding, not to exceed
$10.0 million.
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the Company or
any Subsidiary Guarantor or debt securities that are subordinated to all Senior
Debt (and any debt- securities issued in exchange for Senior Debt) to
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substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to Article 10 of the Indenture.
"PERMITTED LIENS" means (i) Liens on assets of the Company or any
Subsidiary Guarantor to secure Senior Debt of the Company or such Subsidiary
Guarantor that was permitted by the terms of the Indenture to be incurred; (ii)
Liens in favor of the Company or a Subsidiary Guarantor; (iii) Liens on property
of a Person existing at the time such Person is merged into or consolidated with
the Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (v) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (iv) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness; (vi) Liens existing on
the date of the Indenture; (vii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (viii) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that do not exceed $10.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (ix)
Liens to secure the Notes or the Subsidiary Guarantees; and (x) Liens on assets
of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses. incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded: (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"SENIOR DEBT" means (i) all Indebtedness outstanding under the Credit
Facility, all Hedging Obligations with respect thereto and, after a default has
occurred and is continuing under the Credit Facility, all other Indebtedness
arising from intercompany loans and advances and owing by the Company or any of
the Subsidiary Guarantors which constitutes part of the collateral security for
the Credit Facility and such Hedging Obligations, including without limitation,
Indebtedness evidenced by intercompany notes pledged or assigned in connection
with the Credit Facility, (ii) any other Indebtedness permitted to be incurred
by the Company or a Subsidiary Guarantor under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment
77
<PAGE>
to the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or owing
by the Company or a Subsidiary Guarantor, (x) any Indebtedness between or among
the Company, any of its Subsidiaries or any of its other Affiliates except to
the extent the same is subject to clause (i) above, (y) any trade payables or
(z) any Indebtedness that is incurred in violation of the Indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"SUBSIDIARY GUARANTORS" means each of (i) Aviation Sales Operating
Company, Aviation Sales Bearings Company, Aviation Sales Leasing Company,
Aviation Sales Manufacturing & Repair Company, Aviation Sales Finance Company,
AVS/Kratz-Wilde Machine Company, Aerocell Structures, Inc. and Apex
Manufacturing, Inc. and (ii) any other subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified COW of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants-Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock." the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary: provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock, calculated on a pro forma basis
78
<PAGE>
as if such designation had occurred at the beginning of the four-quarter
reference period, (ii) no Default or Event of Default would be in existence
following such designation, and (iii) such Subsidiary becomes a Subsidiary
Guarantor and executes a Supplemental Indenture and delivers an Opinion of
Counsel, in accordance with the terms of the Indenture.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain United States federal income
and estate tax consequences to U.S. Holders and Non-U.S. Holders of owning and
disposing of the Notes. Hereinafter, the terms "U.S. Holder" and "Non-U.S.
Holder" refer, respectively, to holders of Notes that are or are not classified
as United States persons for United States federal income and estate tax
purposes. A holder that does not know whether such holder is a U.S. person or
Non-U.S. person should consult their own tax advisor.
This discussion does not purport to deal with all aspects of United
States federal income and estate taxation that may be relevant to holders of
Notes and does not deal with tax consequences arising under the laws of any
foreign, state or local jurisdiction. It is, based upon the provisions of
existing law on the date hereof, including, in particular, the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder and other administrative and judicial interpretations thereof, all of
which are subject to change at any time, with or without retroactive effect.
This discussion is limited to initial purchasers who hold the Notes as capital
assets within the meaning of Section 1221 of the Code. This discussion also does
not address the tax consequences to Non-U.S. Holders that are subject to United
States federal income tax on a net basis on income realized with respect to a
Note because such income is effectively connected with the conduct of a United
States trade or business. Such Non-U.S. Holders are generally. taxed in a
similar manner to U.S. Holders, but certain special rules do apply. This
discussion is for general information only and does not address all of the tax
consequences that may be relevant to particular initial purchasers in light of
their circumstances or to certain types of initial purchasers (such as certain
financial institutions, insurance companies, tax- exempt entities, dealers in
securities or persons who have hedged the risk of owning a Note). This summary
discusses the tax considerations applicable to the initial purchasers of the
Notes who purchase the Notes at their "issue price" as defined in Section 1273
of the Code and does not discuss the impact of ownership of the Notes on
subsequent owners. The Company has not sought a ruling from the Internal Revenue
Service ("IRS") with respect to the matters discussed herein and there is no
assurance that the IRS will agree with this discussion or the conclusions stated
herein.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE
TAX LAWS OR INTERPRETATIONS THEREOF.
79
<PAGE>
U.S. HOLDERS
GENERALLY. As used herein, the term U.S. Holder means a person who is
considered to be a U.S. resident for federal income tax purposes, or a person
who is considered to be domiciled in the U.S. for federal estate and gift tax
purposes. A person other than a U.S. Holder is referred to herein as a Non-U.S.
Holder.
INTEREST ON NOTES. Interest on a Note will generally be taxable to a
U.S. Holder as ordinary interest income in accordance with the U.S. Holder's
method of tax accounting at the time that such interest is accrued or (actually
or constructively) received.
DISPOSITION OF NOTES. In general, a U.S. Holder of a Note will
recognize gain or loss upon the sale, redemption, retirement or other
disposition of the Note measured by the difference between the amount of cash
and fair market value of other property received (except to the extent
attributable to the payment of accrued interest) and the U.S. Holder's adjusted
tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally
will equal the cost of the Note to the U.S. Holder, less any principal payments
received by such U.S. Holder with respect to the Note. Any portion of the amount
realized on the sale or other disposition of a Note that represents accrued but
unpaid interest will be treated as a payment of such interest. With respect to
non-corporate U.S. Holders, the gain or loss on such disposition of Notes will
be a long-term capital gain or loss taxed if Notes have been held at the time of
such disposition as capital assets for more than one year but not more than 18
months at a rate no higher than 28% or if held more than 18 months at a rate no
higher than 20% and as a short-term capital gain or loss if the Notes have been
held for not more than 12 months.
NON-U.S. HOLDERS
PAYMENT OF INTEREST. In general, a Non-U.S. Holder will not be subject
to United States federal income tax by withholding or otherwise on the payment
of interest on a Note provided that the beneficial owner of the Note provides a
Form W-8 or a substitute Form W-8 (or a suitable successor form) unless (A) such
Non-U.S. Holder actually or constructively owns 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote or
is a "controlled foreign corporation" with respect to which the Company is a
"related person", or (B) such interest is effectively connected with the conduct
of a trade or business by the Non-U.S. Holder in the United States. A Non-U.S.
Holder that is not exempt from tax under such rules will be subject to United
States federal income tax withholding at a rate of 30% unless the interest is
effectively connected with the conduct of a United States trade or business.
GAIN ON DISPOSITION OF NOTES. A Non-U.S. Holder will not be subject to
United States federal income tax by withholding or otherwise on gain realized on
the disposition of a Note unless the gain is effectively connected with the
conduct of a trade or business by the Non-U.S. Holder in the United States.
EFFECTIVELY CONNECTED INCOME. To the extent that interest income or
gain on the disposition of Notes is effectively connected with the conduct of a
trade or business of the Non-U.S. Holder in the United States, such income will
be subject to United States federal income tax at the same rates generally
applicable to United States persons. Additionally, in the case of a non-U.S.
Holder which is a corporation, such effectively connected income may be subject
to the United States branch profits tax at the rate of 30%. Effectively
connected interest may be subject to withholding unless a properly completed IRS
Form 4224 is delivered to the payor.
ESTATE TAX. Notes held at the time of death by an individual Non-U.S.
Holder will not be subject to United States estate tax, provided that at such
time, (i) such Non-U.S. Holder did not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote, and (ii) the Notes were not held in connection with such
Non-U.S. Holder's trade or business in the United States.
TREATIES. Applicable treaties between the United States and a country
in which a Non-U.S. Holder is a resident may alter the tax consequences
described above.
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<PAGE>
NEW FINAL WITHHOLDING REGULATIONS. The Treasury Department recently
promulgated final regulations regarding the withholding rules described above
and backup withholding and information reporting rules described below that are
applicable to Non-U.S. Holders ("New Final Withholding Regulations"). In
general, the New Final Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements but rather unify
current certification procedures and forms and clarify reliance standards. The
New Final Withholding Regulations are generally effective for payments made
after December 31, 1998, subject to certain transition rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS
In general, information reporting to the IRS will apply to payments
with respect to the Notes and certain sales of the Notes. The payor will be
required to withhold backup withholding at a 31% rate (i) if the U.S. Holder
fails to provide a taxpayer identification number or otherwise establish
exemption from backup withholding, (ii) the IRS notifies the payor that the
taxpayer identification number is incorrect or (iii) there has been a failure to
certify that the U.S. Holder is not subject to backup withholding. Generally,
amounts paid as backup withholding will be a credit against the U.S. Holders'
federal income tax.
NON-U.S. HOLDERS
Generally, backup withholding of United States federal income tax at a
rate of 31% and information reporting may apply to payments of principal,
interest and premium (if any) to Non-U.S. Holders that are not "Exempt
Recipients" and that fail to provide certain information as may be required by
United States law and applicable regulations. Under currently effective United
States Treasury regulations, information reporting and backup withholding will
not apply to payments of interest on the Notes with respect to which either the
requisite certification, as described above under "Non-U.S. Holders -- Payment
of Interest," has been received or an exemption has otherwise been established,
provided that neither the Company nor its paying agent has actual knowledge that
the holder is a United States person or that the conditions of any other
exemption are not in fact satisfied. Additionally, the payment of the proceeds
on the disposition of Notes to a Non-U.S. Holder by or through the United States
office of a broker will be subject to information reporting and backup
withholding at a rate of 31% unless the owner certifies its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption.
Proceeds of the disposition by a Non-U.S. Holder of the Notes paid to a Non-U.S.
Holder by or through a foreign office of a broker generally will not be subject
to backup withholding. However, if such broker is a U.S. person, a controlled
foreign corporation or a foreign person 50% or more of whose gross income from
all sources for a specified three-year period is from activities that are
effectively connected with a United States trade or business, information
reporting will apply unless such broker has documentary evidence (other than
merely a foreign address) in its files of the owner's status as a Non-U.S.
Holder and has no actual knowledge to the contrary. Both backup withholding and
information reporting will apply to the proceeds from such dispositions if the
broker has actual knowledge that the payee is a U.S. Holder.
Withholding, information reporting and backup withholding are highly
complex subjects and U.S. Holders and Non-U.S. Holders are urged to consult
their tax advisors regarding the application of withholding tax, information
reporting and backup withholding in their particular situation and the
availability of an exemption therefrom, and the procedures for obtaining any
such exemption including the impact of the New Final Withholding Regulations.
LIQUIDATED DAMAGES
As more fully described under "Description of Notes-Registration
Rights; Liquidated Damages," the Company may be required to pay Liquidated
Damages to U.S. Holders of the Old Notes. Although the matter is not free from
doubt, the Company intends to take the position that a U.S. Holder of an Old
Note should be required to report any Liquidated Damages as ordinary income for
United States federal income tax purposes only at the time it accrues or is
received in accordance with such holder's method of accounting. It is possible,
however, that the Internal Revenue Service may take a different position, in
which case the timing, character and amount of income may be different.
81
<PAGE>
EXCHANGE OFFER
For federal income tax purposes, the exchange of Old Notes for New
Notes pursuant to the Exchange Offer will not result in recognition of gain or
loss by U.S. Holders of Notes, the holding period of the New Notes will include
the holding period of the Old Notes and the basis of the New Notes will be the
same as the basis of the Old Notes immediately before the exchange. In the case
of a holder of the Old Notes who is a cash basis taxpayer and whose taxable year
ends prior to the date on which the first interest payment under the Notes is
paid, the exchange of the Notes could result in the acceleration of interest
income accrued during the holding period of the Old Notes through the date of
the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes acquired
as a result of market-making activities or other trading activities. The Company
has agreed that it will make this prospectus available to any broker-dealer for
use in connection with any such resale for a period of 180 days after the
Expiration Date or until all participating broker-dealers have so resold.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concession from any such
broker-dealer and/or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker-dealer that participates in a distribution of New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any profit on any resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes to be received in the Exchange Offer.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Akerman, Senterfitt & Eidson, P.A., Miami, Florida.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, included in this Prospectus have been audited by Arthur Andersen LLP,
independent certified public accountants, as stated in their report appearing
herein. The financial statements of Kratz as of October 31, 1995 and 1996 and
for the year ended October 31, 1996 included in this Prospectus have been
audited by Clark, Schaefer, Hackett & Co., independent auditors, as set forth
in their report thereon included herein.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVIATION SALES COMPANY AND SUBSIDIARIES
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-4
Consolidated Statements of Partners' Capital and Stockholders' Equity
for the three years ended December 31, 1996 ........................................ F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1996 ..... F-6
Notes to Consolidated Financial Statements ............................................ F-8
AVIATION SALES COMPANY AND SUBSIDIARIES--CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 1996
and September 30, 1997 (Unaudited) ................................................. F-21
Condensed Consolidated Statements of Income
for the nine months ended September 30, 1996 and 1997 (Unaudited) .................. F-22
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1997 (Unaudited) .................. F-23
Notes to Condensed Consolidated Financial Statements (Unaudited) ...................... F-24
KRATZ-WILDE MACHINE COMPANY
Report of Independent Certified Public Accountants .................................... F-28
Balance Sheets at October 31, 1996 and 1995 (audited) and
at September 30, 1997 (unaudited) .................................................. F-29
Income Statements for the year ended October 31, 1996 (audited) and
for the nine months ended September 30, 1997 and 1996 (unaudited) .................. F-30
Statement of Retained Earnings ........................................................ F-31
Statements of Cash Flows for the year ended October 31, 1996 (audited)
and the nine months ended September 30, 1997 and 1996 (unaudited) .................. F-32
Notes to Financial Statements ......................................................... F-34
AVIATION SALES COMPANY AND SUBSIDIARIES--UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
Introduction .......................................................................... P-1
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of September 30, 1997 ..... P-2
Unaudited Condensed Consolidated Pro Forma Statement of Income
for the nine months ended September 30, 1997 ....................................... P-3
Unaudited Condensed Consolidated Pro Forma Statement of Income
for the year ended December 31, 1996 ............................................... P-4
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements .............. P-5
</TABLE>
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.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 5, 1997.
F-2
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
ASSETS
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
============ ============
LIABILITIES, PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
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-3
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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-4
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
TOTAL
PARTNERS'
CAPITAL SHARES AMOUNT
---------------- ------------ --------
<S> <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
Net proceeds from initial public
offering ........................... -- 3,737,500 3,738
-------------- --------- ------
BALANCE AS OF
DECEMBER 31, 1996 ................... $ -- 8,562,500 $8,563
============== ========= ======
<CAPTION>
TOTAL
ADDITIONAL TOTAL PARTNERS' CAPITAL
PAID-IN RETAINED STOCKHOLDERS' AND STOCKHOLDERS'
CAPITAL EARNINGS EQUITY EQUITY
-------------- ------------ --------------- ------------------
<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) ............. -- 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) ........................... 6,732,436 -- 6,736,861 (10,160,250)
Net proceeds from initial public
offering ........................... 64,572,869 -- 64,576,607 64,576,607
----------- ---------- ----------- --------------
BALANCE AS OF
DECEMBER 31, 1996 ................... $71,305,305 $9,757,256 $81,071,124 $ 81,071,124
=========== ========== =========== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
----------------
1994
----------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 1,190,514
Adjustments to reconcile net income to net cash provided by (used in)
operating activities .........................................................
Depreciation and amortization ................................................ 1,197,540
Provision for doubtful accounts .............................................. 110,000
Deferred income taxes ........................................................ --
Extraordinary item, net of income taxes ...................................... --
(Increase) decrease in accounts receivable, net .............................. 1,261,264
(Increase) decrease in inventories ........................................... 3,616,958
(Increase) decrease in prepaid expenses ...................................... 109,286
(Increase) decrease in deposits and other .................................... 185,505
Increase (decrease) in accounts payable ...................................... 3,361,242
Increase (decrease) in accrued expenses ...................................... 1,071,100
Increase (decrease) in deferred income ....................................... --
--------------
Net cash provided by (used in) operating activities ........................ 12,103,409
--------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of certain assets of the Aviation Sales Company business unit ........ (44,076,495)
Purchase of certain assets of Dixie Bearings, Incorporated .................... --
Purchases of equipment, net ................................................... (534,565)
Purchases of spare parts on lease ............................................. --
Payments to/from related parties .............................................. (2,465,519)
--------------
Net cash used in investing activities ...................................... (47,076,579)
--------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of senior debt ....................................................... 60,000,000
Repayment of senior debt ...................................................... --
Net issuance (repayment) of senior revolving facility ......................... 1,818,763
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
Payment of initial public offering proceeds to original credit facility and
subordinated debt ............................................................ --
Payment to J/T Aviation Partners .............................................. --
Net borrowings under new credit facility ...................................... --
Payment under new credit facility ............................................. --
Issuance of senior debt under acquisition facility ............................ --
Payments of senior debt under acquisition facility ............................ --
Proceeds from initial public offering ......................................... --
Payment of deferred financing costs ........................................... (5,866,328)
--------------
Net cash provided by (used in) financing activities ........................ 35,572,153
--------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 598,983
--------------
CASH AND CASH EQUIVALENTS, beginning of period ................................. 883,296
--------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,482,279
==============
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996
---------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 10,285,723 $ 15,497,708
Adjustments to reconcile net income to net cash provided by (used in)
operating activities .........................................................
Depreciation and amortization ................................................ 2,132,522 2,938,974
Provision for doubtful accounts .............................................. 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 .............................. (7,204,803) (12,366,644)
(Increase) decrease in inventories ........................................... 4,330,960 (18,017,715)
(Increase) decrease in prepaid expenses ...................................... (95) (4,010,369)
(Increase) decrease in deposits and other .................................... (662,426) 503,273
Increase (decrease) in accounts payable ...................................... 4,270,902 5,238,370
Increase (decrease) in accrued expenses ...................................... 365,864 3,786,258
Increase (decrease) in deferred income ....................................... 103,575 12,750
-------------- --------------
Net cash provided by (used in) operating activities ........................ 13,982,222 (7,979,996)
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of certain assets of the Aviation Sales Company business unit ........ (1,060,538) --
Purchase of certain assets of Dixie Bearings, Incorporated .................... -- (8,953,820)
Purchases of equipment, net ................................................... (897,544) (1,111,368)
Purchases of spare parts on lease ............................................. (2,722,054) (7,829,797)
Payments to/from related parties .............................................. (60,059) 116,583
-------------- --------------
Net cash used in investing activities ...................................... (4,740,195) (17,778,402)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of senior debt ....................................................... -- --
Repayment of senior debt ...................................................... (5,000,000) (5,000,000)
Net issuance (repayment) of senior revolving facility ......................... (2,109,400) 15,763,592
Repayment of senior notes payable ............................................. -- --
Issuance of subordinated debt--AIS partnership ................................ -- --
Repayment of senior and junior subordinated debt--AIS partnership ............. -- --
Advances from partners--AIS partnership ....................................... -- --
Repayments to partners--AIS partnership ....................................... -- --
Issuance of subordinated debt--ASC partnership ................................ -- --
Contributions from (distributions to) partners-- ASC partnership .............. (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 ........................................... (54,745) (1,548,072)
-------------- --------------
Net cash provided by (used in) financing activities ........................ (10,470,999) 26,767,240
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... (1,228,972) 1,008,842
-------------- --------------
CASH AND CASH EQUIVALENTS, beginning of period ................................. 1,482,279 253,307
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 253,307 $ 1,262,149
============== ==============
</TABLE>
F-6
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
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:
Account receivable ....................................................... $ -- $ -- $2,898,460
Inventories .............................................................. -- -- 6,000,000
Fixed assets ............................................................. -- -- 100,000
Accounts payable ......................................................... -- -- (44,640)
------------ ---------- ----------
Cash paid ............................................................... $ -- $ -- $8,953,820
============ ========== ==========
</TABLE>
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.
F-7
<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.
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.
F-8
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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.
F-9
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Depreciation expense amounted to $345,174, $510,455 and $746,626 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 $782,922, $666,607 and $616,183,
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.
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.
F-10
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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-11
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
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
============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ---------------------------
<S> <C>
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
===========
</TABLE>
F-12
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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; $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
F-13
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE--(CONTINUED)
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 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
F-14
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE--(CONTINUED)
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 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.
F-15
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--RELATED-PARTY TRANSACTIONS--(CONTINUED)
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 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
F-16
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
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:
<TABLE>
<CAPTION>
YEARS ENDING LEASE OBLIGATIONS LEASE OBLIGATIONS
DECEMBER 31, TO RELATED PARTIES TO THIRD PARTIES
- ----------------------- -------------------- ------------------
<S> <C> <C>
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
=========== ========
</TABLE>
F-17
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES BY GEOGRAPHICAL AREAS
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
======= ======== ========
</TABLE>
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.
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.
F-18
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES--(CONTINUED)
The benefit for income taxes for the year ended December 31, 1996 consists
of the following:
<TABLE>
<S> <C>
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)
============
</TABLE>
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:
<TABLE>
<S> <C>
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
==========
</TABLE>
The reconciliation of the federal statutory rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
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)
=====
</TABLE>
F-19
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
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
</TABLE>
F-20
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 1,262,149 $ 1,802,253
Accounts receivable, net of allowances for doubtful accounts of $3,779,580 and $4,622,300
and allowances for sales returns of $1,227,598 and $1,274,098 in 1996 and 1997,
respectively ........................................................................... 37,086,899 57,258,782
Inventories ............................................................................. 72,974,397 114,822,960
Prepaid expenses ........................................................................ 4,067,332 2,620,601
Deferred income taxes ................................................................... 1,972,410 2,639,029
------------ ------------
Total current assets .................................................................... 117,363,187 179,143,625
------------ ------------
SPARE PARTS ON LEASE, net of accumulated amortization of $2,601,069 in 1996 and
$3,488,330 in 1997 ...................................................................... 17,950,783 21,851,953
------------ ------------
FIXED ASSETS
Property and equipment .................................................................. 4,333,070 8,709,344
Less--Accumulated depreciation .......................................................... (2,027,197) (3,230,174)
------------ ------------
Total fixed assets .................................................................... 2,305,873 5,479,170
------------ ------------
AMOUNTS DUE FROM RELATED PARTIES ......................................................... 2,914,615 2,928,056
------------ ------------
OTHER ASSETS
Deposits and other ...................................................................... 804,246 1,148,890
Deferred income taxes ................................................................... 3,406,331 3,314,774
Deferred financing costs, net ........................................................... 872,568 2,035,614
------------ ------------
Total other assets ..................................................................... 5,083,145 6,499,278
------------ ------------
Total assets ........................................................................... $145,617,603 $215,902,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES ......................................................................
Accounts payable ........................................................................ $ 15,736,288 $ 20,407,734
Accrued expenses ........................................................................ 7,746,156 12,459,937
Income taxes payable .................................................................... 755,216 2,652,243
Notes payable, current maturities
Senior ................................................................................. 7,428,571 4,243,788
Revolver ............................................................................... 16,697,985 60,383,112
------------ ------------
Total current liabilities ............................................................. 48,364,216 100,146,814
------------ ------------
LONG-TERM LIABILITIES
Deferred income ......................................................................... 890,065 1,074,465
Notes payable--Senior ................................................................... 14,857,143 21,485,150
------------ ------------
Total long-term liabilities ........................................................... 15,747,208 22,559,615
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding .......... -- --
Common stock, $.001 par value, 30,000,000 shares authorized, 9,183,470 and 9,202,499
shares outstanding at December 31, 1996 and September 30, 1997, respectively ........... 9,183 9,202
Additional paid-in capital .............................................................. 71,364,684 71,772,487
Retained earnings ....................................................................... 10,132,312 21,413,964
------------ ------------
Total stockholders' equity ............................................................ 81,506,179 93,195,653
------------ ------------
Total liabilities and stockholders' equity ............................................ $145,617,603 $215,902,082
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-21
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------------
1996 1997
--------------- -----------------
<S> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net .......................................... $104,815,265 $ 165,883,534
Rentals from leases and other ......................................... 8,078,329 7,841,090
Gain on sale of spare parts on lease .................................. -- 752,922
------------ -------------
112,893,594 174,477,546
COST OF SALES .......................................................... 75,834,953 122,712,277
------------ -------------
37,058,641 51,765,269
------------ -------------
OPERATING EXPENSES
Operating ............................................................. 6,864,461 11,026,918
Selling ............................................................... 5,110,779 6,858,966
General and administrative ............................................ 7,157,258 8,895,737
Depreciation and amortization ......................................... 1,562,014 2,157,876
------------ -------------
20,694,512 28,939,497
------------ -------------
INCOME FROM OPERATIONS ................................................. 16,364,129 22,825,772
OTHER EXPENSES
Interest expense and amortization of deferred financing costs ......... 4,614,774 4,331,261
------------ -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ...................... 11,749,355 18,494,511
INCOME TAX (BENEFIT) EXPENSE ........................................... (2,490,770) 7,212,859
------------ -------------
INCOME BEFORE EXTRAORDINARY ITEM ....................................... 14,240,125 11,281,652
EXTRAORDINARY ITEM, NET OF INCOME TAXES (Note 3) ....................... 1,862,140 --
------------ -------------
NET INCOME ............................................................. $ 12,377,985 $ 11,281,652
============ =============
EARNINGS PER SHARE
Net income per share .................................................. $ 1.22
=============
PRO FORMA EARNINGS PER SHARE (Note 3):
Pro forma net income per share ........................................ $ 0.75
============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING .................................................... 7,027,650 9,231,661
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................. $ 12,377,985 $ 11,281,652
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization ............................................. 2,093,405 2,414,425
Gain on sale of spare parts on lease ...................................... -- (752,922)
Provision for doubtful accounts ........................................... 620,000 1,331,063
Increase in deferred income taxes ......................................... (4,860,741) (575,062)
Extraordinary item, net of income taxes ................................... 1,862,140 --
(Increase) decrease in accounts receivable, net ........................... (7,654,317) (21,502,946)
(Increase) decrease in inventory .......................................... (9,278,096) (41,848,563)
(Increase) decrease in prepaid expenses ................................... (709,414) 1,446,731
(Increase) decrease in deposits and other ................................. 498,259 (344,644)
Increase (decrease) in accounts payable ................................... 1,870,045 4,671,446
Increase (decrease) in accrued expenses ................................... 2,456,224 4,713,781
Increase (decrease) in income taxes payable ............................... 1,590,810 1,897,027
Increase (decrease) in deferred income .................................... 12,750 184,400
------------- -------------
Net cash provided by (used in) operating activities ..................... 879,050 (37,083,612)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of equipment, net ................................................ (942,617) (3,850,941)
Purchase of spare parts on lease ........................................... (6,819,324) (7,958,480)
Proceeds from sales of spare parts on lease ................................ -- 3,330,000
Purchase of certain assets of the business of Dixie Bearings, Incorporated . (9,090,481) --
Payments (to) from related parties ......................................... 53,686 (13,441)
------------- -------------
Net cash used in investing activities ................................... (16,798,736) (8,492,862)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings under original credit facility .................................. 15,763,592 --
Payments under original credit facility .................................... (5,000,000) --
Payment of initial public offering proceeds to original credit facility .... (52,806,400) --
Payment to J/T Aviation Partners ........................................... (10,160,250) --
Borrowings under new credit facility ....................................... 5,121,812 43,685,127
Payment under new credit facility .......................................... (1,857,143) (3,714,286)
Issuance of senior debt under acquisition subfacility ...................... 6,000,000 --
Borrowings under term loan ................................................. -- 7,157,510
Distributions to partners .................................................. (3,041,936) --
Proceeds from common stock offering ........................................ 64,769,097 --
Stock options exercised .................................................... -- 407,822
Payment of deferred financing costs ........................................ (1,511,404) (1,419,595)
------------- -------------
Net cash provided by financing activities ............................... 17,277,368 46,116,578
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................... 1,357,682 540,104
------------- -------------
CASH AND CASH EQUIVALENTS, beginning of period .............................. 253,307 1,262,149
------------- -------------
CASH AND CASH EQUIVALENTS, end of period .................................... $ 1,610,989 $ 1,802,253
============= =============
Interest paid .............................................................. $ 4,114,302 $ 3,256,744
============= =============
Income taxes paid .......................................................... $ 516,000 $ 5,948,018
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying
unaudited interim condensed financial statements should be read in conjunction
with the Company's December 31, 1996 financial statements and the notes thereto
included elsewhere herein.
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements of Aviation Sales Company (the "Company")
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Company as of
September 30, 1997 and the results of its operations and cash flows for the
nine month periods ended September 30, 1997 and 1996. The results of operations
and cash flows for the nine month period ended September 30, 1997 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the year ending December 31, 1997.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"), is effective for fiscal years ending after December 15, 1997.
This statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common
stock or potential common stock. Basic and diluted earnings per share computed
in accordance with SFAS No. 128 for the nine months ended September 30, 1996
and 1997 do not differ materially from primary and fully diluted earnings per
share as presented.
2. ACQUISITIONS
On September 30, 1997, the Company acquired Aerocell Structures, Inc.
("Aerocell") for consideration of 620,970 shares of the Company's common stock.
Although the acquisition is accounted for using the pooling of interests method
of accounting, the accompanying consolidated statements of income,
stockholders' equity and cash flows prior to December 31, 1996 have not been
restated to give retroactive effect for the acquisition due to the
immateriality of the restated amounts. As a result of the Aerocell acquisition,
the Company's operating revenues for the nine months ended September 30, 1997
increased by approximately $14.3 million.
F-24
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
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.
For the nine months ended September 30, 1996 and 1997, revenues from Dixie's
operations were $2.5 million and $16.2 million, respectively.
3. PRO FORMA DISCLOSURES:
PRO FORMA INCOME TAXES
Prior to June 26, 1996 the business of the Company was conducted by a
partnership and was not subject to income taxes. 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 in June 1996, the Company became subject to
federal and state income taxes.
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 condensed consolidated
statements of income of all periods presented:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
--------------------------
<S> <C>
Historical income before income taxes and extraordinary item ......... $11,749,355
Pro forma provision for income taxes ................................. 4,582,248
-----------
Pro forma income before extraordinary item ........................... 7,167,107
Extraordinary item, net of income taxes .............................. 1,862,140
-----------
Pro forma net income ................................................. $ 5,304,967
===========
</TABLE>
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent shares
outstanding during the period. Outstanding stock options are considered common
stock equivalents and are included in the calculation using the treasury stock
method.
F-25
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
4. NOTES PAYABLE
On August 22, 1997, the Company amended its bank lending agreement
pursuant to the terms of a Second Amended and Restated Credit Agreement (the
"Second Amended Credit Agreement"). Pursuant to the Second Amended Credit
Agreement, the Company has obtained a credit facility consisting of (a) a term
loan facility (the "Second Amended Term Loan"), in a principal amount of $18.6
million, and (b) a $106.4 million revolving loan, letter of credit and
acquisition loan facility, subject to an availability calculation based on the
eligible borrowing base (the "Second Amended Revolving Credit Facility"). The
eligible borrowing base includes certain receivables and inventories of the
Company. At September 30, 1997, the Company had availability under the Second
Amended Revolving Credit Facility of approximately $45.7 million. The letter of
credit portion of the Second Amended Revolving Credit Facility is subject to a
$15 million sublimit and the acquisition loan portion of the Second Amended
Revolving Credit Facility is subject to a $30 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 Second
Amended Revolving Credit Facility expires on August 21, 1999. The interest rate
on the Second Amended Credit Agreement 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 1.50% to
2.75% in the event LIBOR is utilized). At September 30, 1997, the margin was
0.25% for the prime rate loans and 1.75% for the LIBOR loans.
The Second Amended Term Loan amortizes in equal quarterly installments and
terminates on July 31, 2002. Interim payments under the Second Amended
Revolving Credit Facility will be made from daily collections of the Company's
accounts receivable. The Second Amended Revolving Credit Facility will
terminate on July 31, 2002. The Second Amended Credit Agreement contains
financial and other covenants and mandatory prepayment events, as defined. At
September 30, 1997, the Company was in compliance with all covenants of the
Second Amended Credit Agreement. The Second Amended Credit Agreement is secured
by a lien on substantially all of the assets of the Company. At September 30,
1997, the outstanding balances under the Second Amended Term Loan and Second
Amended Revolving Credit Facility were $18.6 million and $60.4 million,
respectively.
On August 5, 1997, the Company entered into a term loan agreement in a
principal amount of $7.2 million to finance certain equipment and rotable parts
on long term lease which secure the loan. This loan is payable in 59
consecutive equal monthly payments of $91,750 commencing September 14, 1997,
with a final balloon payment due on August 14, 2002. Interest on this term loan
is fixed at 8.21%. The Company has leased the underlying equipment and rotable
parts to unrelated third parties. Interim payments under the term loan will be
made from the proceeds of these parts leases. This term loan contains financial
and other covenants and mandatory prepayment events, as defined. At September
30, 1997, the Company was in compliance with all covenants of this term loan.
5 SUBSEQUENT EVENTS
On October 17, 1997 the Company completed the acquisition of substantially
all of the assets of the business of Kratz-Wilde Machine Company, a Kentucky
corporation ("Kratz-Wilde") for a purchase price of approximately $42.5 million
in cash and notes and the assumption of certain liabilities of Kratz-Wilde in
the approximate amount of $2.5 million. Kratz-Wilde specializes in the
manufacture of
F-26
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
5 SUBSEQUENT EVENTS--(CONTINUED)
machined components primarily for jet engines, and also produces some
automotive and faucet components. The acquisition was accounted for using the
purchase method of accounting.
On October 17, 1997, the Company amended its bank lending agreement
pursuant to the terms of a Third Amended and Restated Credit Agreement (the
"Third Amended Credit Agreement"), which supersedes the agreement referred to
in Note 4 above. Pursuant to the Third Amended Credit Agreement, the Company
has obtained a credit facility consisting of (a) a term loan facility (the
"Third Amended Term Loan") in a principal amount of $18.6 million, and (b) a
$131.4 million revolving loan, letter of credit and acquisition loan facility,
subject to an availability calculation based on the eligible borrowing base
(the "Third Amended Revolving Credit Facility"). The eligible borrowing base
includes certain receivables and inventories of the Company. The letter of
credit portion of the Third Amended Revolving Credit Facility is subject to a
$15 million sublimit and the acquisition loan portion of the Third Amended
Revolving Credit Facility is subject to a $40 million sublimit, with the
imposition of certain borrowing criteria based on the satisfaction of certain
debt ratios. The interest rate on the Third Amended Credit Agreement 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 12 month period (ranging from 0.0% to 1.25% in the event
prime is utilized, or 1.50% to 2.75% in the event LIBOR is utilized). At
October 17, 1997, the margin was .25% for prime rate loans and 1.75% for LIBOR
rate loans.
The Third Amended Term Loan, as well as any portion of the revolving
credit facility utilized to make acquisitions, amortizes in equal quarterly
installments and terminates on July 31, 2002. Interim payments under the Third
Amended Revolving Credit Facility will be made from daily collections of the
Company's accounts receivable. The Third Amended Revolving Credit Facility will
terminate on July 31, 2002. The Third Amended Credit Agreement contains
financial and other covenants and mandatory prepayment events, as defined. At
October 17, 1997, the Company was in compliance with all covenants of the Third
Amended Credit Agreement. The Third Amended Credit Agreement is secured by a
lien on substantially all of the assets of the Company. Following the
acquisition of Kratz-Wilde on October 17, 1997, the outstanding balances under
the Third Amended Term Loan and Third Amended Revolving Credit Facility were
$58.6 million (including $40 million borrowed under the acquisition
subfacility) and $70.6 million, respectively.
On December 31, 1997, the Company completed the acquisition, in a
transaction accounted for as a pooling of interests, of Apex Manufacturing,
Inc., a precision aerospace manufacturer specializing in the machining of metal
parts, including precision shafts, fuel shrouds, housings and couplings for
aerospace actuating systems, fuel controls and engines. The purchase price was
238,572 shares of the Company's common stock.
F-27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders Kratz-Wilde Machine Company
We have audited the accompanying balance sheets of Kratz-Wilde Machine
Company (an S Corporation) as of October 31, 1996 and 1995, and the related
statements of income, retained earnings, and cash flows for the year ended
October 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kratz-Wilde Machine Company
as of October 31, 1996 and 1995, and the results of its operations and its cash
flows for the year ended October 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 8 to the financial statements, certain misstatements
of previously reported inventories as of October 31, 1996 and 1995 were
discovered. Accordingly, an adjustment has been made to net income for 1996 and
retained earnings as of October 31, 1995 to correct the misstatements.
Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
October 10, 1997
F-28
<PAGE>
KRATZ-WILDE MACHINE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
SEPTEMBER 30, -----------------------------
1997 1996 1995
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, cash equivalents and temporary investments .................... $ 3,395,618 $ 2,534,271 $ 2,229,528
Accounts receivable:
Trade .............................................................. 5,448,703 5,171,529 3,464,616
Officers ........................................................... 7,167 7,167 7,167
Inventories ......................................................... 6,132,290 2,887,905 3,158,917
Prepaid expenses .................................................... 22,342 14,997 11,153
----------- ----------- -----------
Total current assets .............................................. 15,006,120 10,615,869 8,871,381
----------- ----------- -----------
PROPERTY AND EQUIPMENT
Land ................................................................ 335,479 335,479 335,479
Buildings and improvements .......................................... 2,924,750 2,907,075 2,903,845
Production equipment ................................................ 9,357,079 8,862,699 9,586,908
Transportation equipment ............................................ 232,517 228,394 310,899
Office equipment .................................................... 364,569 364,569 364,569
----------- ----------- -----------
13,214,394 12,698,216 13,501,700
Less accumulated depreciation ....................................... 10,140,870 9,874,286 9,530,649
----------- ----------- -----------
Total property and equipment ...................................... 3,073,524 2,823,930 3,971,051
----------- ----------- -----------
OTHER ASSETS
Accounts receivable--related party .................................. 452,222 447,765 445,726
Deposits ............................................................ 298,908 151,525 209,807
Cash value of life insurance, net of policy loan of $12,276 ......... 414,496 353,641 225,196
----------- ----------- -----------
Total other assets ................................................... 1,165,626 952,931 880,729
----------- ----------- -----------
Total assets ......................................................... $19,245,270 $14,392,730 $13,723,161
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade ............................................. $ 1,877,022 $ 1,540,947 $ 1,350,353
Accrued liabilities:
Profit sharing contribution ........................................ 521,987 569,440 499,919
Salaries and wages ................................................. 455,000 521,154 403,920
Vacation pay ....................................................... 217,439 162,325 145,872
Other .............................................................. 114,370 120,500 103,700
----------- ----------- -----------
Total current liabilities ......................................... 3,185,818 2,914,366 2,503,764
----------- ----------- -----------
Deferred income taxes ................................................ 247,556 247,556 247,556
Stockholders' equity:
Common stock, no par value, stated value $50 per share; 5,000
shares authorized, 2,205 shares issued and outstanding ............ 110,250 110,250 110,250
Retained earnings ................................................... 16,127,723 11,546,635 11,287,668
----------- ----------- -----------
16,237,973 11,656,885 11,397,918
Less cost of 1,470 treasury shares ................................... 426,077 426,077 426,077
----------- ----------- -----------
Total stockholders' equity ........................................ 15,811,896 11,230,808 10,971,841
----------- ----------- -----------
Total liabilities and stockholders' equity ........................ $19,245,270 $14,392,730 $13,723,161
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
KRATZ-WILDE MACHINE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED
------------------------------ OCTOBER 31,
1997 1996 1996
------------- -------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUES ..................... $28,711,522 $18,751,838 $24,595,131
COST OF SALES .......................... 18,499,320 15,910,231 20,545,037
----------- ----------- -----------
10,212,202 2,841,607 4,050,094
----------- ----------- -----------
OPERATING EXPENSES
Selling ............................... 73,245 71,144 122,355
General and administrative ............ 1,805,773 1,468,362 1,999,212
----------- ----------- -----------
1,879,018 1,539,506 2,121,567
----------- ----------- -----------
INCOME FROM OPERATIONS ................. 8,333,184 1,302,101 1,928,527
OTHER INCOME (EXPENSES)
Miscellaneous income .................. 4,112 89,325 15,815
Interest income ....................... 80,063 67,956 95,044
Gain (loss) on sale of assets ......... 3,500 (34,189) (241,933)
Interest expense ....................... -- -- (614)
----------- ----------- -----------
87,675 123,092 (131,688)
----------- ----------- -----------
NET INCOME ............................. $ 8,420,859 $ 1,425,193 $ 1,796,839
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
KRATZ-WILDE MACHINE COMPANY
STATEMENT OF RETAINED EARNINGS
<TABLE>
<S> <C>
Balance as of October 31, 1995, as originally reported ......... $ 11,989,668
Adjustment to reduce previously reported inventories .......... (702,000)
------------
Balance as of October 31, 1995, as restated .................... 11,287,668
Net income .................................................... 1,796,839
Distributions to stockholders ................................. (1,537,872)
------------
Balance as of October 31, 1996 ................................. 11,546,635
Net income (unaudited) ........................................ 9,961,720
Distributions to stockholders (unaudited) ..................... (5,380,632)
------------
Balance as of September 30, 1997 (unaudited) ................... $ 16,127,723
============
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
KRATZ-WILDE MACHINE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------------ FOR THE YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31,
1997 1996 1996
---------------- ----------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers ........................ $ 27,934,420 $17,216,228 $ 22,904,033
Cash paid to suppliers and employees ................ (21,954,247) (15,376,622) (21,463,046)
Interest received ................................... 80,063 67,956 95,044
Interest paid ....................................... -- -- (614)
Federal income taxes refunded ....................... (147,382) 58,282 58,282
------------- ----------- -------------
Net cash provided by operating activities ......... 5,912,854 1,965,844 1,593,699
------------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................ (384,027) (191,431) (206,417)
Proceeds from sale of fixed assets .................. 3,500 239,747 457,372
Net decrease in temporary investments ............... 603,060
Net (increase) to related party receivables ......... (4,457) (6,813) (2,039)
------------- ----------- -------------
Net cash provided by (used in) investing
activities ...................................... (384,984) 41,503 851,976
------------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
S Corporation distributions paid .................... (5,380,632) (1,537,872) (1,537,872)
------------- ----------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS .................................. 147,238 469,475 907,803
------------- ----------- -------------
CASH AND CASH EQUIVALENTS,
beginning of period ............................... 3,248,380 1,928,609 1,626,468
------------- ----------- -------------
CASH AND CASH EQUIVALENTS,
end of period ..................................... $ 3,395,618 $2,398,084 $ 2,534,271
============= =========== =============
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
KRATZ-WILDE MACHINE COMPANY
STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------- FOR THE YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31,
1997 1996 1996
-------------- --------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net income ................................................. $8,420,859 $ 1,425,193 $ 1,796,839
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .............................................. 230,387 494,275 654,233
(Gain) loss on sale of fixed assets ....................... (3,500) 34,189 241,933
(Increase) decrease in accounts receivable--trade ......... (781,213) (1,624,935) (1,706,913)
(Increase) decrease in inventories ........................ (2,918,653) 1,129,750 271,012
(Increase) decrease in prepaid expenses ................... (22,342) (22,496) (3,844)
(Increase) decrease in other assets ....................... (198,095) (38,052) (70,163)
Increase (decrease) in accounts payable--trade ............ 972,830 222,725 190,594
Increase (decrease) in accrued expenses ................... 212,581 345,195 220,008
---------- ------------ ------------
(2,508,005) 540,651 (203,140)
---------- ------------ ------------
Net cash provided by operating activities ............... $5,912,854 $ 1,965,844 $ 1,593,699
========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
KRATZ-WILDE MACHINE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting practices of the Company are set forth to
facilitate the understanding of data in the financial statements.
NATURE OF OPERATIONS
The Company's line of business is the manufacture of metal stampings which
are principally sold to customers in the aircraft, plumbing and automotive
manufacturing industries located in the United States.
CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents consist of
money market accounts.
TEMPORARY INVESTMENTS
Temporary investments consist of debt securities (principally certificates
of deposit, repurchase agreements and U.S. Treasury bills) with maturities of
less than one year. Such investments are intended to be held to maturity and
therefore are carried at amortized cost.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
BAD DEBTS
Accounts receivable have been adjusted for all known uncollectible
accounts. No allowance for bad debts is considered necessary by management at
year end.
PROPERTY AND DEPRECIATION
Property and equipment is stated at cost. The Company provides for
depreciation of property and equipment using annual rates which are sufficient
to amortize the cost of depreciable assets over their estimated useful lives,
which range from three to forty-five years. The Company uses both the straight-
line and accelerated methods of depreciation.
SPLIT DOLLAR LIFE INSURANCE
The Company records as an asset premiums paid under the split-dollar life
insurance arrangement at the lower of the policy's cash value or the premiums
paid by the Company through the balance sheet date.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-34
<PAGE>
KRATZ-WILDE MACHINE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The Company has elected, effective November 1, 1988, to be taxed under
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company will generally not pay Federal, Ohio or Kentucky
corporate income taxes on its taxable income. Instead, each stockholder will be
liable for individual federal and state income taxes on the Company's taxable
income.
The Company can be liable for a tax on "built-in" gains until November 1,
1988. "Built-in" gains can arise if certain appreciated assets which were held
at the time of the effective date of the S election are subsequently disposed
of within 10 years.
Deferred income taxes were previously recorded for timing differences
between financial and tax reporting. Deferred income taxes resulted principally
from the use of accelerated methods of depreciation for tax purposes and the
restoration of the LIFO inventory reserve to taxable income as a result of
electing S Corporation status. No additional deferred income taxes will be
provided on future timing differences. However, because of the possibility of a
"built-in" gains tax in the future, the Company will continue to recognize the
deferred tax liability, arising before 1989, net of any federal income tax
subsequently incurred.
RELATED PARTIES
Officers of the Company own 100% of the Company's capital stock
outstanding.
INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 8-K/A. Pursuant to such rules and regulations, certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
In the opinion of management, the accompanying unaudited interim financial
statements of Kratz-Wilde Machine Company (the "Company") contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 1997
and the results of its operations and cash flows for the nine month periods
ended September 30, 1997 and 1996. The results of operations and cash flows for
the nine month period ended September 30, 1997 are not necessarily indicative
of the results of operations or cash flows which may be reported for the year
ending December 31, 1997.
2. CASH, CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
The Company maintains their cash deposit accounts at financial
institutions where the balances at times may exceed federally insured limits.
As of the reporting dates, cash, cash equivalents and temporary investments
consist of:
F-35
<PAGE>
KRATZ-WILDE MACHINE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. CASH, CASH EQUIVALENTS AND TEMPORARY INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1997 1996 1995
--------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash on hand ...................... $ 500 $ 500 $ 500
Cash in checking accounts ......... 2,175,699 506,018 952,176
Money market accounts ............. 1,219,419 2,027,753 673,792
---------- ---------- ----------
3,395,618 2,534,271 1,626,468
Temporary investments ............. -- -- 603,060
---------- ---------- ----------
$3,395,618 $2,534,271 $2,229,528
========== ========== ==========
</TABLE>
The amortized cost of temporary investments, by security type, at October
31, 1995 is as follows:
<TABLE>
<S> <C>
Certificates of deposit ......... $300,000
Repurchase agreements ........... 303,060
--------
$603,060
========
</TABLE>
The estimated fair value of the above debt securities approximates cost at
October 31, 1995.
3. CONCENTRATION OF CREDIT RISK
The Company sells products to manufacturers and extends credit based on an
evaluation of the customer's financial condition, without collateral. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure to credit losses and maintains
allowances, when necessary, for anticipated losses.
Three major customers accounted for sales of approximately 75% for the
nine months ended September 30, 1997 and 1996 and the year ended October 31,
1996. Accounts receivable due from these customers were approximately $4.4
million and $3.8 million at September 30, 1997 and October 31, 1996,
respectively.
4. TAX DEPOSIT
As a corporation that has retained a fiscal year end, the Company is
required to maintain a deposit with the Internal Revenue Service while the S
Corporation election is in effect. This deposit is recalculated annually based
on the preceding year's taxable income. The Company's total deposit balance,
related to the S Corporation election, was $178,085 at September 30, 1997,
$151,525 at October 31, 1996 and $209,807 at October 31, 1995.
F-36
<PAGE>
KRATZ-WILDE MACHINE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. ACCOUNTS RECEIVABLE--RELATED PARTIES
The following is a summary of accounts receivable-related parties at the
reporting dates:
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1997 1996 1995
--------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Engineered Environments, Inc. ......... $448,565 446,884 444,610
Employees and others .................. 3,657 881 1,116
-------- ------- -------
$452,222 $447,765 $445,726
======== ======== ========
</TABLE>
6. PROFIT SHARING PLAN
The Company sponsors a profit sharing plan covering employees who are at
least 21 years of age with a minimum of one year of service. The Board of
Directors of the Company determines the annual contribution, which may not
exceed 15% of the qualifying employees' compensation. Profit sharing plan
expense was $568,087 and $426,801 for the nine months ended September 30, 1997
and 1996, respectively, and $569,067 for the year ended October 31, 1996.
7. COMMITMENTS
DISTRIBUTIONS
It is anticipated that the Company will make cash distributions to the
stockholders since they are liable for individual federal and state income
taxes on the Company's taxable income. No additional distributions, in excess
of the amounts recorded in the accompanying financial statements, have been
declared as of September 30, 1997 or October 31, 1996. Accordingly, no S
distribution payable is recognized in the accompanying financial statements.
LIFE INSURANCE PROGRAM
In 1995, the Company implemented a split dollar life insurance
arrangement. The Company will pay most of the premium cost which will be
approximately $50,000 per year. These premiums are expected to be repaid to the
Company. The Company does not own the policies but does hold a collateral
assignment that effectively pledges the policies' cash values and death
proceeds as security for the return of the premiums paid by the Company. The
cash values are expected to eventually exceed the cumulative premiums paid. The
Company's recovery of the premiums paid is contingent upon continuation of the
life insurance program in the future.
The Company is the owner and beneficiary of other life insurance policies
under a buy-sell agreement between the stockholders. The Company's annual
premium cost under this arrangement is approximately $40,000 per year.
8. INVENTORIES
Subsequent to issuance of the reviewed financial statements for the year
ended October 31, 1996 it was determined that inventory was overstated.
Correction of these estimated misstatements resulted in a decrease of
previously reported net income for 1996 amounting to $783,000 and a decrease to
retained earnings as of October 31, 1995 amounting to $702,000. The cumulative
effect of these changes was to decrease retained earnings as of October 31,
1996 by $1,485,000.
F-37
<PAGE>
KRATZ-WILDE MACHINE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INVENTORIES--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1997 1996 1995
--------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw Material ............ $ 849,527 $ 911,820 $ 638,138
Work in process ......... 1,885,031 827,759 963,564
Finished goods .......... 3,397,732 1,148,326 1,557,215
---------- ---------- ----------
$6,132,290 $2,887,905 $3,158,917
========== ========== ==========
</TABLE>
9. CONTINGENCY
The Company is a defendant in lawsuits arising from normal business
activities. Outside counsel for the Company has advised that at this stage they
cannot offer an opinion as to their probable outcome. Management has reviewed
pending litigation and believes that the ultimate liability, if any, resulting
from them will not materially affect the Company's financial position.
Nevertheless, it is at least reasonably possible that such an effect will
occur, although the amount cannot be estimated.
10. SUBSEQUENT EVENT
The Company agreed in September 1997 to sell principally all of its
operating assets for $42.5 million. All of the Company's operations will be
transferred to the new owner.
F-38
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma condensed consolidated financial
statements are based on the historical financial statements of Aviation Sales
Company ("the Company") and the historical financial statements of entities
acquired by the Company during and subsequent to the periods presented,
adjusted as described below for the following acquisitions:
<TABLE>
<CAPTION>
COMPANY ACQUISITION DATE METHOD OF ACCOUNTING
- ------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Dixie Bearings Incorporated ("Dixie") ........... August 9, 1996 Purchase
AvEng Trading Partners ("AvEng") ................ December 10, 1996 Pooling of Interests
Aerocell Structures, Inc. ("Aerocell") .......... September 30, 1997 Pooling of Interests
Kratz-Wilde Machine Company ("Kratz") ........... October 17, 1997 Purchase
Apex Manufacturing, Inc. ("Apex") ............... December 31, 1997 Pooling of Interests
</TABLE>
Neither the historical financial statements of the Company nor the pro
forma financial statements reflect the March 1998 acquisition of Caribe.
The post acquisition results of operations of Dixie have been included in
the historical operations of the Company. Pro forma adjustments to record the
pre-acquisition results of operations of Dixie have not been made due to the
immateriality of the amounts. The results of operations of AvEng are included
in the historical operations of the Company for all periods presented. The
results of operations of Aerocell are included in the historical operations of
the Company for the nine months ended September 30, 1997. The Company's
historical results of operations for the year ended December 31, 1996 have not
been restated to give retroactive effect to the Aerocell acquisition due to the
immateriality of the restated amounts. The Kratz and Apex acquisitions were
consummated subsequent to all periods presented, and accordingly are not
reflected in the historical operations of the Company for any of the periods
presented.
The following unaudited condensed consolidated pro forma financial
statements present: (i) the pro forma financial position of the Company at
September 30, 1997 as if the Kratz and Apex acquisitions (which were acquired
after the date of the latest financial data presented) and the Offering had
been consummated on September 30, 1997, and (ii) the pro forma results of
operations of the Company for the nine months ended September 30, 1997 and the
year ended December 31, 1996, as if the acquisitions of Kratz and Apex had been
consummated as of January 1, 1997 and as if the acquisition of Kratz had been
consummated as of January 1, 1996, respectively. The pro forma results of
operations for the year ended December 31, 1996 do not include the results of
operations of Apex, due to the immateriality of the amounts. The pro forma, as
adjusted results of operations for the nine months ended September 30, 1997 are
further adjusted as if the Offering occurred on January 1, 1997.
The accompanying unaudited condensed consolidated pro forma financial
statements should be read in conjunction with the Company's and Kratz's
financial statements and the notes thereto, both of which are included
elsewhere in this Offering Memorandum.
P-1
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ACQUISITIONS
--------------------------------
AVIATION KRATZ-
SALES WILDE APEX
--------------- ---------------- ---------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents: ............... $ 1,802,253 $ 3,395,618 $ 506,734
Accounts receivable, net ................. 57,258,782 5,455,870 1,184,239
Inventories .............................. 114,822,960 6,132,290 757,198
Prepaid expenses ......................... 2,620,601 22,342 4,118
Deferred income taxes ..................... 2,639,029 -- --
------------ -------------- -------------
Total current assets ........... ........ 179,143,625 15,006,120 2,452,289
------------ -------------- -------------
SPARE PARTS ON LEASE, net ................. 21,851,953 -- --
------------ -------------- -------------
FIXED ASSETS
Property and equipment ................... 8,709,344 13,214,394 3,601,915
Less--Accumulated depreciation ........... (3,230,174) (10,140,870) (1,054,558)
------------ -------------- -------------
Total fixed assets ...................... 5,479,170 3,073,524 2,547,357
------------ -------------- -------------
AMOUNTS DUE FROM
RELATED PARTIES .......................... 2,928,056 -- --
------------ -------------- -------------
OTHER ASSETS
Deposits and other ....................... 1,148,890 1,165,626 2,247
Deferred income taxes .................... 3,314,774 -- --
Deferred financing costs and
intangible assets, net .................. 2,035,614 -- --
------------ -------------- -------------
Total other assets ...................... 6,499,278 1,165,626 2,247
------------ -------------- -------------
Total assets ............................ $215,902,082 $ 19,245,270 $ 5,001,893
============ ============== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ 20,407,734 $ 1,877,022 $ 257,365
Accrued expenses ......................... 12,459,937 1,308,796 777,176
Income taxes payable ..................... 2,652,243 -- 148,101
Notes payable, current maturities ........
Senior ................................... 4,243,788 -- --
Revolver ................................. 60,383,112 -- --
------------ -------------- -------------
Total current liabilities ............... 100,146,814 3,185,818 1,182,642
------------ -------------- -------------
LONG-TERM LIABILITIES
Deferred income and other ................ 1,074,465 247,556 444,800
Notes payable--Senior .................... 21,485,150 -- 1,122,246
Senior Subordinated Notes ................ -- -- --
------------ -------------- -------------
Total long-term liabilities .... ........ 22,559,615 247,556 1,567,046
------------ -------------- -------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ............................. 9,202 110,250 1,084,764
Additional paid-in capital ............... 71,772,487 -- --
Retained earnings ........................ 21,413,964 16,127,723 1,167,441
------------ -------------- -------------
93,195,653 16,237,973 2,252,205
------------ -------------- -------------
Less treasury shares ..................... -- 426,077 --
------------ -------------- -------------
Total stockholders' equity .............. 93,195,653 15,811,896 2,252,205
------------ -------------- -------------
Total liabilities and
stockholders' equity ................... $215,902,082 $ 19,245,270 $ 5,001,893
============ ============== =============
<CAPTION>
ADJUSTMENTS PRO FORMA ADJUSTMENTS
FOR ACQUISITIONS FOR ACQUISITIONS FOR THE OFFERING
--------------------------- ------------------ --------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents: ............... $ -- $ 5,704,605 $ 38,802,714(3)
Accounts receivable, net ................. -- 63,898,891 --
Inventories .............................. 491,993 (1) 122,204,441 --
Prepaid expenses ......................... -- 2,647,061 --
Deferred income taxes ..................... -- 2,639,029 --
---------------- ------------ -----------------
Total current assets ........... ........ 491,993 197,094,027 38,802,714
---------------- ------------ -----------------
SPARE PARTS ON LEASE, net ................. -- 21,851,953 --
---------------- ------------ -----------------
FIXED ASSETS
Property and equipment ................... (1,732,749)(1) 23,792,904 --
Less--Accumulated depreciation ........... 10,140,870 (1) (4,284,732) --
---------------- ------------ -----------------
Total fixed assets ...................... 8,408,121 19,508,172 --
---------------- ------------ -----------------
AMOUNTS DUE FROM
RELATED PARTIES .......................... -- 2,928,056 --
---------------- ------------ -----------------
OTHER ASSETS
Deposits and other ....................... (751,129)(1) 1,565,634 --
Deferred income taxes .................... -- 3,314,774 --
Deferred financing costs and
intangible assets, net .................. 18,291,563 (1) 20,327,177 3,086,886 (3)(4)
---------------- ------------ -----------------
Total other assets ...................... 17,540,434 25,207,585 3,086,886
---------------- ------------ -----------------
Total assets ............................ $ 26,440,548 $266,589,793 $ 41,889,600
================ ============ =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ -- $ 22,542,121 $ --
Accrued expenses ......................... -- 14,545,909 --
Income taxes payable ..................... -- 2,800,344 (793,889)(4)
Notes payable, current maturities ........
Senior ................................... 6,850,523 (1) 11,094,311 (10,564,311)(3)
Revolver ................................. -- 60,383,112 (60,383,112)(3)
---------------- ------------ -----------------
Total current liabilities ............... 6,850,523 111,365,797 (71,741,312)
---------------- ------------ -----------------
LONG-TERM LIABILITIES
Deferred income and other ................ (247,556)(1) 1,519,265 --
Notes payable--Senior .................... 35,649,477 (1) 58,256,873 (49,129,113)(3)
Senior Subordinated Notes ................ -- -- 164,001,750 (3)
---------------- ------------ -----------------
Total long-term liabilities .... ........ 35,401,921 59,776,138 114,872,637
---------------- ------------ -----------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ............................. (1,194,775)(1)(2) 9,441 --
Additional paid-in capital ............... 1,084,525 (2) 72,857,012 --
Retained earnings ........................ (16,127,723)(1) 22,581,405 (1,241,725)(4)
---------------- ------------ -----------------
(16,237,973) 95,447,858 (1,241,725)
---------------- ------------ -----------------
Less treasury shares ..................... (426,077)(1) -- --
---------------- ------------ -----------------
Total stockholders' equity .............. (15,811,896) 95,447,858 (1,241,725)
---------------- ------------ -----------------
Total liabilities and
stockholders' equity ................... $ 26,440,548 $266,589,793 $ 41,889,600
================ ============ =================
<CAPTION>
PRO FORMA
AS ADJUSTED
----------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents: ............... $ 44,507,319
Accounts receivable, net ................. 63,898,891
Inventories .............................. 122,204,441
Prepaid expenses ......................... 2,647,061
Deferred income taxes ..................... 2,639,029
------------
Total current assets ........... ........ 235,896,741
------------
SPARE PARTS ON LEASE, net ................. 21,851,953
------------
FIXED ASSETS
Property and equipment ................... 23,792,904
Less--Accumulated depreciation ........... (4,284,732)
------------
Total fixed assets ...................... 19,508,172
------------
AMOUNTS DUE FROM
RELATED PARTIES .......................... 2,928,056
------------
OTHER ASSETS
Deposits and other ....................... 1,565,634
Deferred income taxes .................... 3,314,774
Deferred financing costs and
intangible assets, net .................. 23,414,063
------------
Total other assets ...................... 28,294,471
------------
Total assets ............................ $308,479,393
============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ 22,542,121
Accrued expenses ......................... 14,545,909
Income taxes payable ..................... 2,006,455
Notes payable, current maturities ........
Senior ................................... 530,000
Revolver ................................. --
------------
Total current liabilities ............... 39,624,485
------------
LONG-TERM LIABILITIES
Deferred income and other ................ 1,519,265
Notes payable--Senior .................... 9,127,760
Senior Subordinated Notes ................ 164,001,750
------------
Total long-term liabilities .... ........ 174,648,775
------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ............................. 9,441
Additional paid-in capital ............... 72,857,012
Retained earnings ........................ 21,339,680
------------
94,206,133
------------
Less treasury shares ..................... --
------------
Total stockholders' equity .............. 94,206,133
------------
Total liabilities and
stockholders' equity ................... $308,479,393
============
</TABLE>
P-2
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ACQUISITIONS
----------------------------
AVIATION KRATZ-
SALES WILDE APEX
--------------- -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ........... $165,883,534 $28,711,522 $5,597,350
Rentals from leases and other .......... 7,841,090 -- --
Gain on sale of spare parts
on lease .............................. 752,922 -- --
------------ ----------- ----------
174,477,546 28,711,522 5,597,350
COST OF SALES ........................... 122,712,277 18,499,320 4,060,058
------------ ----------- ----------
GROSS PROFIT ............................ 51,765,269 10,212,202 1,537,292
------------ ----------- ----------
OPERATING EXPENSES
Operating .............................. 11,026,918 -- --
Selling ................................ 6,858,966 73,245 --
General and administrative ............. 8,895,737 1,792,273 593,948
Depreciation and amortization .......... 2,157,876 13,500 --
------------ ----------- ----------
28,939,497 1,879,018 593,948
------------ ----------- ----------
INCOME FROM OPERATIONS .................. 22,825,772 8,333,184 943,344
OTHER EXPENSES
Interest and other expense, net ........ 4,331,261 (87,675) 82,823
------------ ----------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM ..................... 18,494,511 8,420,859 860,521
INCOME TAX (BENEFIT)
EXPENSE ................................ 7,212,859 -- 359,198
------------ ----------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ..................... $ 11,281,652 $ 8,420,859 $ 501,323
============ =========== ==========
Other Data:
EBITDA .................................
<CAPTION>
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
FOR ACQUISITIONS FOR ACQUISITIONS FOR THE OFFERING(3) AS ADJUSTED
-------------------- ------------------ --------------------- ----------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ........... $ -- $200,192,406 $ -- $ 200,192,406
Rentals from leases and other .......... -- 7,841,090 -- 7,841,090
Gain on sale of spare parts
on lease .............................. -- 752,922 -- 752,922
------------- ------------ -------------- -------------
-- 208,786,418 -- 208,786,418
COST OF SALES ........................... 754,470 (5) 146,026,125 -- 146,026,125
------------- ------------ -------------- -------------
GROSS PROFIT ............................ (754,470) 62,760,293 -- 62,760,293
------------- ------------ -------------- -------------
OPERATING EXPENSES
Operating .............................. -- 11,026,918 -- 11,026,918
Selling ................................ -- 6,932,211 -- 6,932,211
General and administrative ............. 412,500 (6) 11,694,458 -- 11,694,458
Depreciation and amortization .......... 716,314 (5) 2,887,690 -- 2,887,690
------------- ------------ -------------- -------------
1,128,814 32,541,277 -- 32,541,277
------------- ------------ -------------- -------------
INCOME FROM OPERATIONS .................. (1,883,284) 30,219,016 -- 30,219,016
OTHER EXPENSES
Interest and other expense, net ........ 2,225,769 (7) 6,552,178 4,348,393 (9) 10,900,571
------------- ------------ -------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM ..................... (4,109,053) 23,666,838 (4,348,393) 19,318,445
INCOME TAX (BENEFIT)
EXPENSE ................................ 1,681,605 (8) 9,253,662 (1,695,873)(9) 7,557,789
------------- ------------ -------------- -------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ..................... $ (5,790,658) $ 14,413,176 $ (2,652,520) $ 11,760,656
============= ============ ============== =============
Other Data:
EBITDA ................................. $ 34,472,689(11)
================
</TABLE>
P-3
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AVIATION KRATZ- ADJUSTMENTS PRO FORMA
SALES WILDE(10) FOR ACQUISITION FOR ACQUISITION
--------------- -------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ................. $151,407,093 $24,595,131 $ -- $ 176,002,224
Rentals from leases and other ................ 10,536,776 -- -- 10,536,776
Gain on sale of spare parts on lease ......... -- -- -- --
------------ ----------- ------------- -------------
161,943,869 24,595,131 -- 186,539,000
COST OF SALES ................................. 110,358,502 20,545,037 1,078,255 (5) 131,981,794
------------ ----------- ------------- -------------
GROSS PROFIT .................................. 51,585,367 4,050,094 (1,078,255) 54,557,206
------------ ----------- ------------- -------------
OPERATING EXPENSES
Operating .................................... 9,319,981 -- -- 9,319,981
Selling ...................................... 6,977,518 122,355 -- 7,099,873
General and administrative ................... 10,681,242 1,978,720 550,000 (6) 13,209,962
Depreciation and amortization ................ 2,322,791 20,492 959,585 (5) 3,302,868
------------ ----------- ------------- -------------
29,301,532 2,121,567 1,509,585 32,932,684
------------ ----------- ------------- -------------
INCOME FROM OPERATIONS ........................ 22,283,835 1,928,527 (2,587,840) 21,624,522
OTHER EXPENSES
Interest and other expense, net .............. 5,350,020 131,688 2,967,692 (7) 8,449,400
------------ ----------- ------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM ........................... 16,933,815 1,796,839 (5,555,532) 13,175,122
INCOME TAX (BENEFIT) EXPENSE .................. 6,604,188 -- (1,465,890)(8) 5,138,298
------------ ----------- ------------- -------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ........................... $ 10,329,627 $ 1,796,839 $ (4,089,642) $ 8,036,824
============ =========== ============= =============
Other Data:
EBITDA ....................................... $ 26,639,386(11)
================
</TABLE>
P-4
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(1) Represents an adjustment to record the Kratz acquisition under the
purchase accounting method, including the write-up of property and
equipment by approximately $8.4 million to fair value, based on an
independent appraisal.
(2) Represents an adjustment to common stock and additional paid-in capital to
reflect the Apex acquisition under the pooling of interest method of
accounting.
(3) Reflects the following:
<TABLE>
<CAPTION>
FOR BALANCE SHEET PURPOSES FOR INCOME STATEMENT PURPOSES
AS OF SEPTEMBER 30, 1997 AS OF JANUARY 1, 1997
---------------------------- ------------------------------
<S> <C> <C>
Sources--
Senior Subordinated Notes ........ $165,000,000 $165,000,000
Discount ......................... (998,250) (998,250)
------------ ------------
$164,001,750 $164,001,750
============ ============
Uses--
Repay Credit Facility ............ 120,076,536 77,929,525
Transaction costs ................ 5,122,500 5,122,500
Increase in cash ................. 38,802,714 80,949,725
------------ ------------
$164,001,750 $164,001,750
============ ============
</TABLE>
The accompanying unaudited condensed consolidated pro forma statement of
income for the nine months ended September 30, 1997 reflects no adjustment
to record interest income on the increase in cash described above. At
February 10, 1998 there was approximately $138.8 million outstanding under
the Credit Facility.
(4) Represents the write off, net of tax, of the deferred financing fees on
the Credit Facility.
(5) Represents adjustments to record increased depreciation and amortization
expense associated with the Kratz acquisition.
(6) Represents entries made to adjust certain Kratz administrative expenses to
levels set forth in the purchase agreement.
(7) Represents the incremental increase in interest expense from borrowings
made to finance the Kratz acquisition.
(8) Represents adjustments made to record tax provision for Kratz as if it had
been taxed as a C Corporation.
(9) Represents an adjustment to: (i) eliminate the historical interest expense
and amortization of deferred financing fees due to the repayment of
amounts due under the Credit Facility, (ii) record interest expense on the
Notes and amortization of deferred financing fees and (iii) record related
income tax effect, assuming the Offering and the application of the
proceeds therefrom had occurred on January 1, 1997.
(10) Kratz's results of operations are for its fiscal year ended October 31,
1996 and are included in the accompanying unaudited condensed consolidated
pro forma statement of income for the year ended December 31, 1996.
(11) EBITDA represents net income plus the provision for income taxes plus
consolidated interest expense plus depreciation and amortization. The
Company has included information concerning EBITDA because it is commonly
used by certain investors as a measure of a company's ability to service
debt. However, EBITDA should not be considered as a substitute for net
income or cash flows prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Cost of goods sold includes depreciation and amortization
expense of $1,711,996 and $1,365,983, for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
P-5
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREIN SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................................
Incorporation of Certain Documents by Reference.......................
Summary...............................................................
Risk Factors..........................................................
The Exchange Offer....................................................
Use of Proceeds.......................................................
Capitalization........................................................
Selected Historical and Pro Forma
Consolidated Financial Data........................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................
Business..............................................................
Management............................................................
Description of Other Indebtedness.....................................
Description of Notes..................................................
Certain Federal Income Tax Considerations.............................
Plan of Distribution..................................................
Legal Matters.........................................................
Independent Auditors..................................................
Index to Financial Statements.........................................
Unaudited Condensed Consolidated
Pro Forma Financial Statements.....................................
$165,000,000
8 1/8% SENIOR
SUBORDINATED NOTES
DUE 2008
PROSPECTUS
___________________, 1998
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, the Company has the power to indemnify anyone made or
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company) because such person is
or was a director or officer of the Company against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit, or
proceeding, provided that (i) such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest and
(ii) in the case of a criminal proceeding such person had no reasonable cause to
believe his conduct was unlawful.
With respect to an action or suit by or in the right of the Company to
procure a judgment in its favor, Section 145(b) of the Delaware General
Corporation Law provides that the Company shall have the power to indemnify
anyone who was, is, or is threatened to be made a party to a threatened,
pending, or completed action or suit brought by or in the right of the Company
to procure a judgment in its favor because such person is or was a director or
officer of the Company against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interests,
except that no indemnification shall be made in a case in which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall have determined upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for such expenses.
Indemnification as described above shall only be granted in a specific case
upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of a
quorum of directors who were not parties to such proceeding, (b) independent
legal counsel in a written opinion if such quorum cannot be obtained or if a
quorum of disinterested directors so directs, or (c) the shareholders of the
Company.
Section 145(g) of the Delaware General Corporation Law permits the purchase
and maintenance of insurance to indemnify directors and officers against any
liability asserted against or incurred by them in any such capacity, whether or
not the Company itself would have the power to indemnify any such director or
officer against such liability. The Company intends to obtain such insurance and
premiums will be paid by the Company.
The Certificate of Incorporation of the Company provides for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
may be amended or supplemented. The Certificate of Incorporation further
provides that the indemnification provided for therein shall not be exclusive of
any rights to which those indemnified may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise.
The Certificate of Incorporation also contains a provision that eliminates
the personal liability of the Company's directors to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith, involving intentional misconduct or involving knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the director received an improper personal benefit.
Depending on judicial interpretation, the provision may not affect liability for
violations of the federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the
II-1
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. EXHIBITS
(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)
4.1 Form of Registration Rights Agreement(1)
*4.2 Indenture, dated as of February 17, 1998, among Aviation Sales Company,
certain of its subsidiaries, and SunTrust Bank Central Florida,
National Association, Trustee
*4.3 Registration Rights Agreement, dated as of February 17, 1998, among
Aviation Sales Company, certain of its subsidiaries and Salomon
Brothers, Inc., BT Alex. Brown Incorporated and Citicorp Securities
*4.4 Purchase Agreement, dated as of February 11, 1998, by and among
Aviation Sales Company, certain of its subsidiaries, Salomon Brothers,
Inc., BT Alex Brown Incorporated and Citicorp Securities, Inc.
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.(10)
10.1 Third Amended and Restated Credit Agreement, dated as of October 17,
1997, by and among the Company, certain of its subsidiaries and
Citicorp USA, Inc., as agent(2)
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(3)
+10.5 Amended Employment Agreement, effective as of December 2, 1994, by and
between Harold Woody and the Company(3)
+10.6 Amended Employment Agreement, effective as of December 2, 1994, by and
between Joseph E. Civiletto and the Company(3)
+10.7 Amended Employment Agreement, effective as of June 1, 1996, by and
between James D. Innella and the Company(3)
+10.8 Amended Employment Agreement, effective as of June 1, 1996, by and
between Michael A. Saso and the Company(3)
II-2
<PAGE>
+10.9 1996 Director Stock Option Plan(3)
+10.10 1996 Stock Option Plan(3)
+10.11 1997 EBITDA Incentive Compensation Plan(4)
10.12 Asset Purchase Agreement dated as of August 9, 1996 by and between
Dixie Bearings Incorporated and Aviation Sales Bearing Company(5)
10.13 Asset Purchase Agreement dated as of November 30, 1996 by and between
AvEng Trading Partners, Inc. and the Company(4)
10.14 Merger Agreement by and among Aviation Sales Company, AVS/ASI Merger
Corp., Aerocell Structures, Inc. and the shareholders of Aerocell
Structures, Inc., dated as of September 30, 1997(6)
10.15 Asset Purchase Agreement by and between Aviation Sales Company and
Kratz-Wilde Machine Company, dated as of September 30, 1997(7)
10.16 Stock for Asset Purchase Agreement by and between Aviation Sales
Company, AVS/AMI Merger Corp., Apex Manufacturing, Inc. and the
shareholders of Apex Manufacturing, Inc., dated as of December 31,
1997(8)
10.17 Merger Agreement by and among Aviation Sales Company, AVS/CAI Merger
Corp., Caribe Aviation, Inc., Aircraft Interior Design, Inc. and Benito
Quevedo(9)
21.1 List of Subsidiaries of Registrant(10)
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Clark, Schaefer, Hackett & Co.
23.3 Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1
above).
24.1 Power of Attorney (included on Signature Page of this Registration
Statement)
25.1 Form T-1 Statement of Eligibility of Trustee.(10)
99.1 Form of Letter of Transmittal and Notice of Guaranteed Delivery of
Notes.
- ----------------------------
* Filed herewith
+ Compensation plan or agreement
(FOOTNOTES ON NEXT PAGE)
II-3
<PAGE>
(FOOTNOTES FROM PRIOR PAGE)
(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 the Company's Quarterly Report on Form
10-Q for the quarter and nine months ended September 30, 1997
(3) Incorporated by reference to Amendment No. 1 to Company's Registration
Statement on Form S-1 dated June 6, 1996 (File No. 333-3650)
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996
(6) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 30, 1997
(7) Incorporated by reference to the Registrant's Current Report on Form
8-K dated October 17, 1997
(8) Incorporated by reference to the Registrant's Current Report on Form
8-K dated December 31, 1997
(9) Incorporated by reference to the Registrant's Current Report on Form
8-K dated March 18, 1998
(10) To be filed by amendment to this Registration Statement
b. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts for the three years ended
December 31, 1996
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person thereof in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on the 25th day of March, 1998.
AVIATION SALES COMPANY
(Registrant)
By: /s/ Dale S. Baker
------------------------------------------
Dale S. Baker
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive and Financial Officer)
Each person whose signature appears below appoints Dale S. Baker as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his stead, in any capacities to sign any and all
amendments, including post-effective amendments to this Registration Statement
and to file the same, with all exhibits thereto and all other document in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
/S/ DALE S. BAKER President, Chief Executive Officer and Chairman of March 25, 1998
- -------------------------- the Board (Principal Executive Officer)
Dale S. Baker
/S/ JOSEPH E. CIVILETTO Vice President (Principal Financial and Accounting March 25, 1998
- -------------------------- Officer)
Joseph E. Civiletto
/S/ HAROLD M. WOODY Executive Vice President and Director March 25, 1998
- --------------------------
Harold M. Woody
/S/ ROBERT ALPERT Director March 25, 1998
- --------------------------
Robert Alpert
/S/ SAM HUMPHREYS Director March 25, 1998
- --------------------------
Sam Humphreys
Director
- --------------------------
Tim Watkins
/S/ KAZUTAMI OKUI Director March 25, 1998
- --------------------------
Kazutami Okui
</TABLE>
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ----------- ----------
4.2 Indenture, dated as of February 17, 1998, between Aviation Sales
Company, certain of its subsidiaries and SunTrust Bank, Central
Florida, National Association, as trustee.
4.3 Registration Rights Agreement, dated as of February 17, 1998, by and
among Aviation Sales Company, certain of subsidiaries and Salomon
Brothers, Inc., BT Alex. Brown Incorporated and Citicorp Securities,
Inc.
4.4 Purchase Agreement, dated as of February 11, 1998, by and among
Aviation Sales Company, certain of its subsidiaries, Salomon Brothers,
Inc., BT Alex. Brown Incorporated and Citicorp Securities, Inc.
23.1 Consent of Arthur Andersen L.L.P.
23.2 Consent of Clark, Schaefer, Hackett & Co.
99.1 Form of Letter of Transmittal and Notice of Guaranteed Delivery of
Notes.
EXHIBIT 4.2
AVIATION SALES COMPANY
AVIATION SALES OPERATING COMPANY
AVIATION SALES BEARINGS COMPANY
AVIATION SALES LEASING COMPANY
AVIATION SALES FINANCE COMPANY
AVIATION SALES MANUFACTURING & REPAIR COMPANY
AVS/KRATZ-WILDE MACHINE COMPANY
AEROCELL STRUCTURES, INC.
APEX MANUFACTURING, INC.
UP TO $250,000.00
8-1/8% SENIOR SUBORDINATED NOTES DUE 2008
INDENTURE
DATED AS OF FEBRUARY 17, 1998
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
TRUSTEE
<PAGE>
CROSS-REFERENCE TABLE
(a) TRUST INDENTURE
ACT SECTION INDENTURE SECTION
310(a)(1)...................................................................7.10
(a)(3)......................................................................N.A.
(a)(4)......................................................................N.A.
(2).........................................................................7.10
(5).........................................................................7.10
(b).........................................................................7.10
(i)(c)......................................................................N.A.
311(a)......................................................................7.11
(b).........................................................................7.11
(ii)(c).....................................................................N.A.
312(a)......................................................................2.05
(b)........................................................................12.03
(c)........................................................................12.03
(iii)(c)....................................................................N.A.
313(a)......................................................................7.06
(b)(2).....................................................................7.06;
7.07
(c)........................................................................7.06;
12.02
(d).........................................................................7.06
314(a)......................................................................4.03
314(a)(4)..................................................................12.05
(c)(1)......................................................................N.A.
(c)(2)......................................................................N.A.
(c)(3)......................................................................N.A.
(c)(3)......................................................................N.A.
(e)........................................................................12.05
(f).........................................................................N.A.
315(a)......................................................................N.A.
(b).........................................................................7.05
(A)(c)......................................................................N.A.
(d).........................................................................N.A.
(e).........................................................................N.A.
316(a)(last sentence).......................................................N.A.
(a)(1)(A)...................................................................N.A.
(a)(1)(B)...................................................................N.A.
(a)(2)......................................................................N.A.
(b).........................................................................N.A.
(B)(c)......................................................................N.A.
317(a)(1)...................................................................N.A.
(a)(2)......................................................................N.A.
(b).........................................................................N.A.
318(a)......................................................................N.A.
(b).........................................................................N.A.
(c)........................................................................12.01
N.A. means not applicable.
*This Cross-Reference Table is not part of this Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE 1 - DEFINITIONS AND INCORPORATION BY REFERENCE...............................................1
SECTION 1.01. DEFINITIONS...............................................................1
SECTION 1.02. OTHER DEFINITIONS........................................................14
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................14
SECTION 1.04. RULES OF CONSTRUCTION....................................................15
ARTICLE 2 - THE NOTES...............................................................................15
SECTION 2.01. FORM AND DATING..........................................................15
SECTION 2.02. EXECUTION AND AUTHENTICATION.............................................16
SECTION 2.03. REGISTRAR AND PAYING AGENT...............................................17
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST......................................17
SECTION 2.05. HOLDER LISTS.............................................................18
SECTION 2.06. TRANSFER AND EXCHANGE....................................................18
SECTION 2.07. REPLACEMENT NOTES........................................................24
SECTION 2.08. OUTSTANDING NOTES........................................................25
SECTION 2.09. TREASURY NOTES...........................................................25
SECTION 2.10. TEMPORARY NOTES..........................................................25
SECTION 2.11. CANCELLATION.............................................................26
SECTION 2.12. DEFAULTED INTEREST.......................................................26
ARTICLE 3 - REDEMPTION AND PREPAYMENT...............................................................26
SECTION 3.01. NOTICES TO TRUSTEE.......................................................26
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED........................................26
SECTION 3.03. NOTICE OF REDEMPTION.....................................................27
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION...........................................27
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE..............................................28
SECTION 3.06. NOTES REDEEMED IN PART...................................................28
SECTION 3.07. OPTIONAL REDEMPTION......................................................28
SECTION 3.08. MANDATORY REDEMPTION.....................................................29
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS......................29
ARTICLE 4 - COVENANTS...............................................................................30
SECTION 4.01. PAYMENT OF NOTES.........................................................30
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY..........................................31
SECTION 4.03. REPORTS..................................................................31
SECTION 4.04. COMPLIANCE CERTIFICATE...................................................32
SECTION 4.05. TAXES....................................................................32
SECTION 4.06. STAY, EXTENSION AND USURY LAWS...........................................32
SECTION 4.07. RESTRICTED PAYMENTS......................................................33
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES...........35
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK...............35
SECTION 4.10. ASSET SALES..............................................................37
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.............................................38
</TABLE>
<PAGE>
<TABLE>
PAGE
<S> <C>
SECTION 4.12. LIENS....................................................................38
SECTION 4.13. BUSINESS ACTIVITIES......................................................39
SECTION 4.14. CORPORATE EXISTENCE......................................................39
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL...............................39
SECTION 4.16. NO SENIOR SUBORDINATED DEBT..............................................40
SECTION 4.17. ADDITIONAL SUBSIDIARY GUARANTEES.........................................40
SECTION 4.18. PAYMENTS FOR CONSENT.....................................................40
ARTICLE 5 - SUCCESSORS..............................................................................41
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.................................41
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED........................................41
ARTICLE 6 - DEFAULTS AND REMEDIES...................................................................42
SECTION 6.01. EVENTS OF DEFAULT........................................................42
SECTION 6.02. ACCELERATION.............................................................42
SECTION 6.03. OTHER REMEDIES...........................................................43
SECTION 6.04. WAIVER OF PAST DEFAULTS..................................................43
SECTION 6.05. CONTROL BY MAJORITY......................................................44
SECTION 6.06. LIMITATION ON SUITS......................................................44
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT............................44
SECTION 6.08. COLLECTION SUIT BY TRUSTEE...............................................44
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.........................................45
SECTION 6.10. PRIORITIES...............................................................45
SECTION 6.11. UNDERTAKING FOR COSTS....................................................46
ARTICLE 7 - TRUSTEE.................................................................................46
SECTION 7.01. DUTIES OF TRUSTEE. ......................................................46
SECTION 7.02. RIGHTS OF TRUSTEE. ......................................................47
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. ...........................................47
SECTION 7.04. TRUSTEE'S DISCLAIMER. ...................................................48
SECTION 7.05. NOTICE OF DEFAULTS. .....................................................48
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES...............................48
SECTION 7.07. COMPENSATION AND INDEMNITY...............................................48
SECTION 7.08. REPLACEMENT OF TRUSTEE. .................................................49
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. .......................................50
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. ..........................................50
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........................50
ARTICLE 8 - LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................................50
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.................50
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. .........................................51
SECTION 8.03. COVENANT DEFEASANCE......................................................51
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE...............................51
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS...........................................53
</TABLE>
(ii)
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SECTION 8.06. REPAYMENT TO COMPANY.....................................................53
SECTION 8.07. REINSTATEMENT............................................................53
ARTICLE 9 - AMENDMENT, SUPPLEMENT AND WAIVER........................................................54
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES......................................54
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.........................................54
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT......................................56
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS........................................56
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. .......................................56
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. ........................................56
ARTICLE 10 - SUBORDINATION..........................................................................57
SECTION 10.01. AGREEMENT TO SUBORDINATE.................................................57
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.....................................57
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT........................................57
SECTION 10.04. ACCELERATION OF NOTES....................................................58
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER......................................58
SECTION 10.06. NOTICE BY COMPANY........................................................58
SECTION 10.07. SUBROGATION..............................................................58
SECTION 10.08. RELATIVE RIGHTS..........................................................59
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.............................59
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.................................59
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.......................................59
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION....................................60
SECTION 10.13. AMENDMENTS...............................................................60
ARTICLE 11 - SUBSIDIARY GUARANTEES..................................................................60
SECTION 11.01. GUARANTEE................................................................60
SECTION 11.02. GUARANTEE LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY...................61
SECTION 11.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE...........................61
SECTION 11.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS............62
SECTION 11.05. RELEASES FOLLOWING SALE OF ASSETS........................................63
ARTICLE 12 - SUBORDINATION OF SUBSIDIARY GUARANTEE..................................................63
SECTION 12.01. AGREEMENT TO SUBORDINATE.................................................63
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.....................................63
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT........................................64
SECTION 12.04. ACCELERATION OF SUBSIDIARY GUARANTEES....................................64
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER......................................65
SECTION 12.06. NOTICE BY SUBSIDIARY GUARANTOR...........................................65
SECTION 12.07. SUBROGATION..............................................................65
SECTION 12.08. RELATIVE RIGHTS..........................................................65
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY SUBSIDIARY GUARANTOR................66
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.................................67
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.......................................67
</TABLE>
(iii)
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SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION....................................67
SECTION 12.13. AMENDMENTS...............................................................67
ARTICLE 13 - MISCELLANEOUS..........................................................................68
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.............................................68
SECTION 13.02. NOTICES..................................................................68
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES. ..................................................................69
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......................69
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............................70
SECTION 13.06. RULES BY TRUSTEE AND AGENTS. ............................................70
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.............................................................70
SECTION 13.08. GOVERNING LAW. ..........................................................70
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............................71
SECTION 13.10. SUCCESSORS...............................................................71
SECTION 13.11. SEVERABILITY.............................................................71
SECTION 13.12. COUNTERPART ORIGINALS....................................................71
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.........................................71
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
Exhibit D FORM OF SUBSIDIARY GUARANTEE
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
(iv)
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INDENTURE dated as of February 17, 1998 among Aviation Sales Company, a
Delaware corporation (the "Company"), Aviation Sales Operating Company, Aviation
Sales Bearings Company, Aviation Sales Leasing Company, Aviation Sales Finance
Company, Aviation Sales Manufacturing & Repair Company, AVS/Kratz Wilde Machine
Company, Aerocell Structures, Inc., and Apex Manufacturing, Inc. and SunTrust
Bank, Central Florida, National Association, as trustee (the "Trustee").
The Company, Aviation Sales Operating Company, Aviation Sales Bearings
Company, Aviation Sales Leasing Company, Aviation Sales Finance Company,
Aviation Sales Manufacturing & Repair Company, AVS/Kratz Wilde Machine Company,
Aerocell Structures, Inc. and Apex Manufacturing, Inc. and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the Holders of the 8-1/8% Senior Subordinated Notes due 2008 (the "Senior
Subordinated Notes") and the 8-1/8% Senior Subordinated Notes due 2008 (the
"Exchange Notes" and, together with the Senior Subordinated Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ADDITIONAL NOTES" means up to $85.0 million in aggregate
principal amount of Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
PROVIDED that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"APPLICABLE PROCEDURES" means the rules and procedures of the
Depositary.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales or leases of inventory in the ordinary
course of business or sales of leases or of assets subject to leases in the
ordinary course of business (PROVIDED that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by Section 4.15 and/or
Article 5 hereof and not by Section 4.10 hereof) and (ii) the issue or sale by
the Company or any of its Restricted Subsidiaries of Equity Interests of any of
the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $2.0 million or (b) for net proceeds in
excess of $2.0 million. Notwithstanding the
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foregoing, the following items shall not be deemed to be Asset Sales: (i) a
transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by
a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07
hereof.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i) - (v) of this definition.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the
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occurrence of a subsequent condition), directly or indirectly, of more than 50%
of the Voting Stock of the Company (measured by voting power rather than number
of shares), or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"COMPANY" means Aviation Sales Company, a Delaware
corporation, and any and all successors thereto.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) an amount equal to 1/3 of the
Consolidated Lease Expense of such Person and its Restricted Subsidiaries for
such period, to the extent that any such expense was deducted in computing such
Consolidated Net Income, minus (vi) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash expenses of, a Restricted Subsidiary of the referent Person shall
be added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"CONSOLIDATED LEASE EXPENSE" means, with respect to any Person
for any period, the aggregate rental obligations of such Person and its
consolidated Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP payable in respect of such period under leases of real
and/or personal property (net of income from subleases thereof, but including
taxes, insurance, maintenance and similar expenses that the lessee is obligated
to pay under the terms of such leases), whether or not such obligations are
reflected as liabilities or commitments on a consolidated balance sheet of such
Person and its Restricted Subsidiaries or in the notes thereto.
"CONSOLIDATED NET INCOME" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis,
3
<PAGE>
determined in accordance with GAAP; provided that (i) the Net Income (but not
loss) of any Person that is not a Restricted Subsidiary or that is accounted for
by the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or a
Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the
address of the Trustee specified in Section 13.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"CREDIT FACILITY" means that certain Third Amended Credit
Agreement, dated as of October 17, 1997, by and among the Company, Aviation
Sales Operating Company, Aerocell Structures, Inc., and AVS/Kratz-Wilde Machine
Company, the Institutions from time to time party thereto as Lenders, the
Institutions from time to time party thereto as Issuing Banks, Citicorp USA,
Inc., as Agent, and Citicorp Securities, Inc., as Arranger, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"CUSTODIAN" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"DEFAULT" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
4
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"DEFINITIVE NOTE" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A hereto (but without including the text referred to in
footnotes 1 and 3 thereto).
"DEPOSITARY" means, with respect to the Global Note, the
Person specified in Section 2.03 hereof as the Depositary with respect to such
Note, and any and all successors thereto appointed as depositary hereunder and
having become such pursuant to the applicable provision of this Indenture.
"DESIGNATED SENIOR DEBT" means (i) any Indebtedness
outstanding under the Credit Facility and (ii) any other Senior Debt permitted
under this Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature; PROVIDED, HOWEVER, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" has the meaning set forth in the Registration
Rights Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set
forth in the Registration Rights Agreement.
"EXISTING INDEBTEDNESS" means up to $9.5 million in aggregate
principal amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facility) in existence on the date of this
Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person and its
Restricted Subsidiaries for any period, the sum, without duplication, of (i) the
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon), (iv) the product of (a) all dividend
payments, whether or not in cash,
5
<PAGE>
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Restricted Subsidiary of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP and (v) an amount equal to 1/3 of the Consolidated Lease Expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person
and its Restricted Subsidiaries for any period, the ratio of the Consolidated
Cash Flow of such Person and its Restricted Subsidiaries for such period to the
Fixed Charges of such Person for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"GLOBAL NOTE" means the permanent global note that contains
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 3 to the form of the Note attached hereto as EXHIBIT A, and that is
deposited with and registered in the name of the Depositary or its nominee,
representing Notes initially sold in reliance on Rule 144A.
"GOVERNMENT SECURITIES" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation,
6
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by way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof), of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"HOLDER" means a Person in whose name a Note is registered.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time.
"INDEBTEDNESS" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"INDIRECT PARTICIPANT" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"INITIAL NOTES" means $165.0 million in aggregate principal
amount of Notes issued under this Indenture on the date hereof.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"INVESTMENTS" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in Section 4.07 hereof.
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"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York, New York or Orlando, Florida or at
a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on such payment for the intervening
period.
"LETTER OF TRANSMITTAL" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"LIQUIDATED DAMAGES" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"NET INCOME" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), any business or activities
conducted by the Company on the date of this Indenture and any business or
activities reasonably related, ancillary or complementary to such business or
activities amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in
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writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"NON-U.S. PERSON" means a Person who is not a U.S. Person.
"NOTES" has the meaning assigned to it in the preamble to this
Indenture.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the offering of the Notes by the Company.
"OFFERING MEMORANDUM" means the final Offering Memorandum of
the Company, dated February 11, 1998, with respect to the Notes.
"OFFICER" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 13.05 hereof.
"OPINION OF COUNSEL" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"PARTICIPANT" means a Person who has an account with the
Depositary.
"PARTICIPATING BROKER-DEALER" has the meaning set forth in the
Registration Rights Agreement.
"PERMITTED BUSINESS" means any business or activities
conducted by the Company on the date of this Indenture and any business or
activities related, ancillary or complementary to such business or
activities.
"PERMITTED INVESTMENTS" means (a) any Investment in the
Company or in a Subsidiary Guarantor; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of such Investment (i) such Person becomes a Subsidiary
Guarantor or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary Guarantor; (d) any Investment made
as a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition
of assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; and (f) other Investments in any Person
having an aggregate fair market value (measured on the date each such Investment
was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (f) that are at
the time outstanding, not to exceed $10.0 million.
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"PERMITTED JUNIOR SECURITIES" means Equity Interests in the
Company or any Subsidiary Guarantor or debt securities that are subordinated to
all Senior Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to Article 10 hereof.
"PERMITTED LIENS" means (i) Liens on assets of the Company or
any Subsidiary Guarantor to secure Senior Debt of the Company or such Subsidiary
Guarantor that was permitted by the terms of this Indenture to be incurred; (ii)
Liens in favor of the Company or a Subsidiary Guarantor; (iii) Liens on property
of a Person existing at the time such Person is merged into or consolidated with
the Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (v) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (d) of the second paragraph of Section
4.09 covering only the assets acquired with such Indebtedness; (vi) Liens
existing on the date of this Indenture; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $10.0
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (ix)
Liens to secure the Notes or the Subsidiary Guarantees; and (x) Liens on assets
of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
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"PERSON" means any individual, corporation, partnership, joint
venture, association, joint- stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"PRIVATE PLACEMENT LEGEND" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of February 17, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"RESPONSIBLE OFFICER," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"RESTRICTED BENEFICIAL INTEREST" means any beneficial interest
of a Participant or Indirect Participant in the Global Note.
"RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing
the Private Placement Legend.
"RESTRICTED GLOBAL NOTE" means a Global Note bearing the
Private Placement Legend.
"RESTRICTED INVESTMENT" means an Investment other than a
Permitted Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"RULE 144" means Rule 144 promulgated under the Securities
Act.
"RULE 144A" means Rule 144A promulgated under the Securities
Act.
"RULE 903" means Rule 903 promulgated under the Securities
Act.
"RULE 904" means Rule 904 promulgated the Securities Act.
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"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR DEBT" means (i) all Indebtedness outstanding under the
Credit Facility, all Hedging Obligations with respect thereto and, after a
default has occurred and is continuing under the Credit Facility, all other
Indebtedness arising from intercompany loans and advances owing by the Company
or any of the Subsidiary Guarantors which constitutes part of the collateral
security for the Credit Facility and such Hedging Obligations, including,
without limitation, indebtedness evidenced by intercompany notes pledged or
assigned in connection with the Credit Facility, (ii) any other Indebtedness
permitted to be incurred by the Company or a Subsidiary Guarantor under the
terms of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or owing
by the Company or a Subsidiary Guarantor, (x) any Indebtedness between or among
the Company, any of its Subsidiaries or any of its other Affiliates, except to
the extent such Indebtedness is within the scope of clause (i) above, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of this
Indenture.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"STATED MATURITY" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"SUBSIDIARY GUARANTEE" means the Guarantee by each Subsidiary
Guarantor of the Company's payment obligations under this Indenture and the
Notes, executed pursuant to the provisions of this Indenture.
"SUBSIDIARY GUARANTORS" means each of (i) Aviation Sales
Operating Company, Aviation Sales Bearings Company, Aviation Sales Leasing
Company, Aviation Sales Manufacturing & Repair Company, Aviation Sales Finance
Company, AVS/Kratz-Wilde Machine Company, Aerocell Structures, Inc. and Apex
Manufacturing, Inc. and (ii) any other subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
/sections/ 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"TRANSFER RESTRICTED SECURITIES" means Notes or beneficial
interests therein that bear or are required to bear the Private Placement
Legend.
"TRUSTEE" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"UNRESTRICTED GLOBAL NOTE" means the Global Note that does not
and is not required to bear the Private Placement Legend.
"UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, (ii) no Default or Event of Default would be in existence
following such designation, and (iii) such Subsidiary becomes a Subsidiary
Guarantor and executes a Supplemental Indenture and delivers an Opinion of
Counsel, in accordance with the terms of this Indenture.
"U.S. PERSON" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
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"VOTING STOCK" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person or such Person and one or more Wholly
Owned Restricted Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"............................4.11
"Asset Sale".......................................4.10
"Asset Sale Offer".................................3.09
"Authentication Order".............................2.02
"Bankruptcy Law"...................................4.01
"Change of Control Offer"..........................4.15
"Change of Control Payment"........................4.15
"Change of Control Payment Date" ..................4.15
"Covenant Defeasance"..............................8.03
"Event of Default".................................6.01
"Excess Proceeds"..................................4.10
"incur"............................................4.09
"Legal Defeasance" ................................8.02
"Offer Amount".....................................3.09
"Offer Period".....................................3.09
"Paying Agent".....................................2.03
"Permitted Debt"...................................4.09
"Purchase Date"....................................3.09
"Registrar"........................................2.03
"Restricted Payments"..............................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
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The following TIA terms used in this Indenture have the
following meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee; and
"OBLIGOR" on the Notes and the Subsidiary Guarantees means the
Company and the Subsidiary Guarantors, respectively, and any successor obligor
upon the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) GENERAL. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
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The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Subsidiary Guarantors and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. However, to the extent any provision of any Note conflicts
with the express provisions of this Indenture, the provisions of this Indenture
shall govern and be controlling.
(b) GLOBAL NOTES. Notes offered and sold to QIBs in reliance on
Rule 144A shall be issued initially in the form of the Global Note, which shall
be deposited on behalf of the purchasers of the Notes represented thereby with a
custodian of the Depositary, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the Global
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as hereinafter
provided.
The Global Note shall represent such of the outstanding Notes
as shall be specified therein and shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges,
redemptions and transfers of interests. Any endorsement of the Global Note to
reflect the amount of any increase or decrease in the amount of outstanding
Notes represented thereby shall be made by the Trustee or the Note Custodian, at
the direction of the Trustee, in accordance with instructions given by the
Holder thereof as required by Section 2.06 hereof.
Except as set forth in Section 2.06 hereof, the Global Note
may be transferred, in whole and not in part, only to another nominee of the
Depositary or to a successor of the Depositary or its nominee.
(c) BOOK-ENTRY PROVISIONS. This Section 2.01(c) shall apply only
to the Global Note deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.01(c), authenticate and deliver the Global Note that (i)
shall be registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Participants shall have no rights either under this Indenture
with respect to the Global Note held on their behalf by the Depositary or by the
Note Custodian as custodian for the Depositary or under the Global Note, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of the Global Note for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in the Global Note.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
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A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by an Officer (an "Authentication Order"), authenticate Notes for original issue
up to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("REGISTRAR") and an
office or agency where Notes may be presented for payment ("PAYING AGENT"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
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SECTION 2.05. HOLDER LISTS
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA /section/ 312(a).
If the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA /section/
312(a).
SECTION 2.06. TRANSFER AND EXCHANGE
(a) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL
NOTE. The transfer and exchange of beneficial interests in the Global Note shall
be effected through the Depositary, in accordance with this Indenture and the
procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Beneficial interests in the Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in the
Global Note in accordance with the transfer restrictions set forth in subsection
(g) of this Section 2.06 or in the Unrestricted Global Note in accordance with
subsection (g)(iv).
(b) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive
Notes are presented by a Holder to the Registrar with a request to register the
transfer of the Definitive Notes or to exchange such Definitive Notes for an
equal principal amount of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested only
if:
(i) the Definitive Notes are presented or surrendered for
registration of transfer or exchange, endorsed and containing a
signature guarantee or accompanied by a written instrument of transfer
in form satisfactory to the Registrar duly executed by such Holder or
by his attorney and contains a signature guarantee, duly authorized in
writing; and
(ii) in the case of Definitive Notes that are Transfer
Restricted Securities, the Registrar has received the following
documentation, as applicable (all of which may be submitted by
facsimile):
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder for registration
in the name of such Holder, without transfer, or such Transfer
Restricted Security is being transferred to the Company or any
of its Subsidiaries, a certification to that effect from such
Holder (in substantially the form of EXHIBIT B-1 hereto); or
(B) if such Transfer Restricted Security is
being transferred to a QIB in accordance with Rule 144A under
the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 under the Securities
Act or pursuant to an effective registration statement under
the Securities Act, a certification to that effect from such
Holder (in substantially the form of EXHIBIT B-1 hereto); or
(C) if such Transfer Restricted Security is
being transferred to a Non-U.S. Person in an offshore
transaction in accordance with Rule 903 or Rule 904 under the
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Securities Act, a certification to that effect from such
Holder (in substantially the form of EXHIBIT B-1 hereto); or
(D) if such Transfer Restricted Security is
being transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) and (C) above, a certification to that effect from such
Holder (in substantially the form of EXHIBIT B-1 hereto), a
certification substantially in the form of EXHIBIT C hereto,
and, if such transfer is in respect of an aggregate principal
amount of Notes of less than $100,000, an Opinion of Counsel
reasonably acceptable to the Company that such transfer is in
compliance with the Securities Act; or
(E) if such Transfer Restricted Security is
being transferred in reliance on any other exemption from the
registration requirements of the Securities Act, a
certification to that effect from such Holder (in
substantially the form of EXHIBIT B-1 hereto) and an Opinion
of Counsel from such Holder or the transferee to the effect
that such transfer is in compliance with the Securities Act.
(c) TRANSFER OF A BENEFICIAL INTEREST IN THE GLOBAL NOTE FOR A
DEFINITIVE NOTE.
(i) Any Person having a beneficial interest in the Global Note
may upon request, subject to the Applicable Procedures, exchange such
beneficial interest for a Definitive Note. Upon receipt by the Trustee
of written instructions or such other form of instructions as is
customary for the Depositary, from the Depositary or its nominee on
behalf of any Person having a beneficial interest in the Global Note,
and, in the case of a Transfer Restricted Security, the following
additional information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the Depositary as
being the beneficial owner, a certification to that effect
from such Person (in substantially the form of EXHIBIT B-2
hereto);
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration
in accordance with Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the
transferor (in substantially the form of EXHIBIT B-2 hereto);
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certification to that effect from the transferor (in
substantially the form of EXHIBIT B-2 hereto);
(D) if such beneficial interest is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) and (C) above, a certification to that effect from such
Holder (in substantially the form of EXHIBIT B-2 hereto), a
certification substantially in the form of EXHIBIT C hereto,
and, if such transfer is in respect of an aggregate principal
amount of Notes of less than $100,000, an Opinion of Counsel
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reasonably acceptable to the Company that such transfer is in
compliance with the Securities Act; or
(E) if such beneficial interest is being
transferred in reliance on any other exemption from the
registration requirements of the Securities Act, a
certification to that effect from the transferor (in
substantially the form of EXHIBIT B-2 hereto) and an Opinion
of Counsel from the transferee or the transferor reasonably
acceptable to the Company and to the Registrar to the effect
that such transfer is in compliance with the Securities Act in
which case the Trustee or the Note Custodian, at the direction
of the Trustee, shall, in accordance with the standing
instructions and procedures existing between the Depositary
and the Note Custodian, cause the aggregate principal amount
of the Global Note to be reduced accordingly and, following
such reduction, the Company shall execute and the Trustee
shall authenticate and deliver to the transferee, a Definitive
Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in the Global Note pursuant to this Section 2.06(c) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or Indirect
Participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Definitive Notes to the Persons in whose names such
Notes are so registered. Following any such issuance of Definitive
Notes, the Trustee, as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate principal amount of the
Global Note to reflect the transfer.
(d) RESTRICTIONS ON TRANSFER AND EXCHANGE OF THE GLOBAL NOTE.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), the Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(e) TRANSFER AND EXCHANGE OF A DEFINITIVE NOTE FOR A BENEFICIAL
INTEREST IN THE GLOBAL NOTE. When a Definitive Note is presented by a Holder to
the Registrar with a request to register the transfer of the Definitive Note to
a Person who is required or permitted to take delivery thereof in the form of an
interest in the Global Note, or to exchange such Definitive Note for an equal
interest in the Global Note, the Registrar shall register the transfer or make
the exchange as requested only if (i) the Definitive Note is presented or
surrendered for registration of transfer or exchange, endorsed and containing a
signature guarantee or accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his
attorney-in-fact and containing a signature guarantee, duly authorized in
writing and (ii) in the case of Definitive Notes that are Transfer Restricted
Securities (other than Transfer Restricted Securities that are being exchanged
or transferred in accordance with the transfer restrictions set forth in
subsection (g)(iv) of this Section 2.06), the Registrar has received the
following documentation, as applicable (all of which may be submitted by
facsimile):
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of such Holder,
without transfer, or such Transfer Restricted Security is being
transferred to the Company or any of its Subsidiaries, a certification
to that effect from such Holder (in substantially the form of EXHIBIT
B-1 hereto); or
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(B) if such Transfer Restricted Security is being transferred
to a QIB in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that effect from
such Holder (in substantially the form of EXHIBIT B-1 hereto); or
(C) if such Transfer Restricted Security is being
transferred to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities Act
other than those listed in subparagraph (B) above, a certification to
that effect from such Holder (in substantially the form of EXHIBIT B-1
hereto), a certification substantially in the form of EXHIBIT C hereto,
and, if such transfer is in respect of an aggregate principal amount of
Notes of less than $100,000, an Opinion of Counsel reasonably
acceptable to the Company that such transfer is in compliance with the
Securities Act; or
(D) if such Transfer Restricted Security is being transferred
in reliance on any other exemption from the registration requirements
of the Securities Act, a certification to that effect from such Holder
(in substantially the form of EXHIBIT B-1 hereto) and an Opinion of
Counsel from such Holder or the transferee reasonably acceptable to the
Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act.
The Trustee shall (or, if at any time the Trustee ceases to be
the Registrar, shall upon receipt from the Registrar of written notification
that the foregoing documentation has been received by the Registrar) cancel the
Definitive Note and increase or cause to be increased the aggregate principal
amount of the Global Note accordingly. If no part of the Global Note is then
outstanding, the Company shall execute and the Trustee shall authenticate a new
Global Note in the appropriate principal amount.
(f) AUTHENTICATION OF DEFINITIVE NOTES IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Note and a successor Depositary for the Global Note is not
appointed by the Company within 90 days after delivery of such notice;
or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Note in exchange for such Global Note. Neither
the Company nor the Trustee will be liable for any delay by the Depositary in
identifying the beneficial owners of Notes and the Company and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from the
Depositary for all purposes.
(g) LEGENDS.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Note certificate evidencing the Global Note and
Definitive Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the
following form:
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"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR (e) OR IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by the
Global Note) pursuant to Rule 144 under the Securities Act or pursuant
to an effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the Registrar shall permit
the Holder thereof to exchange such Transfer Restricted
Security for a Definitive Note that does not bear the legend
set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security upon receipt of
a certification from the transferring holder substantially in
the form of EXHIBIT B-1 hereto; and
(B) in the case of any Transfer Restricted
Security represented by the Global Note, such Transfer
Restricted Security shall not be required to bear the legend
set forth in (i) above, but shall continue to be subject to
the provisions of Section 2.06(a) hereof; PROVIDED, HOWEVER,
that with respect to any request for an exchange of a Transfer
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Restricted Security that is represented by the Global Note for
a Definitive Note that does not bear the legend set forth in
(i) above, which request is made in reliance upon Rule 144,
the Holder thereof shall certify in writing to the Registrar
that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of EXHIBIT B-2
hereto).
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by the
Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions pursuant to
Rule 144 under the Securities Act) in which the Holder or the
transferee provides an Opinion of Counsel to the Company and the
Registrar in form and substance reasonably acceptable to the Company
and the Registrar (which Opinion of Counsel shall also state that the
transfer restrictions contained in the legend are no longer
applicable):
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the Registrar shall permit
the Holder thereof to exchange such Transfer Restricted
Security for a Definitive Note that does not bear the legend
set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such Transfer
Restricted Security shall not be required to bear the legend
set forth in (i) above, but shall continue to be subject to
the provisions of Section 2.06(a) hereof.
(iv) Notwithstanding the foregoing, upon the consummation of
the Exchange Offer in accordance with the Registration Rights
Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate (i) an Unrestricted Global Note in aggregate
principal amount equal to the principal amount of the Restricted
Beneficial Interests tendered for acceptance by Persons that certify in
the applicable letter of transmittal that they (x) are acquiring the
Notes in the ordinary course of business, (y) are not participating in
the distribution of the Notes and (z) are not affiliates (as defined in
Rule 144) of the Company and accepted for exchange in the Exchange
Offer and (ii) Definitive Notes that do not bear the Private Placement
Legend in an aggregate principal amount equal to the principal amount
of the Definitive Notes accepted for exchange in the Exchange Offer,
subject to delivery by such Person of the certification described in
clause (i). Concurrently with the issuance of such Notes, the Trustee
shall cause the aggregate principal amount of the Restricted Global
Note to be reduced accordingly and the Company shall execute and the
Trustee shall authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the
appropriate principal amount.
(h) CANCELLATION AND/OR ADJUSTMENT OF THE GLOBAL NOTE. At such
time as all beneficial interests in the Global Note have been exchanged for
Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be
returned to or retained and cancelled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in the Global Note is exchanged for Definitive Notes, redeemed, repurchased or
cancelled, the principal amount of Notes represented by the Global Note shall be
reduced accordingly and an endorsement shall be made on the Global Note, by the
Trustee or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
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(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate the Global
Note and Definitive Notes upon the Company's order or at the
Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Definitive Notes and the Global Note issued upon any
registration of transfer or exchange of the Global Note or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Note or Definitive Note surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (c) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate the Global Note and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's
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requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in the Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, PROVIDED that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a PRO RATA basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by
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such Holder, even if not a multiple of $1,000, shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
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SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the
Notes will not be redeemable at the Company's option prior to February 15, 2003.
Thereafter, the Notes will be subject to redemption at any time at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on February 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003 104.063%
2004 102.708%
2005 101.354%
2006 and thereafter 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to February 15, 2001, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of the Notes
originally issued hereunder at a redemption price equal to 108.125% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of a
public offering of common stock of the Company; PROVIDED that at least 65% in
aggregate principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by the
Company and its Subsidiaries); and PROVIDED, further, that such redemption
occurs within 45 days of the date of the closing of such public offering.
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(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an offer to all Holders to purchase Notes
(an "ASSET SALE OFFER"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "OFFER PERIOD"). No
later than five Business Days after the termination of the Offer Period (the
"PURCHASE DATE"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of
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the Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a PRO RATA basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable
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interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate or agent of the Trustee, Registrar or co-registrar) where Notes may
be surrendered for registration of transfer or for exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the following as one such office
or agency of the Company in accordance with Section 2.03: SunTrust Bank, Central
Florida, National Association, C/O, First Chicago Trust Company of New York,
Corporate Trust, 8th Floor, 14 Wall Street, New York, New York, 10005.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company shall furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries (showing in reasonable detail, either on the face
of the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports, in each
case, within the time periods specified in the SEC's rules and regulations. In
addition, following consummation of the Exchange Offer, whether or not required
by the rules and regulations of the SEC, the Company shall file a copy of all
such information and reports with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. The Company shall at all times
comply with TIA /section/ 314(a).
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(b) For so long as any Notes remain outstanding, the Company and
the Subsidiary Guarantors shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Subsidiary Guarantor (to the extent that
such Subsidiary Guarantor is so required under the TIA) (shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company and the Subsidiary Guarantors have kept, observed, performed and
fulfilled their obligations under this Indenture, and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge the Company and the Subsidiary Guarantors have kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
are not in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Subsidiary Guarantors covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Company and each of the
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Subsidiary Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or to the
Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari passu with
or subordinated to the Notes, except a payment of interest or principal at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.09(a); and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the date
of this Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company since the date of this Indenture as a
contribution to its common equity capital or from the issue or sale of Equity
Interests of the Company (other than Disqualified Stock) or from the issue or
sale of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of the
Company), plus (iii) to the extent that any Restricted Investment that was made
after the date of this Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) 50% of any dividends
received by the Company or a Subsidiary Guarantor after the date of this
Indenture from an Unrestricted Subsidiary of the Company, to the extent that
such dividends were not otherwise included in Consolidated Net Income of the
Company for such period, plus (v)
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to the extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the date of this Indenture, the lesser of (A) the fair market
value of the Company's Investment in such Subsidiary as of the date of such
redesignation or (B) such fair market value as of the date on which such
Subsidiary was originally designated as an Unrestricted Subsidiary.
The foregoing provisions shall not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any PARI PASSU or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of PARI PASSU or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (v) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of this Indenture; PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $3.0 million in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; (vi) the making and consummation of (A) an Asset Sale
Offer to holders of Indebtedness PARI PASSU with or subordinate to the Notes in
accordance with Section 4.10 hereof, or (B) a Change of Control Offer to holders
of Indebtedness PARI PASSU with or subordinate to the Notes at a price not
greater than 101% of the principal amount of such Indebtedness in accordance
with provisions similar to those in Section 4.15 hereof; PROVIDED, that prior to
consummation of a Change of Control Offer with respect to subordinated
Indebtedness and concurrently with consummation of a Change of Control Offer
with respect to PARI PASSU Indebtedness, the Company shall have consummated the
Change of Control Offer with respect to the Notes; and (vii) the making of
additional Restricted Payments in an amount not to exceed $10.0 million.
The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments (to the
extent they otherwise fall within the definition thereof) at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this Section 4.07. All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the fair market value
of such Investments at the time of such designation. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment in excess of $10.0 million shall
be determined by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $15.0 million. Not
later than the date of making any Restricted Payment, the
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Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, together with a copy
of any fairness opinion or appraisal required hereunder.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (A) on its
Capital Stock or (B) with respect to any other interest or participation in, or
measured by, its profits or (ii) pay any indebtedness owed to the Company or any
of its Restricted Subsidiaries, (b) make loans or advances to the Company or any
of its Restricted Subsidiaries or (c) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions shall not apply to encumbrances or restrictions existing under or
by reasons of (i) Existing Indebtedness as in effect on the date hereof, (ii)
the Credit Facility as in effect on the date hereof and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Credit Facility as in effect on the date hereof, (iii) this Indenture and
the Notes, (iv) applicable law, (v) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in anticipation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (vi) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (vii)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (c) above on
the property so acquired, (viii) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (ix) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (x) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
Section 4.12 hereof that limits the right of the debtor to dispose of the assets
securing such Indebtedness, (xi) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business and (xii)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company shall not issue any Disqualified Stock and shall not
permit any of its Subsidiaries to issue any shares of preferred stock; PROVIDED,
HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock and the Subsidiary Guarantors may incur
Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional
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Indebtedness is incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.0 to 1 if such Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued on or prior to February 15,
2000, or would have been at least 2.25 to 1 if such Indebtedness is incurred or
such Disqualified Stock or preferred stock is issued thereafter, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom) as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the preceding paragraph will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(a) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness under the Credit Facility; PROVIDED that the aggregate principal
amount of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company and the
Subsidiary Guarantors thereunder) outstanding under the Credit Facility after
giving effect to such incurrence does not exceed an amount equal to $150.0
million less the aggregate amount of all Net Proceeds of Asset Sales applied to
repay such Indebtedness;
(b) the incurrence by the Company and its Restricted Subsidiaries
of the Existing Indebtedness;
(c) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(d) the incurrence by the Company or any of the Subsidiary
Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Company
or such Subsidiary Guarantor, in an aggregate principal amount not to exceed
$10.0 million at any time outstanding;
(e) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by this Indenture to be
incurred under the first paragraph of this Section 4.09 or clause (b) above;
(f) the incurrence by the Company or any of the Subsidiary
Guarantors of intercompany Indebtedness or preferred stock between or among the
Company and any of the Subsidiary Guarantors; PROVIDED, HOWEVER, that (A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness or preferred stock being held by a Person other than the Company or
a Subsidiary Guarantor and (B) any sale or other transfer of any such
Indebtedness or Preferred Stock to a Person that is not either the Company or a
Subsidiary Guarantor shall be deemed, in each case, to constitute an incurrence
of such Indebtedness or an issuance of such preferred stock by the Company or
such Subsidiary Guarantor, as the case may be, that was not permitted by this
clause (f);
(g) the incurrence by the Company or any of the Subsidiary
Guarantors of Hedging Obligations;
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(h) the guarantee by the Company or any of the Subsidiary
Guarantors of Indebtedness of the Company or a Subsidiary Guarantor that was
permitted to be incurred by another provision of this Section 4.09;
(i) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (i); and
(j) the incurrence by the Company or any of the Subsidiary
Guarantors of additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (j), not to exceed $30.0 million.
For purposes of determining compliance with this Section 4.09,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (a) through (j) above or
is entitled to be incurred pursuant to the first paragraph of this Section 4.09,
the Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this Section 4.09. Accrual of interest, the
accretion or amortization of original issue discount, the payment of interest on
any Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified stock in the form of additional shares
of the same class of Disqualified Stock shall not be deemed to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of this
Section 4.09; PROVIDED, in each case, that the amount thereof is included in
Fixed Charges of the Company as accrued.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to consummate an Asset Sale unless (i) the Company (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
Equity Interests issued or sold or otherwise disposed of and (ii) at least 80%
of the consideration received therefor by the Company or such Restricted
Subsidiary is in the form of cash; provided, that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 270 days after receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay
or cause to be repaid Senior Debt, or (b) to the acquisition of a majority of
the assets of, or a majority of the Voting Stock of, another Permitted Business,
the making of a capital expenditure or the acquisition of other long-term assets
that are used or useful in a Permitted Business. Pending the final application
of any such Net Proceeds, the Company may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from such Asset Sale that are not
finally applied or invested as provided in the
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first sentence of this paragraph will be deemed to constitute "EXCESS PROCEEDS."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company
shall be required to make an offer to all Holders of Notes and all holders of
PARI PASSU Indebtedness containing provisions similar to those set forth in
Section 3.09 hereof with respect to offers to purchase or redeem with the
proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and such other Indebtedness that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in Section 3.09 hereof and such other Indebtedness. To the
extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by this Indenture. If the aggregate principal amount of Notes and
such other Indebtedness tendered into such Asset Sale Offer surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and such other Indebtedness to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero. In determining the fair market value of any assets or Equity
Interests issued, sold or otherwise disposed of, such determination shall be
evidenced by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee if such fair market value exceeds $15.0
million.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (a) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
(i) with respect to any Affiliate Transaction or series of related Affiliated
Transactions involving aggregate consideration in excess of $5.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (ii) with respect to any
Affiliate Transaction or series of related Affiliated Transactions involving
aggregate consideration in excess of $10.0 million (or, in the case of a
purchase of inventory from Japan Fleet Service (Singapore) Pte Ltd. in the
ordinary course of business, $15.0 million), an opinion as to the fairness to
the Holders of such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions: (i) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(ii) transactions between or among the Company and/or the Subsidiary Guarantors,
(iii) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of the Company, (iv) Restricted Payments that are permitted by
Section 4.07, and (v) any transactions undertaken pursuant to any contractual
obligations in existence on the date of this Indenture (as in effect on such
date) as described in the Offering Memorandum under the caption "Certain
Relationships and Related Transactions."
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien securing Indebtedness or trade payables on any asset now
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owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to the Company and its Subsidiaries taken
as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (a "Change of Control Offer") to each Holder to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase (the "Change of Control Payment"). Within 10 days
following any Change of Control, the Company shall mail a notice to each Holder
stating: (1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered will be accepted for payment; (2) the
purchase price and the purchase date, which shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"); (3) that any Note not tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (5) that Holders electing to have any Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes in connection with a Change of Control.
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(b) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered payment in an amount equal to the purchase price for the Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; PROVIDED, that each such new Note
shall be in a principal amount of $1,000 or an integral multiple thereof.
(c) Prior to complying with the provisions of this Section 4.15,
but in any event within 90 days following a Change of Control, the Company shall
either repay or cause to be repaid all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of Notes required by this Section 4.15. The
Company shall publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
(d) The Change of Control provisions described above shall be
applicable whether or not any other provisions of this Indenture are applicable.
Notwithstanding anything to the contrary in this Section 4.15, the Company shall
not be required to make a Change of Control Offer upon a Change of Control if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this Section 4.15 and
Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company shall not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the Notes, and
(ii) no Subsidiary Guarantor shall incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinated or junior in
right of payment to the Senior Debt of such Subsidiary Guarantor and senior in
any respect in right of payment to the Subsidiary Guarantees.
SECTION 4.17. ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries shall
acquire or create another Subsidiary after the date of this Indenture (other
than an Unrestricted Subsidiary properly designated as such), then such newly
acquired or created Subsidiary shall become a Subsidiary Guarantor by executing
a Supplemental Indenture in the form attached hereto as Exhibit E and deliver an
Opinion of Counsel to the Trustee to the effect that such Supplemental Indenture
has been duly authorized, executed and delivered by such Subsidiary and
constitutes a valid and binding obligation of such Subsidiary, enforceable
against such Subsidiary in accordance with its terms (subject to customary
exceptions).
SECTION 4.18. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or
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the Notes unless such consideration is offered to be paid or is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation) or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Notes and this Indenture
pursuant to a supplemental Indenture in a form reasonably satisfactory to the
Trustee, (iii) immediately after such transaction, no Default or Event of
Default exists and (iv) except in the case of a merger of the Company with or
into a Subsidiary Guarantor, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) shall have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) shall, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
PROVIDED, HOWEVER, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT
Each of the following constitutes an Event of Default: (a)
default for 30 days in the payment when due of interest on, or Liquidated
Damages with respect to, the Notes (whether or not prohibited by Article 10 or
12 hereof); (b) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by Article 10 or 12 hereof); (c)
failure by the Company or any of its Subsidiaries to comply with Sections 4.07,
4.09, 4.10 and 4.15; (d) failure by the Company or any of its Subsidiaries for
60 days after notice to comply with any of its other agreements in this
Indenture or the Notes; (e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) results in the acceleration
of such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or more; (f)
failure by the Company or any of its Subsidiaries to pay final judgments
(including foreign judgments only to the extent enforcement thereof is sought in
the United States or in any foreign jurisdiction where the Company owns assets
of $10.0 million or more) aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (g) the
Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii)
consents to the entry of an order for relief against it in an involuntary case,
(ii) consents to the appointment of a Custodian of it or for all or
substantially all of its property, (iii) makes a general assignment for the
benefit of its creditors, or (iv) generally is not paying its debts as they
become due; (h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or any of
its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary in an involuntary case; (ii)
appoints a Custodian of the Company or any of its Significant Subsidiaries or
any group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary or for all or substantially all of the property of the Company or any
of its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or (iii) orders the
liquidation of the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary; and the order or decree remains unstayed and in effect for 60
consecutive days; or (i) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from any event described
in Section 6.01(g) or (h), all outstanding Notes will become due and payable
without further action
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or notice. Holders of the Notes may not enforce this Indenture or the Notes
except as provided herein. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable, to the extent permitted by law upon acceleration of the Notes.
If an Event of Default occurs prior to February 15, 2003 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding the prohibition on redemption of the Notes prior
to such date, then, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable in an amount, for each of the
years beginning on February 15 of the years set forth below, as set forth below
(expressed as a percentage of the amount that would otherwise be due but for the
provisions of this sentence), plus accrued interest and Liquidated Damages, if
any, to the date of payment:
YEAR PERCENTAGE
---- ----------
1998 110.846%
1999 109.491%
2000 108.136%
2001 106.781%
2002 105.418%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(PROVIDED, HOWEVER, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this
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Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only
if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such
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further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
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SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
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(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
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SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA /section/ 313(a) (but if
no event described in TIA /section/ 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA /section/ 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA /section/ 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA /section/
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure
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by the Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA /section/
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
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If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, PROVIDED all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA /section/ 310(a)(1), (2) and (5). The Trustee is subject to
TIA /section/ 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA /section 311(a), excluding any
creditor relationship listed in TIA /section/ 311(b). A Trustee who has resigned
or been removed shall be subject to TIAss. 311(a) to the extent indicated
therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
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SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages on such
Notes when such payments are due, (b) the Company's obligations with respect to
such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article 8, the Company may exercise its option under this
Section 8.02 notwithstanding the prior exercise of its option under Section 8.03
hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, Article 5 and Section 11.03 hereof
with respect to the outstanding Notes on and after the date the conditions set
forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and
the Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
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In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Section 6.01(g) or 6.01(h) hereof is concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that on the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or
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interest on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company,
the Subsidiary Guarantors and the Trustee may amend or supplement this
Indenture, the Subsidiary Guarantees or the Notes without the consent of any
Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Notes by a successor to the Company pursuant to Article 5
hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof; or
(g) to allow any Subsidiary Guarantor to execute a supplemental
indenture and/or a Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Subsidiary Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company,
the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture
(including Sections 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and
the Notes with the consent of the Holders of at least a majority in principal
amount of the Notes (including Additional Notes, if any) then outstanding voting
as a single class (including consents
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obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture, the Subsidiary Guarantees or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including Additional Notes, if
any) voting as a single class (including consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes). Section 2.08
hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in
the execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture directly affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes (including
Additional Notes, if any) then outstanding voting as a single class may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver under this Section 9.02 may not (with respect to any Notes
held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the Notes except
as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes (including Additional Notes, if
any) and a waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
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(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (other
than a payment required pursuant to Sections 3.09, 4.10 and 4.15 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions;
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 13.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
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ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE
The Company agrees, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by the Notes is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt of the Company (whether outstanding on
the date hereof or hereafter created, incurred, assumed or guaranteed), and that
the subordination is for the benefit of the holders of such Senior Debt.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities:
(a) holders of Senior Debt of the Company shall be entitled to
receive payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before Holders of the Notes shall be
entitled to receive any payment with respect to the Notes (except that Holders
may receive and retain (i) Permitted Junior Securities and (ii) payments and
other distributions made from any defeasance trust created pursuant to Section
8.01 hereof); and
(b) until all Obligations with respect to Senior Debt of the
Company (as provided in subsection (1) above) are paid in full, any distribution
to which Holders would be entitled but for this Article 10 shall be made to
holders of such Senior Debt (except that Holders of Notes may receive (i)
Permitted Junior Securities and (ii) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof), as their
interests may appear.
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company shall not make any payment upon or in respect of
the Notes (except in Permitted Junior Securities or from any defeasance trust
created pursuant to Section 8.01 hereof) if:
(a) a default in the payment of any principal of, premium, if any,
or interest on Designated Senior Debt of the Company occurs and is continuing
beyond any applicable period of grace; or
(b) any other default occurs and is continuing with respect to
Designated Senior Debt of the Company that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from the
Company or the holders of any Designated Senior Debt. Payments on the Notes may
and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt of the Company has
been accelerated. No new Payment Blockage Notice shall be effective for purposes
of this Section unless and until (i) at least 360 days shall have elapsed since
the effectiveness of the
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immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice unless such
default shall have been waived for a period of not less than 90 days.
SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the Company
of the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any
payment of any Obligations with respect to the Notes at a time when the Trustee
or such Holder, as applicable, has actual knowledge that such payment is
prohibited by Section 10.03 hereof, such payment shall be held by the Trustee or
such Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt of the Company
as their interests may appear or their Representative under this Indenture or
other agreement (if any) pursuant to which Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt of the Company remaining unpaid to the
extent necessary to pay such Obligations in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt of the Company.
With respect to the holders of Senior Debt of the Company, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt of the Company, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Debt of the Company shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt of the Company as provided in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Debt of the Company is paid in full and until
the Notes are paid in full, Holders of Notes shall be subrogated (equally and
ratably with all other Indebtedness PARI PASSU with the Notes) to the rights of
holders of Senior Debt of the Company to receive distributions applicable to
Senior Debt of the Company to the extent that distributions otherwise payable to
the Holders of Notes have been applied to the payment of Senior Debt of the
Company. A distribution made under this Article 10 to holders of Senior Debt of
the Company that otherwise would have been made to Holders of Notes is not, as
between the Company and Holders, a payment by the Company on the Notes.
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SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of
Notes and holders of Senior Debt of the Company. Nothing in this Indenture
shall:
(a) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay principal
of and interest on the Notes in accordance with their terms;
(b) affect the relative rights of Holders of Notes and creditors
of the Company other than their rights in relating to holders of Senior Debt of
the Company; or
(c) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt of the Company to receive distributions and
payments otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt of the Company to
enforce the subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by the Company or any Holder or by the
failure of the Company or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt of the Company, the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt of
the Company and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
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The Trustee in its individual or any other capacity may hold
Senior Debt of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, the Representatives of the Designated Senior Debt,
including debt under the Credit Facility, are hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.13. AMENDMENTS.
(a) The provisions of this Article 10 shall not be amended or
modified without the written consent of the holders of all Senior Debt of the
Company.
(b) Any amendment to the provisions of this Article 10 shall
require the consent of the Holders of at least 75% in aggregate amount of Notes
then outstanding if such amendment would adversely affect the legal rights of
Holders.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01. GUARANTEE
Subject to this Article 11, each of the Subsidiary Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal of, premium, if any, interest and Liquidated Damages, if
any, on the Notes will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the overdue principal,
premium, if any, and to the extent permitted by law, interest on any interest,
if any, and Liquidated Damages, if any on the Notes, and all other obligations
of the Company to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, redemption or otherwise. Failing
payment when due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Subsidiary Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Subsidiary Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.
The Subsidiary Guarantors hereby agree that their obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of
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a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenant that this
Subsidiary Guarantee shall not be discharged except by complete performance of
the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Subsidiary Guarantors or any custodian,
trustee, liquidator or other similar official acting in relation to either the
Company or the Subsidiary Guarantors, any amount paid by either to the Trustee
or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it shall not be entitled
to any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article 6 hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
this Subsidiary Guarantee. The Subsidiary Guarantors shall have the right to
seek contribution from any non-paying Subsidiary Guarantor so long as the
exercise of such right does not impair the rights of the Holders under the
Guarantee.
SECTION 11.02. GUARANTEE LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY
Each Subsidiary Guarantor, and by its acceptance of Notes,
each Holder, hereby confirms that it is the intention of all such parties that
the Subsidiary Guarantee of such Subsidiary Guarantor not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to any Subsidiary Guarantee. To
effectuate the foregoing intention, the Trustee, the Holders and the Subsidiary
Guarantors hereby irrevocably agree that the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee and this Article 11 shall be limited to
the maximum amount as will, after giving effect to such maximum amount and all
other contingent and fixed liabilities of such Subsidiary Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under this Article 11, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent transfer or conveyance.
SECTION 11.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section
11.01, each Subsidiary Guarantor hereby agrees that a notation of such
Subsidiary Guarantee substantially in the form included in Exhibit D shall be
endorsed by an Officer of such Subsidiary Guarantor on each Note authenticated
and delivered by the Trustee and that this Indenture shall be executed on behalf
of such Subsidiary Guarantor by its President or one of its Vice Presidents.
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Each Subsidiary Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary
Guarantors.
In the event that the Company creates or acquires any new
Subsidiaries subsequent to the date of this Indenture, if required by Section
4.17 hereof, the Company shall cause such Subsidiaries to execute supplemental
indentures to this Indenture and Subsidiary Guarantees in accordance with
Section 4.17 hereof and this Article 11, to the extent applicable.
SECTION 11.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Subsidiary Guarantor may consolidate with or merge with or
into (whether or not such Subsidiary Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Subsidiary
Guarantor unless:
(a) except in the case of a merger of a Subsidiary Guarantor with
or into the Company or another Subsidiary Guarantor but subject to Section 11.05
hereof, the Person formed by or surviving any such consolidation or merger (if
other than such Subsidiary Guarantor) unconditionally assumes all the
obligations of such Subsidiary Guarantor, pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee, under the Notes,
this Indenture and the Registration Rights Agreement and the Subsidiary
Guarantee on the terms set forth herein or therein;
(b) immediately after giving effect to such transaction, no
Default or Event of Default exists;
(c) except in the case of a merger of a Subsidiary Guarantor with
or into the Company or another Subsidiary Guarantor, such Subsidiary Guarantor,
or any Person formed by or surviving any such consolidation or merger, would
have Consolidated Net Worth (immediately after giving effect to such
transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; and
(d) except in the case of a merger of a Subsidiary Guarantor with
or into the Company or another Subsidiary Guarantor, the Company would be
permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary
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Guarantor, such successor Person shall succeed to and be substituted for the
Subsidiary Guarantor with the same effect as if it had been named herein as a
Subsidiary Guarantor. Such successor Person thereupon may cause to be signed any
or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
SECTION 11.05. RELEASES FOLLOWING SALE OF ASSETS.
In the event of (a) a sale or other disposition of all of the
assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise; (b) a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, or (c) such Subsidiary Guarantor is designated as an
Unrestricted Subsidiary in accordance with this Indenture, then such Subsidiary
Guarantor (in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Subsidiary
Guarantor or designation as Unrestricted Subsidiary) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor) will be released
and relieved of any obligations under its Subsidiary Guarantee; PROVIDED that,
in the case of a sale or other disposition, the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
this Indenture, including without limitation Section 4.10 hereof. Upon delivery
by the Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was made by the
Company in accordance with the applicable provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Subsidiary
Guarantor from its obligations under its Subsidiary Guarantee.
Any Subsidiary Guarantor not released from its obligations
under its Subsidiary Guarantee shall remain liable for the full amount of
principal of and interest on the Notes and for the other obligations of any
Subsidiary Guarantor under this Indenture as provided in this Article 11.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
Each Subsidiary Guarantor agrees, and each Holder by accepting
a Note agrees, that all Obligations under the Subsidiary Guarantees shall be
subordinated in right of payment, to the extent and in the manner provided in
this Article 12, to the prior payment in full of all Senior Debt of such
Subsidiary Guarantor, whether outstanding on the date hereof or thereafter
incurred, that the subordination is for the benefit of, and shall be enforceable
directly by, the holders of the Senior Debt of such Subsidiary Guarantor
(whether outstanding on the date hereof or hereafter created, incurred assumed
or guaranteed) and that the subordination is for the benefit of the holders of
such Senior Debt.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of any Subsidiary Guarantor
in a liquidation or dissolution of such Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding
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relating to such Subsidiary Guarantor or its property, an assignment for the
benefit of creditors or any marshalling of such Subsidiary Guarantor's assets
and liabilities:
(a) the holders of Senior Debt of such Subsidiary Guarantor will
be entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt) before the Holders will be
entitled to receive any payment with respect to the respective Subsidiary
Guarantees (except that Holders may receive and retain (i) Permitted Junior
Securities and (ii) payment and other distributions made from any defeasance
trust created pursuant to Section 8.01 hereof); and
(b) and until all Obligations with respect to Senior Debt of any
Subsidiary Guarantor (as provided in subsection (1) above) are paid in full, any
distribution to which the Holders would be entitled but for this Article 12
shall be made to the holders of Senior Debt of such Subsidiary Guarantor (except
that Holders may receive and retain Permitted Junior Securities and payments
made from the defeasance trust created pursuant to Section 8.01 hereof).
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT.
No Subsidiary Guarantor shall make any payment upon or in
respect of the Subsidiary Guarantees (except in Permitted Junior Securities or
from any defeasance trust created pursuant to Section 8.01 hereof) if:
(a) a default in the payment of the principal of, premium, if any,
or interest on Designated Senior Debt of such Subsidiary Guarantor occurs and is
continuing beyond any applicable period of grace; or
(b) any other default occurs and is continuing with respect to
Designated Senior Debt of such Subsidiary Guarantor that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a Payment Blockage Notice from such Subsidiary
Guarantor or the holders of any Designated Senior Debt. Payments on the
Subsidiary Guarantees may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt of such Subsidiary Guarantor has been accelerated. No new Payment
Blockage Notice shall be effective for purposes of this Section unless and until
(i) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 consecutive days.
SECTION 12.04. ACCELERATION OF SUBSIDIARY GUARANTEES.
If payment of any Subsidiary Guarantee is accelerated because
of an Event of Default, the Subsidiary Guarantor shall promptly notify the
Representatives of Senior Debt of such Subsidiary Guarantor of the acceleration.
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SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Subsidiary
Guarantee receives any payment of any Obligations with respect to a Subsidiary
Guarantee at a time when such payment is prohibited by Section 12.03 hereof,
such payment shall be held by the Trustee or such Holder, in trust for the
benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Debt of such Subsidiary Guarantor as their
interests may appear or their Representative under this Indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt of such Subsidiary Guarantor remaining
unpaid to the extent necessary to pay such Obligations in full in accordance
with their terms, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt of such Subsidiary Guarantor.
With respect to the holders of Senior Debt of any Subsidiary
Guarantor, the Trustee undertakes to perform only such obligations on the part
of the Trustee as are specifically set forth in this Article 12, and no implied
covenants or obligations with respect to the holders of Senior Debt of such
Subsidiary Guarantor shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt of any Subsidiary Guarantor.
SECTION 12.06. NOTICE BY SUBSIDIARY GUARANTOR.
Each Subsidiary Guarantor shall promptly notify the Trustee
and the Paying Agent of any facts known to such Subsidiary Guarantor that would
cause a payment of any Obligations with respect to its Subsidiary Guarantee to
violate this Article 12, which notice shall specifically refer to this Article
12, but failure to give such notice shall not affect the subordination of any
Subsidiary Guarantee to the Senior Debt of such Subsidiary Guarantor as provided
in this Article 12.
SECTION 12.07. SUBROGATION.
After all Senior Debt of the Subsidiary Guarantors is paid in
full and until the Notes are paid in full, Holders of the Subsidiary Guarantees
shall be subrogated (equally and ratably with all pari passu indebtedness) to
the rights of holders of Senior Debt of the Subsidiary Guarantors to receive
distributions applicable to Senior Debt of the Subsidiary Guarantors to the
extent that distributions otherwise payable to the Holders of the Subsidiary
Guarantees have been applied to the payment of Senior Debt of the Subsidiary
Guarantors. A distribution made under this Article to holders of Senior Debt of
the Subsidiary Guarantors that otherwise would have been made to Holders of the
Subsidiary Guarantees is not, as between the Subsidiary Guarantors and Holders
of the Subsidiary Guarantees, a payment by the Subsidiary Guarantors on the
Subsidiary Guarantees.
SECTION 12.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the
Subsidiary Guarantees and holders of Senior Debt of the Subsidiary Guarantors.
Nothing in this Indenture shall:
(a) impair, as between the Subsidiary Guarantors and Holders of
the Subsidiary Guarantees, the obligations of the Subsidiary Guarantors, which
are absolute and unconditional, to pay principal of and interest on the Notes in
accordance with the terms of the Subsidiary Guarantees;
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(b) affect the relative rights of Holders of the Subsidiary
Guarantees and creditors of any Subsidiary Guarantor other than their rights in
relation to holders of Senior Debt; or
(c) prevent the Trustee or any Holder of the Subsidiary Guarantees
from exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders of the Subsidiary
Guarantees.
If any Subsidiary Guarantor fails because of this Article to
pay principal of or interest on a Note on the due date in accordance with the
terms of the Subsidiary Guarantees, the failure is still a Default or Event of
Default.
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY SUBSIDIARY GUARANTOR.
No right of any holder of Senior Debt of any Subsidiary
Guarantor to enforce the subordination of the Indebtedness evidenced by the
Subsidiary Guarantees shall be impaired by any act or failure to act by such
Subsidiary Guarantor or any Holder or by the failure of such Subsidiary
Guarantor or any Holder to comply with this Indenture.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt of any Subsidiary Guarantor, or any of
them, may, at any time and from time to time, without the consent of or notice
to the Holders of the Subsidiary Guarantees, without incurring any liabilities
to any Holder of any Subsidiary Guarantees and without impairing or releasing
the subordination and other benefits provided in this Indenture or the
obligations of the Holders of the Subsidiary Guarantees to the holders of the
Senior Debt of such Subsidiary Guarantor, even if any right of reimbursement or
subrogation or other right or remedy of any Holder of Subsidiary Guarantees is
affected, impaired or extinguished thereby, do any one or more of the following:
(a) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder, or
any liability incurred directly or indirectly in respect thereof or otherwise
amend, renew, exchange, extend, modify, increase or supplement in any manner any
Senior Debt or any instrument evidencing or guaranteeing or securing the same or
any agreement under which Senior Debt is outstanding;
(b) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly in
respect thereof;
(c) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or any
liability incurred directly or indirectly in respect thereof and apply any sums
by whomsoever paid and however realized to any liability (including, without
limitation, Senior Debt) in any manner or order; and
(d) fail to take or to record or to otherwise perfect, for any
reason or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any right or
remedy against any obligor or any guarantor or any other person, elect any
remedy and otherwise deal freely with any obligor and any security for the
Senior Debt or any liability of any obligor to such holder or any liability
incurred directly or indirectly in respect thereof.
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SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt of any Subsidiary Guarantor, the distribution may be made
and the notice given to their Representative.
Upon any payment or distribution of assets of any Subsidiary
Guarantor referred to in this Article 12, the Trustee and the Holders of the
Subsidiary Guarantees shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction so long as such order or decree recognizes
the provisions of this Article 12 or upon any certificate of such Representative
or of the liquidating trustee or agent or other Person making any distribution
to the Trustee or to the Holders of the Subsidiary Guarantees for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt of any Subsidiary Guarantor and other Indebtedness of
the Company or any Subsidiary Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes or the Subsidiary Guarantees, unless the Trustee
shall have received at its Corporate Trust Office at least five Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Notes or the Subsidiary
Guarantees to violate this Article 12. Only the Company, the Subsidiary
Guarantors or a Representative may give the notice. Nothing in this Article 12
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt of any Subsidiary Guarantor with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights.
SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 12, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time of such claim, the Representatives of the Designated Senior Debt, including
debt under the Credit Facility, are hereby authorized to file an appropriate
claim for and on behalf of the Holders of the Notes.
SECTION 12.13. AMENDMENTS.
(a) The provisions of this Article 12 shall not be amended or
modified without the written consent of the holders of all Senior Debt of the
Subsidiary Guarantors.
(b) Any amendment to the provisions of this Article 12 shall
require the consent of the Holders of at least 75% in aggregate amount of Notes
then outstanding if such amendment would adversely affect the rights of the
Holders of Subsidiary Guarantees.
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ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA /section/ 318(c), the imposed duties
shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Company, any Subsidiary
Guarantor or the Trustee to the others is duly given if in writing and delivered
in Person or mailed by first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the others' address
If to the Company and/or any Subsidiary Guarantor:
Aviation Sales Company
6905 N.W. 25th Street
Miami, FL 33122
Telecopier No.: (305) 599-6610
Attention: Joseph E. Civiletto
With a copy to:
Akerman, Senterfitt & Edison, P.A.
SunTrust International Center, 28th Floor
One Southeast Third Avenue
Miami, FL 33131
Telecopier No.: (305) 374-5095
Attention: Philip B. Schwartz
If to the Trustee:
SunTrust Bank, Central Florida, National Association
Corporate Trust Department
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Telecopier No.: (404) 237-5299
Attention: Theresa Hawkins
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With a copy to:
Maguire, Voorhis & Wells, P.A.
SunTrust Bank Center, Suite 30
200 South Orange Avenue
Orlando, FL 32802
Telecopier No. (407) 872-6207
Attention: Jonathan D. Rich
The Company, any Subsidiary Guarantor or the Trustee, by
notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss. 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA /section/ 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
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(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA /section/ 314(a)(4)) shall comply with the provisions
of TIA /section/ 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Subsidiary Guarantor, as such,
shall have any liability for any obligations of the Company or such Subsidiary
Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
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SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Subsidiary Guarantors in
this Indenture and the Notes shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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Aviation Sales Company
By:
------------------------------------------------
Name:
Title:
Aviation Sales Operating Company
By:
------------------------------------------------
Name:
Title:
Aviation Sales bearings Company
By:
------------------------------------------------
Name:
Title:
Aviation Sales Leasing Company
By:
------------------------------------------------
Name:
Title:
Aviation Sales Finance Company
By:
------------------------------------------------
Name:
Title:
Aviation Sales Manufacturing & Repair Company
By:
------------------------------------------------
Name:
Title:
S-1
<PAGE>
AVS/Kratz-Wilde Machine Company
By:
------------------------------------------------
Name:
Title:
Aerocell Structures, Inc.
By:
------------------------------------------------
Name:
Title:
Apex Manufacturing, Inc.
By:
------------------------------------------------
Name:
Title:
SunTrust Bank, Central Florida,
National Association
By:
-----------------------------------
Name:
Title:
Attest:
-----------------------------------
Authorized Signatory
Date:
S-2
<PAGE>
EXHIBIT A
(FACE OF NOTE)
81/8% SENIOR SUBORDINATED NOTES DUE 2008
No.__________________
CUSIP No. 053672 $________________
AVIATION SALES COMPANY
promises to pay to ___________________ or registered assigns, the principal sum
of ________________________ Dollars on February 15, 2008.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Dated: February 17, 1998
AVIATION SALES COMPANY
By:
-----------------------------------------------
Name: Dale S. Baker
Title: President and Chief Executive Officer
This is one of the
Global Notes referred to in the
within-mentioned Indenture:
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
as Trustee
By:
-----------------------------------
Authorized Signatory
A-1
<PAGE>
(Back of Note)
8-1/8% Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for
Notes in definitive form, this Note may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC") to
the issuer or its agent for registration of transfer, exchange or payment, and
unless any certificate issued is registered in the name of Cede & Co. or such
other name as may be requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or such other entity as may be requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered
owner hereof, Cede & Co., has an interest herein.]1/
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO
AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR (e) OR IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."2/
- ----------
1/ THIS PARAGRAPH SHOULD BE INCLUDED ONLY IF THE SENIOR SUBORDINATED NOTE
IS ISSUED IN GLOBAL FORM.
2/ THIS PARAGRAPH SHOULD BE REMOVED UPON THE EXCHANGE OF SENIOR
SUBORDINATED NOTES FOR NEW SENIOR SUBORDINATED NOTES IN THE EXCHANGE
OFFER OR UPON THE REGISTRATION OF THE SENIOR SUBORDINATED NOTES
PURSUANT TO THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT.
A-2
<PAGE>
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Aviation Sales Company, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 8-1/8% per annum from February 17, 1998 until maturity and shall
pay the Liquidated Damages payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on February 15 and August 15 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of issuance; PROVIDED that if there is no existing Default in the payment
of interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that
the first Interest Payment Date shall be August 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if any, to the
Persons who are registered Holders of Notes at the close of business on the
February 1 or August 1 next preceding the Interest Payment Date, even if such
Notes are cancelled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. The Notes will be payable as to principal, premium and
Liquidated Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages on, the Global Note and all other Notes
the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, SunTrust Bank,
Central Florida, National Association, the Trustee under the Indenture, will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an
Indenture dated as of February 17, 1998 ("Indenture") among the Company, the
Subsidiary Guarantors and the Trustee. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code /sections/ 77aaa-77bbbb).
The Notes are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. To the extent any
provision of this Note conflicts with the express provisions of the Indenture,
the provisions of the Indenture shall govern and be controlling. The Notes are
general unsecured obligations of the Company limited to $250.0 million in
aggregate principal amount.
A-3
<PAGE>
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this
Paragraph 5, the Notes will not be redeemable at the Company's option prior to
February 15, 2003. Thereafter, the Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 15, 1998 of the
years indicated below:
YEAR PERCENTAGE
---- ----------
2003 104.063%
2004 102.708%
2005 101.354%
2006 and thereafter 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of
this Paragraph 5, at any time prior to February 15, 2001, the Company may on any
one or more occasions redeem up to 35% of the aggregate principal amount of the
Notes originally issued hereunder at a redemption price equal to 108.125% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of a
public offering of common stock of the Company; PROVIDED that at least 65% in
aggregate principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by the
Company and its Subsidiaries); and PROVIDED, further, that such redemption
occurs within 45 days of the date of the closing of such public offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the
Company shall make an offer (a "CHANGE OF CONTROL OFFER") to each Holder to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each Holder's Notes at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (the "CHANGE OF CONTROL PAYMENT"). Within 10
days following any Change of Control, the Company shall mail a notice to each
Holder as required by the Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds
$10.0 million, the Company shall be required to make an offer to all Holders of
Notes and all holders of pari passu Indebtedness containing provisions similar
to those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and such other Indebtedness that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture and such other Indebtedness. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal
A-4
<PAGE>
amount of Notes and such other Indebtedness tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class, and any existing default or compliance
with any provision of the Indenture, the Subsidiary Guarantees or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including Additional Notes, if any) voting as a
single class. Without the consent of any Holder of a Note, the Indenture, the
Subsidiary Guarantees or the Notes may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's or Subsidiary Guarantor's obligations to Holders of the Notes in
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act, to provide for
the issuance of Additional Notes in accordance with the limitations set forth in
the Indenture, or to allow any Subsidiary Guarantor to execute a supplemental
indenture to the Indenture and/or a Subsidiary Guarantee with respect to the
Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on, or Liquidated
Damages with respect to the Notes; (ii) default in payment when due of principal
of or premium, if any, on the Notes when (whether or not prohibited by Article
10 or 12 of the Indenture); (iii) failure by the Company or any of its
subsidiaries to comply with Section 4.07, 4.09, 4.10 or 4.15 of the Indenture;
(iv) failure by the Company or any of its Subsidiaries for 60 days after notice
to comply with certain other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument
A-5
<PAGE>
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments (including
foreign judgments only to the extent enforcement thereof is sought in the United
States or in any foreign jurisdiction where the Company owns assets of $10.0
million or more) aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No past, present or
future director, officer, employee, incorporator or stockholder, of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, the
Subsidiary Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
A-6
<PAGE>
16. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders of Notes under the
Indenture, Holders of Transfer Restricted Securities shall have all the rights
set forth in the Registration Rights Agreement dated as of February 17, 1998,
among the Company and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security Identification Procedures, the
Company has caused CUSIP numbers to be printed on the Notes and the Trustee may
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Aviation Sales Company
6905 N.W. 25th Street
Miami, FL 33122
Attention: Joseph E. Civiletto
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:____________________________
Your Signature:_____________________________________________
(Sign exactly as your name appears on the face of this Note)
SIGNATURE GUARANTEE_________________________________________
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $________
Date:__________________________
Your Signature:_______________________________________________
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE NOTE)
TAX IDENTIFICATION NO:________________________________________
SIGNATURE GUARANTEE:__________________________________________
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE3/
The following exchanges of a part of this Global Note for
other Notes have been made:
<TABLE>
Amount of Principal Amount Signature of
Amount of increase in of this Global Note authorized
decrease in Principal Amount following such officer of Trustee
Date of Principal Amount of this decrease or Note
Exchange of this Global Note Global Note (or increase) Custodian
-------- ------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
3/ THIS SHOULD BE INCLUDED ONLY IF THE SENIOR SUBORDINATED NOTE IS ISSUED IN
GLOBAL FORM.
A-10
<PAGE>
EXHIBIT B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE NOTES FOR OTHER DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN THE GLOBAL NOTE
(Pursuant to Section 2.06(b) or (e) of the Indenture)
SunTrust Bank, Central Florida
National Association
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Re: 8-1/8% Senior Subordinated Notes due 2008 of Aviation
Sales Company
Reference is hereby made to the Indenture, dated as of
February 17, 1998 (the "Indenture"), among Aviation Sales Company, a Delaware
corporation (the "COMPANY"), Aviation Sales Operating Company, Aviation Sales
Bearings Company, Aviation Sales Leasing Company, Aviation Sales Manufacturing &
Repair Company, Aviation Sales Finance Company, AVS/Kratz-Wilde Machine Company,
Aerocell Structures, Inc. and Apex Manufacturing, Inc., (each a "SUBSIDIARY
GUARANTOR" and together with any Subsidiary of the Company that executes a
Subsidiary Guarantee substantially in the form of EXHIBIT D to the Indenture,
the "SUBSIDIARY GUARANTORS") and SunTrust Bank, Central Florida, National
Association as trustee (the "TRUSTEE"). Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
This relates to $_____ principal amount of Senior Subordinated
Notes which are evidenced by one or more Definitive Notes in the name of________
(the "Transferor"). The Transferor has requested an exchange or transfer of such
Definitive Note(s) in the form of an equal principal amount of Senior
Subordinated Notes evidenced by (a) one or more Definitive Notes, to be
delivered to the Transferor or, in the case of a transfer of such Senior
Subordinated Notes, to such Person as the Transferor instructs the Trustee or
(b) a beneficial interest in the Global Note.
In connection with such request and in respect of the Senior
Subordinated Notes surrendered to the Trustee herewith for exchange (the
"Surrendered Senior Subordinated Notes"), the Holder of such Surrendered Senior
Subordinated Notes hereby certifies that:
[CHECK ONE]
[ ] 1. the Surrendered Senior Subordinated Notes are being acquired
for the Transferor's own account, without transfer;
or
[ ] 2. the Surrendered Senior Subordinated Notes are being
transferred to the Company or any of its Subsidiaries;
or
B-1-1
<PAGE>
[ ] 3. the Surrendered Senior Subordinated Notes are being
transferred pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Senior Subordinated
Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Surrendered Senior
Subordinated Notes for its own account, or for one or more
accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account
is a "qualified institutional buyer" within the meaning of
Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A;
or
[ ] 4. the Surrendered Senior Subordinated Notes are being
transferred in a transaction permitted by Rule 144 under the
Securities Act;
or
[ ] 5. the Surrendered Senior Subordinated Notes are being
transferred in a transaction permitted by Rule 903 or Rule 904
under the Securities Act;
or
[ ] 6. the Surrendered Senior Subordinated Notes are being
transferred to an Institutional Accredited Investor pursuant
to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904 and
the Transferor further certifies that the transfer complies
with the transfer restrictions applicable to beneficial
interests in the Global Note and Definitive Notes bearing the
Private Placement Legend and the requirements of the exemption
claimed, which certification is supported by (x) if such
transfer is in respect of a principal amount of Senior
Subordinated Notes at the time of transfer of $100,000 or
more, a certificate executed by the transferee in the form of
EXHIBIT C to the Indenture, or (y) if such transfer is in
respect of a principal amount of Senior Subordinated Notes at
the time of transfer of less than $100,000, (1) a certificate
executed in the form of EXHIBIT C to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the
transferee (a copy of which the Transferor has attached to
this certification), to the effect that such transfer is in
compliance with the Securities Act;
or
[ ] 7. the Surrendered Senior Subordinated Notes are being
transferred pursuant to an effective registration statement
under the Securities Act;
or
[ ] 8. such transfer is being effected pursuant to and in compliance
with an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144, Rule 903, Rule
904 or transfer to an Institutional Accredited Investor
pursuant to paragraph 6 above, and the Transferor hereby
further certifies that the transfer complies with the transfer
restrictions applicable to beneficial interests in the Global
Note and Definitive Notes bearing the Private Placement Legend
and the requirements of the exemption claimed, which
certification is
B-1-2
<PAGE>
supported by an Opinion of Counsel, provided by the Transferor
or the transferee (a copy of which the Transferor has attached
to this certification), to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company, the Subsidiary Guarantors and
Salomon Brothers Inc, BT Alex. Brown Incorporated and Citicorp Securities, Inc.,
the initial purchasers of such Senior Subordinated Notes being transferred.
_______________________________________________
[ Insert Name of Transferor ]
By:____________________________________________
Name:
Title:
Dated:
cc: Aviation Sales Company
Salomon Brothers Inc
BT Alex. Brown Incorporated
Citicorp Securities, Inc.
B-1-3
<PAGE>
EXHIBIT B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM GLOBAL NOTE TO DEFINITIVE NOTE
(Pursuant to Section 2.06(c) of the Indenture)
SunTrust Bank, Central Florida
National Association
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Re: 8-1/8% Senior Subordinated Notes due 2008 of Aviation
Sales Company
Reference is hereby made to the Indenture, dated as of
February 17, 1998 (the "Indenture"), among Aviation Sales Company, a Delaware
corporation (the "COMPANY"), Aviation Sales Operating Company, Aviation Sales
Bearings Company, Aviation Sales Leasing Company, Aviation Sales Manufacturing &
Repair Company, Aviation Sales Finance Company, AVS/Kratz-Wilde Machine Company,
Aerocell Structures, Inc. and Apex Manufacturing, Inc., (each a "SUBSIDIARY
GUARANTOR" and together with any Subsidiary of the Company that executes a
Subsidiary Guarantee substantially in the form of EXHIBIT D to the Indenture,
the "SUBSIDIARY GUARANTORS") and SunTrust Bank, Central Florida, National
Association, as trustee (the "TRUSTEE"). Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
This letter relates to $__________ principal amount of Senior
Subordinated Notes which are evidenced by a beneficial interest in the Global
Note in the name of ___________________ (the "Transferor"). The Transferor has
requested an exchange or transfer of such beneficial interest in the form of an
equal principal amount of Senior Subordinated Notes evidenced by one or more
Definitive Notes, to be delivered to the Transferor or, in the case of a
transfer of such Senior Subordinated Notes, to such Person as the Transferor
instructs the Trustee.
In connection with such request and in respect of the Senior
Subordinated Notes surrendered to the Trustee herewith for exchange (the
"Surrendered Senior Subordinated Notes"), the Holder of such Surrendered Senior
Subordinated Notes hereby certifies that:
[CHECK ONE]
[ ] 1. the Surrendered Senior Subordinated Notes are being
transferred to the beneficial owner of such Senior Subordinated Notes;
or
[ ] 2. the Surrendered Senior Subordinated Notes are being
transferred pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the Surrendered Senior Subordinated
Notes are being transferred to a Person that the Transferor reasonably believes
is purchasing the Surrendered Senior Subordinated Notes for its own account, or
for one or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a "qualified
B-2-1
<PAGE>
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting they requirements of Rule 144A;
or
[ ] 3. the Surrendered Senior Subordinated Notes are being
transferred in a transaction permitted by Rule 144 under the Securities Act;
or
[ ] 4. the Surrendered Senior Subordinated Notes are being
transferred pursuant to an effective registration statement under the Securities
Act;
or
[ ] 5. the Surrendered Senior Subordinated Notes are being
transferred in a transaction permitted by Rule 903 or Rule 904 under the
Securities Act;
or
[ ] 6. the Surrendered Senior Subordinated Notes are being
transferred to an Institutional Accredited Investor pursuant to an exemption
under the Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the transfer complies with the transfer
restrictions applicable to beneficial interests in the Global Note and
Definitive Notes bearing the Private Placement Legend and the requirements of
the exemption claimed, which certification is supported by (x) if such transfer
is in respect of a principal amount of Senior Subordinated Notes at the time of
transfer of $100,000 or more, a certificate executed by the transferee in the
form of EXHIBIT C to the Indenture, or (y) if such transfer is in respect of a
principal amount of Senior Subordinated Notes at the time of transfer of less
than $100,000, (1) a certificate executed in the form of EXHIBIT C to the
Indenture and (2) an Opinion of Counsel provided by the Transferor or the
transferee (a copy of which the Transferor has attached to this certification),
to the effect that such transfer is in compliance with the Securities Act;
or
[ ] 7. such transfer is being effected pursuant and in compliance
with an exemption from the registration requirements of the Securities Act other
than Rule 144A, Rule 144, Rule 903, Rule 904 or transfer to an Institutional
Accredited Investor pursuant to paragraph 6 above, and the Transferor hereby
further certifies that the transfer complies with the transfer restrictions
applicable to beneficial interests in the Global Note and Definitive Notes
bearing the Private Placement Legend and the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel, provided by
the Transferor or the transferee (a copy of which the Transferor has attached to
this certification), to the effect that such transfer is in compliance with the
Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company, the Subsidiary Guarantors and
Salomon Brothers Inc, BT Alex. Brown
B-2-2
<PAGE>
Incorporated and Citicorp Securities, Inc., the initial purchasers of such
Senior Subordinated Notes being transferred.
_____________________________________________
[ Insert Name of Transferor ]
By:__________________________________________
Name:
Title:
Dated:
cc: Aviation Sales Company
Salomon Brothers Inc
BT Alex. Brown Incorporated
Citicorp Securities, Inc.
B-2-3
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
SunTrust Bank, Central Florida
National Association
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Re: 8-1/8% Senior Subordinated Notes due 2008 of Aviation
Sales Company
Reference is hereby made to the Indenture, dated as of
February 17, 1998 (the "Indenture"), among Aviation Sales Company, a Delaware
corporation (the "COMPANY"), Aviation Sales Operating Company, Aviation Sales
Bearings Company, Aviation Sales Leasing Company, Aviation Sales Manufacturing &
Repair Company, Aviation Sales Finance Company, AVS/Kratz-Wilde Machine Company,
Aerocell Structures, Inc. and Apex Manufacturing, Inc., (each a "SUBSIDIARY
GUARANTOR" and together with any Subsidiary of the Company that executes a
Subsidiary Guarantee substantially in the form of EXHIBIT D to the Indenture,
the "SUBSIDIARY GUARANTORS") and SunTrust Bank, Central Florida, National
Association, as trustee (the "TRUSTEE"). Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $__________
aggregate principal amount of:
(a) [ ] Beneficial interests, or
(b) [ ] Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the
Senior Subordinated Notes or any interest therein is subject to certain
restrictions and conditions set forth in the Indenture and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Senior Subordinated Notes or any interest therein except in compliance with,
such restrictions and conditions and the Securities Act of 1933, as amended (the
"SECURITIES ACT").
2. We understand that the offer and sale of the Senior
Subordinated Notes have not been registered under the Securities Act, and that
the Senior Subordinated Notes and any interest therein may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell the Senior Subordinated Notes or any interest therein,
(A) we will do so only (1)(a) to a person who we reasonably
C-1
<PAGE>
believe is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of 144A, (b) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (c)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 of the Securities Act, (d) to an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act who prior to the consummation of such sale
furnishes you with a signed certificate substantially in the form hereof or (e)
in accordance with another exemption from the registration requirements of the
Securities Act, (2) to the Company or any of its subsidiaries or (3) pursuant to
an effective registration statement and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction and (B) we will, and each subsequent holder will be
required to, notify any purchaser from it of the security evidenced hereby of
the resale restrictions set forth in (A) above.
3. We understand that, on any proposed resale of the
Senior Subordinated Notes or beneficial interests, we will be required to
furnish to you and the Company such certifications, legal opinions and other
information as you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Senior Subordinated Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the Senior
Subordinated Notes, and we and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
5. We are acquiring the Senior Subordinated Notes or
beneficial interests therein purchased by us for our own account or for one or
more accounts (each of which is an institutional "accredited investor") as to
each of which we exercise sole investment discretion.
6. We are not acquiring the Senior Subordinated Notes
with a view to any distribution thereof that would violate the Securities Act or
the securities laws of any State of the United States.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
__________________________________________________
[ Insert Name of Accredited Investor ]
By:_______________________________________________
Name:
Title:
Dated:_______________________
C-2
<PAGE>
EXHIBIT D
SUBSIDIARY GUARANTEE
Subject to Article 11 of the Indenture, each of the Subsidiary
Guarantors hereby, jointly and severally, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of the Indenture, the Notes and the obligations of the Company under the Notes
or under the Indenture, that: (a) the principal of, premium, if any, interest
and Liquidated Damages, if any, on the Notes will be promptly paid in full when
due whether at maturity, by acceleration, redemption or otherwise, and interest
on overdue principal, premium, if any, and, to the extent permitted by law,
interest on any interest, if any, and Liquidated Damages, if any, on the Notes
and all other obligations of the Company to the Holders or the Trustee under the
Indenture or under the Notes will be promptly paid in full or performed, all in
accordance with the terms thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other payment obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when due of any amount so guaranteed or
any performance so guaranteed for whatever reason, the Subsidiary Guarantors
will be jointly and severally obligated to pay the same immediately.
The obligations of each Subsidiary Guarantor to the Holders
and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture are
(a) expressly set forth in Article 11 of the Indenture and (b) subordinated to
Senior Debt as set forth in Article 12 of the Indenture, and reference is hereby
made to such Indenture for the precise terms of this Subsidiary Guarantee. The
terms of Article 11 of the Indenture are incorporated herein by reference. This
Subsidiary Guarantee is subject to release as and to the extent provided in
Section 11.05 of the Indenture.
This is a continuing Guarantee and shall remain in full force
and effect and shall be binding upon each Subsidiary Guarantor and its
respective successors and assigns to the extent set forth in the Indenture until
full and final payment of all of the Company's obligations under the Notes and
the Indenture and shall inure to the benefit of the successors and assigns of
the Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
Subsidiary Guarantee of payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
For purposes hereof, each Subsidiary Guarantor's liability
shall be limited to the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such Subsidiary
Guarantor that are relevant under Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law, after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
Article 11 of the Indenture, result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer
or conveyance.
D-1
<PAGE>
Capitalized terms used herein have the same meanings given in
the Indenture unless otherwise indicated.
D-2
<PAGE>
SIGNATURES
Dated as of February 17, 1998
Aviation Sales Operating Company
By:__________________________________________
Name:
Title:
Aviation Sales bearings Company
By:__________________________________________
Name:
Title:
Aviation Sales Leasing Company
By:__________________________________________
Name:
Title:
Aviation Sales Finance Company
By:__________________________________________
Name:
Title:
Aviation Sales Manufacturing & Repair Company
By:__________________________________________
Name:
Title:
D-3
<PAGE>
AVS/Kratz-Wilde Machine Company
By:__________________________________________
Name:
Title:
Aerocell Structures, Inc.
By:__________________________________________
Name:
Title:
Apex Manufacturing, Inc.
By:__________________________________________
Name:
Title:
D-4
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of ___________, between ______________________, (the "New Subsidiary
Guarantor"), a subsidiary of Aviation Sales Company, a Delaware corporation (the
"Company"), and SunTrust Bank, Central Florida, National Association, as trustee
under the Indenture referred to below (the "Trustee"). Capitalized terms used
herein and not defined herein shall have the meaning ascribed to them in the
Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of February 17, 1998,
providing for the issuance of an aggregate principal amount of up to
$250,000,000 of 8-1/8% Senior Subordinated Notes due 2008 (the "Senior
Subordinated Notes");
WHEREAS, Sections 4.17 and 11.03 of the Indenture provide that
under certain circumstances the Company is required to cause certain of its
Subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes pursuant to a
Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the New Subsidiary Guarantor and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Senior Subordinated Notes as
follows:
1. CAPITALIZED TERMS. Capitalized terms used herein
without definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Subsidiary
Guarantor hereby agrees, jointly and severally with all other Subsidiary
Guarantors, to guarantee the Company's Obligations under the Senior Subordinated
Notes and the Indenture on the terms and subject to the conditions set forth in
Article 11 of the Indenture and to be bound by all other applicable provisions
of the Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or
future director, officer, employee, incorporator, stockholder or agent of any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the Company or any Subsidiary Guarantor under the Senior Subordinated Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Senior Subordinated Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Subordinated Notes.
E-1
<PAGE>
4. NEW YORK LAW TO GOVERN. The internal law of the State
of New York shall govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS The parties may sign any number of
copies of this Supplemental Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are
for convenience only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in
any manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the correctness of the recitals
of fact contained herein, all of which recitals are made solely by the New
Subsidiary Guarantor.
E-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first above
written.
Dated:_____________________________ [NAME OF NEW SUBSIDIARY GUARANTOR]
By:_____________________________________
Name:
Title:
Dated:_____________________________ SunTrust Bank, Central Florida
National Association
as Trustee
By:_____________________________________
Name:
Title:
E-3
EXHIBIT 4.3
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- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of February 17, 1998
by and among
Aviation Sales Company
Aviation Sales Operating Company
Aviation Sales Bearings Company
Aviation Sales Leasing Company
Aviation Sales Finance Company
Aviation Sales Manufacturing & Repair Company
Aerocell Structures, Inc.
AVS\Kratz-Wilde Machine Company
Apex Manufacturing, Inc.
and
Salomon Brothers Inc
BT Alex. Brown Incorporated
Citicorp Securities, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of February 17, 1998, by and among Aviation Sales Company, a
Delaware corporation (the "COMPANY"), Aviation Sales Operating Company, Aviation
Sales Bearings Company, Aviation Sales Leasing Company, Aviation Sales Finance
Company, Aviation Sales Manufacturing & Repair Company, Aerocell Structures,
Inc., AVS\Kratz-Wilde Machine Company and Apex Manufacturing, Inc.
(collectively, the "SUBSIDIARY GUARANTORS"), and Salomon Brothers Inc, BT Alex.
Brown Incorporated and Citicorp Securities, Inc. (each an "INITIAL PURCHASER"
and, collectively, the "INITIAL Purchasers"), each of whom has agreed to
purchase the Company's 8-1/8% Senior Subordinated Notes due 2008 (the "SENIOR
SUBORDINATED NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 11, 1998, (the "PURCHASE AGREEMENT"), by and among the Company, the
Subsidiary Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Senior Subordinated Notes, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 2 of the Purchase Agreement. Capitalized terms
used herein and not otherwise defined shall have the meaning assigned to them
the Indenture, dated as of February 17, 1998, among the Company, the Subsidiary
Guarantors and Sun Trust Bank, Central Florida, National Association, as
Trustee, relating to the Senior Subordinated Notes and the Exchange Notes (the
"Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Senior Subordinated Notes
tendered by Holders thereof pursuant to the Exchange Offer.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
<PAGE>
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE NOTES: The Company's 8-1/8% Senior Subordinated Notes due
2008 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Exchange Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Senior Subordinated Notes that are tendered by such Holders in connection with
such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Senior Subordinated Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
NOTES: The Senior Subordinated Notes and the Exchange Notes.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Subsidiary Guarantors relating to (a) an offering of Exchange Notes pursuant
to an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Exchange Notes
that were acquired in the Exchange Offer in exchange for Senior Subordinated
Notes that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Senior Subordinated
Notes acquired directly from the Company or any of its Affiliates).
RULE 144: Rule 144 promulgated under the Act.
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<PAGE>
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Subsidiary Guarantors shall (i) cause the
Exchange Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date (the "Exchange Offer Filing Date"), but in no
event later than 45 days after the Closing Date (such 45th day being the "Filing
Deadline"), (ii) use its best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 120 days after the Closing Date (such 120th day being the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting
registration of the Exchange Notes to be offered in exchange for the Senior
Subordinated Notes that are Transfer Restricted Securities and to permit resales
of Exchange Notes by Broker-Dealers that tendered into the Exchange Offer Senior
Subordinated Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Senior Subordinated Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Subsidiary Guarantors shall use their
respective best efforts to cause the Exchange Offer Registration Statement to be
effective continuously, and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; PROVIDED, HOWEVER, that in no
event shall such period be less than 20 Business Days. The Company and the
Subsidiary Guarantors shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Exchange Notes shall be
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<PAGE>
included in the Exchange Offer Registration Statement. The Company and the
Subsidiary Guarantors shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company),
may exchange such Transfer Restricted Securities pursuant to the Exchange Offer;
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer and that the
Prospectus contained in the Exchange Offer Registration Statement may be used to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement. See the Shearman & Sterling no-action letter (available July 2,
1993).
To the extent necessary to ensure that the Exchange Offer
Registration Statement is available for sales of Exchange Notes by
Broker-Dealers, the Company and the Subsidiary Guarantors agree to use their
respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the date on which the
Exchange Offer is Consummated, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold pursuant thereto. The Company and the Subsidiary Guarantors shall promptly
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Subsidiary Guarantors have complied
with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Senior Subordinated Notes acquired directly from the Company or any of
its Affiliates, then the Company and the Subsidiary Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the
earlier of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause (a)
(ii) above, (such earlier date, the "Filing Deadline"), a shelf registration
statement pursuant to Rule 415 under the Act (which
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<PAGE>
may be an amendment to the Exchange Offer Registration Statement (the "SHELF
REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such
Shelf Registration Statement to become effective on or prior to 90 days after
the Filing Deadline (such 90th day the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law, then
the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above; PROVIDED that, in such event, the
Company shall remain obligated to meet the Effectiveness Deadline set forth in
clause (y).
The Company and the Subsidiary Guarantors shall use their
respective best efforts to keep any Shelf Registration Statement required by
this Section 4(a) continuously effective, supplemented and amended as required
by and subject to the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of at least two years (as extended pursuant to Section
6(c)(i)) following the date on which such Shelf Registration Statement first
becomes effective under the Act, or such shorter period as will terminate when
all Transfer Restricted Securities covered by such Registration Statement have
been sold pursuant thereto.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Exchange Offer Registration Statement is first declared effective by the
Commission or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the
Subsidiary Guarantors hereby jointly and severally agree to pay to each Holder
of Transfer Restricted Securities affected thereby liquidated damages in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
- 5 -
<PAGE>
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; PROVIDED that the Company and the
Subsidiary Guarantors shall in no event be required to pay liquidated damages
for more than one Registration Default at any given time. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Subsidiary Guarantors set forth in
the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company and the Subsidiary Guarantors shall comply with all
applicable provisions of Section 6(c) below, shall use their respective best
efforts to effect such exchange and to permit the resale of Exchange Notes by
Broker-Dealers that tendered in the Exchange Offer Senior Subordinated Notes
that such Broker-Dealer acquired for its own account as a result of its market
making activities or other trading activities (other than Senior Subordinated
Notes acquired directly from the Company or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by applicable
federal law, the Company and the Subsidiary Guarantors hereby agree to seek a
no-action letter or other favorable decision from the Commission allowing the
Company and the Subsidiary Guarantors to Consummate an Exchange Offer for such
Transfer Restricted Securities. The Company and the Subsidiary Guarantors hereby
agree to pursue the issuance of such a decision to the Commission staff level.
In connection with the foregoing, the Company and the Subsidiary Guarantors
hereby agree to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases, if
any, upon which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker Dealer) shall furnish, upon
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<PAGE>
the request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Subsidiary Guarantors (which may
be contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of the
Company, (B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business. Each Holder using the
Exchange Offer to participate in a distribution of the Exchange Notes hereby
acknowledges and agrees that, if the resales are of Exchange Notes obtained by
such Holder in exchange for Senior Subordinated Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission policy as in
effect on the date of this Agreement, rely on the position of the Commission
enunciated in MORGAN STANLEY AND CO., INC. (available June 5, 1991) and EXXON
CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and similar
no-action letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and the
Subsidiary Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION
(available May 13, 1988), MORGAN STANLEY AND CO., INC. (available June 5, 1991)
as interpreted in the Commission's letter to SHEARMAN & STERLING dated July 2,
1993, and, if applicable, any no-action letter obtained pursuant to clause (i)
above, (B) including a representation that neither the Company nor any
Subsidiary Guarantor has entered into any arrangement or understanding with any
Person to distribute the Exchange Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Subsidiary Guarantor's information
and belief, each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action letter
obtained pursuant to clause (i) above, if applicable.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf Registration
Statement, the Company and the Subsidiary Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Subsidiary Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) GENERAL PROVISIONS. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company and the
Subsidiary Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be
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effective and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Subsidiary Guarantors
shall file promptly an appropriate amendment to such Registration Statement
curing such defect, and, if Commission review is required, use their respective
best efforts to cause such amendment to be declared effective as soon as
practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully
with Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(iii) advise the selling Holders promptly and, if requested by such
Persons, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company and the Subsidiary Guarantors shall use their
respective best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(v) furnish to the Initial Purchasers and each selling Holder named in
any Registration Statement or Prospectus in connection with such sale, if any,
before filing with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents incorporated by
reference after the initial filing of such Registration Statement), which
documents will be subject to the review and comment of such Holders in
connection with such sale, if any, for a period of at least three Business Days,
and the Company will not file
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any such Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders of the Transfer
Restricted Securities covered by such Registration Statement in connection with
such sale, if any, shall reasonably object in writing within three Business Days
after the receipt thereof, unless the Company shall reasonably conclude after
receiving such notice that such Registration Statement or Prospectus or
amendment or supplement thereto complies with all applicable laws;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the selling Holders in connection with such sale, if
any, make the Company's and the Subsidiary Guarantors' representatives available
for discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as such
selling Holders may reasonably request;
(vii) make available at reasonable times for inspection by the selling
Holders participating in any disposition pursuant to such Registration Statement
and any attorney or accountant retained by such selling Holders, all pertinent
financial and other records, pertinent corporate documents of the Company and
the Subsidiary Guarantors and cause the Company's and the Subsidiary Guarantors'
officers, directors and employees to supply all information reasonably requested
by any such selling Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent to the
filing thereof and prior to its effectiveness;
(viii) if requested by any selling Holders in connection with such
sale, if any, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be included in such
Prospectus supplement or post-effective amendment; provided, however, that any
information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by such persons, unless such disclosure is made in connection with
a court proceeding or required by law or such information becomes available to
the public generally or through a third party without an accompanying obligation
of confidentiality;
(ix) furnish to each selling Holder in connection with such sale, if
any, without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each selling Holder, without charge, as many copies of
the Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company and the
Subsidiary Guarantors hereby consent to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each of the selling
Holders in connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement thereto;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted Securities
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<PAGE>
pursuant to any applicable Registration Statement contemplated by this Agreement
as may be reasonably requested by any Holder of Transfer Restricted Securities
in connection with any sale or resale pursuant to any applicable Registration
Statement and in such connection, the Company and the Subsidiary Guarantors
shall:
(A) upon request of any selling Holder, furnish (or in the case
of paragraphs (2) and (3), use its best efforts to cause to be furnished)
to each requesting selling Holder, upon the effectiveness of the Shelf
Registration Statement or upon Consummation of the Exchange Offer, as the
case may be:
(1) a certificate, dated such date, signed on behalf of the
Company and each Subsidiary Guarantor by (x) the President or any
Vice President and (y) a principal financial or accounting
officer of the Company and such Subsidiary Guarantor, confirming,
as of the date thereof, the matters set forth in paragraphs (g)
and (h) of Section 7 of the Purchase Agreement and such other
similar matters as the selling Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer, or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Subsidiary Guarantors covering matters similar to
those set forth in paragraphs (c) and (d) of Section 7 of the
Purchase Agreement and such other matter as the selling Holders
may reasonably request, and in any event including a statement to
the effect that although such counsel have not undertaken, except
as otherwise indicated in their opinion, to determine
independently, and do not assume responsibility for, the
accuracy, completeness or fairness of the statements in the
applicable Registration Statement, that such counsel have
participated in the preparation of the applicable Registration
Statement, including review and discussion of the contents
thereof, and nothing has come to the attention of such counsel
that has caused them to believe that such Registration Statement,
at the time such Registration Statement or any post-effective
amendment thereto became effective, and in the case of the
opinion dated the date of consummation of the Exchange Offer, as
of the date of the consummation of the Exchange Offer, contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading or that the Prospectus contained
in such Registration Statement as of its date, and in the case of
the opinion dated the date of consummation of the Exchange Offer,
as of the date of the consummation of the Exchange Offer,
contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and
the notes thereto and the schedules and other financial and
statistical data included in such Registration Statement); and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 7(f) of the
Purchase Agreement; and
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<PAGE>
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence
compliance with clause (A) above and with any customary
conditions contained in the any agreement entered into by the
Company and the Subsidiary Guarantors pursuant to this clause
(xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling Holders may
request and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; PROVIDED, HOWEVER, that
neither the Company nor any Subsidiary Guarantor shall be required to register
or qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Senior Subordinated
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Senior Subordinated Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such Holder; such
Exchange Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Exchange Notes, as the case may be; in return, the Senior
Subordinated Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to register
such Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xv) use their respective best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(xvii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders with regard to any applicable Registration Statement, as
soon as practicable, a consolidated earnings statement meeting the requirements
of Rule 158 (which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is defined
in paragraph (c) of Rule 158 under the Act);
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<PAGE>
(xviii) make appropriate officers of the Company available to the
selling Holders for meetings with prospective purchasers of the Transfer
Restricted Securities and prepare and present to potential investors customary
"road show" material in a manner consistent with other new issuances of other
securities similar to the Transfer Restricted Securities; and
(xix) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 or Section 15(d)
of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension
Notice"), such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder's has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Subsidiary Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Subsidiary Guarantors and the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Exchange Notes on a national securities exchange
or automated quotation system; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Subsidiary
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company and the Subsidiary Guarantors will, in any event,
bear the Company's and the Subsidiary Guarantors' internal expenses (including,
without limitation, all salaries and expenses of its officers
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and employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company or the Subsidiary Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Subsidiary
Guarantors will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins, unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Subsidiary Guarantors agree, jointly and severally,
to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER"), from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any Holder
or any prospective purchaser of Exchange Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders expressly for use therein.
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Subsidiary
Guarantors, and their respective directors and officers, and each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Company, or the Subsidiary Guarantors to the same extent
as the foregoing indemnity from the Company and the Subsidiary Guarantors to
each of the Indemnified Holders, but only with reference to information relating
to such Indemnified Holder furnished in writing to the Company by such
Indemnified Holder expressly for use in any Registration Statement. In no event
shall any Indemnified Holder be liable or responsible for any amount in excess
of the amount by which the total amount received by such Indemnified Holder with
respect to its sale of Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Indemnified Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Indemnified Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably
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satisfactory to the indemnified party and the payment of all fees and expenses
of such counsel, as incurred (except that in the case of any action in respect
of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), an
Indemnified Holder shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Indemnified Holder). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed on a
monthly basis. Such firm shall be designated in writing by a majority of the
Indemnified Holders, in the case of the parties indemnified pursuant to Section
8(a), and by the Company, in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall indemnify and hold harmless the indemnified
party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty business days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Subsidiary Guarantors, on the one hand, and the Holders, on the other hand, from
their sale of Transfer Restricted Securities or (ii) if the allocation provided
by clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Subsidiary
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company and the Subsidiary
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue
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statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or such Subsidiary
Guarantor, on the one hand, or by the Indemnified Holder, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and judgments
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Subsidiary Guarantors and each Holder agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder or its related Indemnified Holders shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities PLUS (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Subsidiary Guarantor hereby agrees with each
Holder, for so long as any Transfer Restricted Securities remain outstanding and
during any period in which the Company or such Subsidiary Guarantor is not
subject to Section 13 or 15(d) of the Securities Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. MISCELLANEOUS
(a) REMEDIES. The Company and the Subsidiary Guarantors acknowledge and
agree that any failure by the Company and/or the Subsidiary Guarantors to comply
with their respective obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's and the Subsidiary Guarantor's obligations
under Sections 3 and 4 hereof. The Company and the Subsidiary Guarantors further
agree to waive the defense in any action for specific performance that a remedy
at law would be adequate.
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<PAGE>
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any Subsidiary
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed on Schedule I hereto, neither the Company nor any Subsidiary
Guarantor has previously entered into any agreement granting any registration
rights with respect to its securities to any Person. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's and the Subsidiary
Guarantors' securities under any agreement in effect on the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(d) THIRD PARTY BENEFICIARY. The Holders shall be third party beneficiaries
to the agreements made hereunder between the Company and the Subsidiary
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Company or the Subsidiary Guarantors:
6905 N.W. 25th Street
Miami, Florida 33172
Telecopier No.: (305) 599-6610
Attention: Dale S. Baker
- 16 -
<PAGE>
With a copy to:
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center
28th Floor
One Southeast Third Avenue
Miami, Florida 33131
Telecopier No.: (305) 374-5095
Attention: Philip B. Schwartz
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Salomon Brothers
Inc, on behalf of the Initial Purchasers (in the form attached hereto as Exhibit
A) and shall be addressed to: Seven World Trade Center, New York, New York
10048, Attention: Manager, Investment Banking Division.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; PROVIDED, that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms hereof or of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Transfer Restricted Securities in any manner, whether by operation of law or
otherwise, such Transfer Restricted Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Transfer Restricted
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and
- 17 -
<PAGE>
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AVIATION SALES COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
AVIATION SALES OPERATING COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
AVIATION SALES BEARINGS COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
- 18 -
<PAGE>
AVIATION SALES LEASING COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
AVIATION SALES FINANCE COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
AVIATION SALES MANUFACTURING & REPAIR COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
AEROCELL STRUCTURES, INC.
By: _____________________________________
Name:___________________________
Title:__________________________
AVS\KRATZ-WILDE MACHINE COMPANY
By: _____________________________________
Name:___________________________
Title:__________________________
APEX MANUFACTURING, INC.
By: _____________________________________
Name:___________________________
Title:__________________________
- 19 -
<PAGE>
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
CITICORP SECURITIES, INC.
BY: SALOMON BROTHERS INC
By:__________________
Name:_____________
Title:____________
- 20 -
<PAGE>
SCHEDULE I
Aviation Sales Company ("AVS") granted registration rights to persons who
acquired AVS common stock as follows:
1. The original stockholders of AVS pursuant to that certain Registration
Rights Agreement dated June 26, 1996;
2. The former shareholders of AvEng Trading Partners, Inc., a Delaware
corporation ("AvEng") pursuant to that certain Stockholders Agreement
dated as of November 30, 1996 by and among AVS and James C.
Stoecker, Kathryn M. Stoecker, Mark F. Stiegal and Al Short;
3. The former shareholders of Aerocell Structures, Inc. ("Aerocell")
pursuant to that certain Merger Agreement dated as of September 30,
1997 by and among AVS and AVS/ASI Merger Corp., an Arkansas corporation
and wholly-owned direct subsidiary of AVS, Aerocell, and the
shareholders of Aerocell (AVS has an effective registration statement
outstanding on Form S-3 (effective 12/4/97) covering the shares
referred to in 1-3 above);
4. The former shareholders of Apex Manufacturing, Inc., an Arizona
corporation ("Apex") pursuant to that certain Stock for Asset Purchase
Agreement dated as of December 31, 1997, by and among the AVS/AMI
Merger Corp., an Arizona corporation and wholly-owned direct subsidiary
of AVS, Apex and the shareholders of Apex (AVS agreed to file a
registration statement covering the AVS shares in this transaction by
March 31, 1998);
5. The shareholders of Caribe Aviation, Inc., a Florida corporation
("Caribe"), pursuant to that certain Merger Agreement dated February
12, 1998 by and among AVS and AVS/CAI Merger Corp., a Florida
corporation and wholly-owned direct subsidiary of AVS, Caribe, Aircraft
Interior Design, Inc., a Florida corporation and a wholly-owned
subsidiary of Caribe, and Benito and Damaris Quevedo; and
6. AVS also intends to grant registration rights in connection with future
acquisitions involving issuances of AVS common stock.
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
EXCHANGE OFFER REGISTRATION STATEMENT/
SHELF REGISTRATION STATEMENT
To: Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Attention: Michael Klein
Fax: (212) 816-7092
From: Aviation Sales Company
8-1/8% Senior Subordinated Notes Due 2008
Date: _______________, 199___
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an Exchange Offer Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
EXHIBIT 4.4
$165,000,000
AVIATION SALES COMPANY
8-1/8% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
February 11, 1998
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
CITICORP SECURITIES, INC.
As Initial Purchasers
c/o SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Aviation Sales Company, a Delaware corporation (the
"Company"), proposes, upon the terms and conditions set forth herein, to issue
and sell to you, as the initial purchasers (the "Initial Purchasers"),
$165,000,000 aggregate principal amount of its 8-1/8% Senior Subordinated Notes
due 2008 (the "Senior Subordinated Notes"). The Senior Subordinated Notes will
(i) have the terms and provisions which are summarized in the Offering
Memorandum (as defined herein), (ii) be in the forms specified, (iii) be fully
and unconditionally guaranteed on a joint and several senior subordinated basis
by Aviation Sales Operating Company, Aviation Sales Bearings Company, Aviation
Sales Leasing Company, Aviation Sales Manufacturing & Repair Company, Aviation
Sales Finance Company and AVS\Kratz-Wilde Machine Company, Aerocell Structures,
Inc., Apex Manufacturing, Inc. (each such subsidiary being a "Subsidiary
Guarantor" and all such subsidiaries being, collectively, the "Subsidiary
Guarantors"), pursuant to and to the extent set forth in the Indenture (as
defined herein) (the "Subsidiary Guarantees") and (iv) be issued pursuant to the
provisions of an Indenture, to be dated as of February 17, 1998 (the
"Indenture"), among the Company, the Subsidiary Guarantors and SunTrust Bank,
Central Florida, National Association, as Trustee (the "Trustee").
The Company and the Subsidiary Guarantors wish to confirm as
follows their agreement with the Initial Purchasers in connection with the
purchase and resale of the Senior Subordinated Notes.
1. PRELIMINARY OFFERING MEMORANDUM AND OFFERING MEMORANDUM.
The Senior Subordinated Notes will be offered and sold to the Initial Purchasers
without registration under the Securities Act of 1933, as amended (the "Act"),
in reliance on an exemption pursuant to Section 4(2) under the Act. The Company
has prepared a preliminary offering memorandum, dated January 27, 1998 (the
"Preliminary Offering Memorandum"), and an offering memorandum, dated February
11, 1998 (the "Offering Memorandum"), setting forth information regarding the
Company, the Subsidiary Guarantors, the Senior Subordinated Notes, the
Subsidiary Guarantees and the Exchange Notes (as defined herein). Any references
herein to the Preliminary Offering Memorandum and the Offering Memorandum shall
be deemed to include all amendments and supplements thereto. The Company hereby
confirms that it has authorized the use of the Preliminary Offering Memorandum
and the Offering Memorandum in connection with the offering and resale of the
Senior Subordinated Notes by the Initial Purchasers.
<PAGE>
The Company understands that the Initial Purchasers propose to
make offers and sales (the "Exempt Resales") of the Senior Subordinated Notes
purchased by the Initial Purchasers hereunder only on the terms and in the
manner set forth in the Offering Memorandum and Section 2 hereof, as soon as the
Initial Purchasers deem advisable after this Agreement has been executed and
delivered to persons in the United States whom the Initial Purchasers reasonably
believe to be qualified institutional buyers ("Qualified Institutional Buyers")
as defined in Rule 144A under the Act, as such rule may be amended from time to
time ("Rule 144A"), in transactions under Rule 144A. Such Qualified
Institutional Buyers are being referred to herein as "Eligible Purchasers."
It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Act, the Senior Subordinated Notes (and all
securities issued in exchange therefor in substitution thereof) shall bear the
following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR (e) OR IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
It is also understood and acknowledged that holders (including
subsequent transferees) of the Senior Subordinated Notes will have the
registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the date hereof, in substantially
the form of Exhibit A hereto, for so long as such Senior Subordinated Notes
constitute "Transfer Restricted Securities" (as defined in the Registration
Rights Agreement) and subject to the other terms of the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company will agree
(i) to file with the Securities and Exchange Commission (the "Commission") under
the circumstances set forth therein, a
2
<PAGE>
registration statement on the appropriate form under the Act relating to the
Company's 8-1/8% Senior Subordinated Notes due 2008 (the "Exchange Notes") to be
offered in exchange for the Senior Subordinated Notes (the "Registered Exchange
Offer") and (ii) under certain limited circumstances, a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration
Statement") relating to the resale by certain holders of the Senior Subordinated
Notes, and to use its best efforts to cause such registration statements to be
declared effective. This Agreement, the Indenture and the Registration Rights
Agreement are hereinafter referred to collectively as the "Operative Documents".
Capitalized terms used herein without definition have the
respective meanings specified therefor in the Indenture or the Offering
Memorandum.
2. AGREEMENTS TO SELL, PURCHASE AND RESELL. (a) The Company
hereby agrees, subject to all the terms and conditions set forth herein, to
issue and sell to the Initial Purchasers and, upon the basis of the
representations, warranties and agreements of the Company and the Subsidiary
Guarantors herein contained and subject to all the terms and conditions set
forth herein, each Initial Purchaser agrees, severally and not jointly, to
purchase from the Company, at a purchase price of 96.745% of the principal
amount thereof, the principal amount of Senior Subordinated Notes set forth
opposite the name of such Initial Purchaser in Schedule I hereto.
(b) The Initial Purchasers have advised the Company
that they propose to offer the Senior Subordinated Notes for sale upon the terms
and conditions set forth in this Agreement and in the Offering Memorandum. Each
Initial Purchaser hereby represents and warrants to, and agrees with, the
Company that such Initial Purchaser (i) is purchasing the Senior Subordinated
Notes pursuant to a private sale exempt from registration under the Act, (ii)
will not solicit offers for, or offer or sell, the Senior Subordinated Notes by
means of any form of general solicitation or general advertising or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act, and (iii) will solicit offers for the Senior Subordinated Notes only from,
and will offer, sell or deliver the Senior Subordinated Notes as part of its
initial offering, only to persons whom such Initial Purchaser reasonably
believes to be Qualified Institutional Buyers, or if any such person is buying
for one or more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented to the Initial
Purchaser that each such account is a Qualified Institutional Buyer, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, in each case, in transactions under Rule 144A. The Initial Purchasers
have advised the Company that they will offer the Senior Subordinated Notes to
Eligible Purchasers at a price initially equal to 99.395% of the principal
amount thereof, plus accrued interest, if any, from the date of issuance of the
Senior Subordinated Notes. Such price may be changed by the Initial Purchasers
at any time thereafter without notice.
The Initial Purchasers understand that the Company and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Sections 7(c) and 7(e) hereof, counsel to the Company and counsel to the Initial
Purchasers, will rely upon the accuracy and truth of the foregoing
representations and agreements and the Initial Purchasers hereby consent to such
reliance.
3. DELIVERY OF THE SENIOR SUBORDINATED NOTES AND PAYMENT
THEREFOR. Delivery to the Initial Purchasers of and payment for the Senior
Subordinated Notes shall be made at the office of Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, New York 10022, at 10:00 A.M., New York City time,
on February 17, 1998 (the "Closing Date"). The place of closing for the Senior
Subordinated Notes and the Closing Date may be varied by agreement between the
Initial Purchasers and the Company.
The Senior Subordinated Notes which the Initial Purchasers may
elect to purchase will be
3
<PAGE>
delivered to the Initial Purchasers against payment of the purchase price
therefor in immediately available funds. The Senior Subordinated Notes will be
evidenced by one or more global securities in definitive form (the "Global
Note"), and will be registered, in the name of Cede & Co. as nominee of The
Depository Trust Company ("DTC"). The Senior Subordinated Notes to be delivered
to the Initial Purchasers shall be made available to the Initial Purchasers in
New York City for inspection and packaging not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date.
4. AGREEMENTS OF THE COMPANY AND THE SUBSIDIARY GUARANTORS.
The Company and the Subsidiary Guarantors, jointly and severally, agree with the
Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by them, will confirm such advice in writing, within the period of
time referred to in paragraph (e) below, of any material change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event which makes any
statement made in the Offering Memorandum (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Offering Memorandum (as then amended or supplemented) in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Offering Memorandum (as then amended or supplemented) to comply with any
law.
(b) To furnish to the Initial Purchasers, without
charge, as of the date of the Offering Memorandum, such number of copies of the
Offering Memorandum as may then be amended or supplemented as the Initial
Purchasers may reasonably request.
(c) Not to make any amendment or supplement to the
Preliminary Offering Memorandum or to the Offering Memorandum of which the
Initial Purchasers shall not previously have been advised or to which they shall
reasonably object after being so advised.
(d) Prior to the execution and delivery of this
Agreement, the Company has delivered or will deliver to the Initial Purchasers,
without charge, in such quantities as the Initial Purchasers shall have
requested or may hereafter reasonably request, copies of the Preliminary
Offering Memorandum. The Company consents to the use, in accordance with the
securities or Blue Sky laws of the jurisdictions in which the Senior
Subordinated Notes are offered by the Initial Purchasers and by dealers, prior
to the date of the Offering Memorandum, of each Preliminary Offering Memorandum
so furnished by the Company. The Company consents to the use of the Offering
Memorandum (and of any amendment or supplement thereto) in accordance with the
securities or Blue Sky laws of the jurisdictions in which the Senior
Subordinated Notes are offered by the Initial Purchasers and by all dealers to
whom Senior Subordinated Notes may be sold, in connection with the offering and
sale of the Senior Subordinated Notes.
(e) If, at any time prior to completion of the
distribution of the Senior Subordinated Notes by the Initial Purchasers to
Eligible Purchasers, any event shall occur that in the judgment of the Company
or in the opinion of counsel for the Initial Purchasers should be set forth in
the Offering Memorandum (as then amended or supplemented) in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the Offering
Memorandum in order to comply with any law, the Company will forthwith prepare
an appropriate supplement or amendment thereto or such document, and will
expeditiously furnish to the Initial Purchasers and dealers a reasonable number
of copies thereof.
(f) To cooperate with the Initial Purchasers and with
their counsel in connection with the qualification of the Senior Subordinated
Notes for offering and sale by the Initial
4
<PAGE>
Purchasers and by dealers under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may designate and will file such
consents to service of process or other documents necessary or appropriate in
order to effect such qualification; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to service of process
in suits, other than those arising out of the offering or sale of the Senior
Subordinated Notes, in any jurisdiction where it is not now so subject.
(g) So long as any of the Senior Subordinated Notes
are outstanding, the Company will furnish to the Initial Purchasers (i) as soon
as available, a copy of each report of the Company mailed to stockholders or
filed with the Commission, any stock exchange on which any securities of the
Company are listed or any regulatory body governing state securities or Blue Sky
laws and (ii) from time to time such other information concerning the Company as
the Initial Purchasers may reasonably request.
(h) If this Agreement shall terminate or shall be
terminated after execution and delivery pursuant to any provisions hereof
(otherwise than by notice given by the Initial Purchasers terminating this
Agreement pursuant to Section 10 hereof) or if this Agreement shall be
terminated by the Initial Purchasers because of any failure or refusal on the
part of the Company or the Subsidiary Guarantors to comply with the terms or
fulfill any of the conditions of this Agreement, the Company and the Subsidiary
Guarantors agree to reimburse the Initial Purchasers for all out-of-pocket
expenses (including fees and expenses of their counsel) reasonably incurred by
them in connection herewith, but without any further obligation on the part of
the Company or Subsidiary Guarantors for loss of profits or otherwise.
(i) To apply the net proceeds from the sale of the
Senior Subordinated Notes to be sold by it hereunder substantially in accordance
with the description set forth in the Offering Memorandum.
(j) Except as stated in this Agreement and in the
Preliminary Offering Memorandum and Offering Memorandum, neither the Company nor
the Subsidiary Guarantors has taken, nor will any of them take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation (within the meaning of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of the price of the Senior
Subordinated Notes to facilitate the sale or resale of the Senior Subordinated
Notes. Except as permitted by the Act, neither the Company nor any of the
Subsidiary Guarantors will distribute any offering material in connection with
the Exempt Resales.
(k) To use their best efforts to cause the Senior
Subordinated Notes to be designated Private Offerings Resales and Trading
through Automated Linkages ("PORTAL") Market securities in accordance with the
rules and regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market and to permit the Senior
Subordinated Notes to be eligible for clearance and settlement through DTC.
(l) From and after the Closing Date, so long as any
of the Senior Subordinated Notes are outstanding and are "Restricted Securities"
within the meaning of the Rule 144(a)(3) under the Act or, if earlier, until two
years after the Closing Date, and during any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company will furnish to
holders of the Senior Subordinated Notes and prospective purchasers of Senior
Subordinated Notes designated by such holders, upon request of such holders or
such prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in
connection with resale
5
<PAGE>
of the Senior Subordinated Notes.
(m) The Company has complied and will comply with
all provisions of Florida Statutes Section 517.075 relating to issuers doing
business with Cuba.
(n) Not to sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Senior Subordinated Notes in a
manner that would require the registration under the Act of the sale to the
Initial Purchasers or the Eligible Purchasers of the Senior Subordinated Notes.
(o) To comply with all the terms and conditions of
the Registration Rights Agreement and all agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Senior Subordinated Notes by DTC for "book entry" transfer.
(p) Concurrently with any registration of the Senior
Subordinated Notes pursuant to the Registration Rights Agreement, or at such
earlier time as may be required, the Indenture shall be qualified under the
Trust Indenture Act of 1939 (the "1939 Act") and any necessary supplemental
indentures will be entered into in connection therewith.
(q) Not to voluntarily claim, and will resist
actively all attempts to claim, the benefit of any usury laws against holders of
the Senior Subordinated Notes.
(r) To do and perform all things reasonably required
or necessary to be done and performed under this Agreement by them prior to the
Closing Date, and to satisfy all conditions precedent to the Initial Purchasers'
obligations hereunder to purchase the Senior Subordinated Senior Subordinated
Notes.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SUBSIDIARY GUARANTORS. The Company and the Subsidiary Guarantors, jointly and
severally, represent and warrant to the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and Offering
Memorandum with respect to the Senior Subordinated Notes have been prepared by
the Company for use by the Initial Purchasers in connection with the Exempt
Resales. No order or decree preventing the use of the Preliminary Offering
Memorandum or the Offering Memorandum or any amendment or supplement thereto, or
any order asserting that the transactions contemplated by this Agreement are
subject to the registration requirements of the Act has been issued and no
proceeding for that purpose has commenced or is pending or, to the knowledge of
the Company or the Subsidiary Guarantors, is contemplated.
(b) The Preliminary Offering Memorandum and the
Offering Memorandum as of their respective dates and the Offering Memorandum as
of the Closing Date, did not or will not at any time contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, except that
this representation and warranty does not apply to statements in or omissions
from the Preliminary Offering Memorandum and Offering Memorandum made in
reliance upon and in conformity with information relating to the Initial
Purchasers furnished to the Company in writing by or on behalf of the Initial
Purchasers expressly for use therein.
(c) The Indenture has been duly and validly
authorized by the Company and
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<PAGE>
the Subsidiary Guarantors and, upon its execution and delivery by the Company
and the Subsidiary Guarantors and assuming due authorization, execution and
delivery by the Trustee, will be a valid and binding agreement of the Company
and the Subsidiary Guarantors, enforceable in accordance with its terms, except
as enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally and conforms in all material respects
to the description thereof in the Offering Memorandum; no qualification of the
Indenture under the 1939 Act is required in connection with the offer and sale
of the Senior Subordinated Notes contemplated hereby or in connection with the
Exempt Resales.
(d) The Senior Subordinated Notes have been duly
authorized by the Company and, when executed by the Company and authenticated by
the Trustee in accordance with the Indenture and delivered to the Initial
Purchasers against payment therefor in accordance with the terms hereof, will
have been validly issued and delivered, and will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture and
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to the applicability of
general principles of equity, and the description of the Senior Subordinated
Notes in the Offering Memorandum will conform in all material respects to the
Senior Subordinated Notes.
(e) The Subsidiary Guarantees to be endorsed on the
Senior Subordinated Notes have been duly authorized by the Subsidiary Guarantors
and, when executed by the Subsidiary Guarantors and when the Senior Subordinated
Notes are issued and authenticated in accordance with the terms of the Indenture
and delivered to and paid for by the Initial Purchasers in accordance with the
terms hereof, such Subsidiary Guarantees will have been validly issued and
delivered and will constitute valid and binding obligations of the Subsidiary
Guarantors entitled to the benefits of the Indenture and enforceable in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and the description of such Subsidiary Guarantees in the
Offering Memorandum will conform in all material respects to such Subsidiary
Guarantees.
(f) The Exchange Notes have been duly authorized by
the Company and, when executed by the Company and authenticated by the Trustee
and delivered in accordance with the Registered Exchange Offer and the
Indenture, will have been validly issued and delivered, and will constitute
valid and binding obligations of the Company entitled to the benefits of the
Indenture and enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally and subject to the applicability
of general principles of equity, and the description of the Exchange Notes in
the Offering Memorandum will conform in all material respects to the Exchange
Notes.
(g) The Subsidiary Guarantees to be endorsed on the
Exchange Notes have been duly authorized by the Subsidiary Guarantors and, when
executed by the Subsidiary Guarantors and when the Exchange Notes are issued and
authenticated in accordance with the terms of the Registered Exchange Offer and
the Indenture, such Subsidiary Guarantees will have been validly issued and
delivered and will constitute valid and binding obligations of the Subsidiary
Guarantors entitled to the benefits of the Indenture and enforceable in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and the description of such Subsidiary Guarantees in the
Offering Memorandum will conform in all material respects to such Subsidiary
Guarantees.
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(h) All the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable and are free of any preemptive or similar rights; the authorized
capital stock of the Company conforms to the description thereof in the Offering
Memorandum.
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and its subsidiaries (the "Subsidiaries")
taken as a whole (a "Material Adverse Effect").
(j) The Subsidiary Guarantors are the only
subsidiaries of the Company (except for Aviation Sales Company FSC, Ltd. and
Aviation Sales SPS I, Inc. which have no material operations or assets). Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Offering Memorandum, and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify or be in good standing does not have a Material Adverse Effect. All the
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and are wholly
owned by the Company directly or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest
(except for security interests in favor of Citicorp USA, Inc. as agent for the
Company's various lenders), equity or other encumbrance, except as described in
the Offering Memorandum.
(k) There are no legal or governmental proceedings
pending or, to the knowledge of the Company or any Subsidiary Guarantor,
threatened, against the Company or any of the Subsidiaries or to which the
Company or any of the Subsidiaries or any of their respective properties is
subject, that are not disclosed in the Offering Memorandum and which, if
adversely decided, are reasonably likely to cause a Material Adverse Effect or
to materially affect the issuance of the Senior Subordinated Notes or the
Subsidiary Guarantees or the consummation of the transactions contemplated by
this Agreement. There are no material agreements, contracts, indentures, leases
or other instruments that are not described in the Offering Memorandum.
(l) Neither the Company nor any of the Subsidiaries
is (i) in violation of its certificate or articles of incorporation or by-laws
or other organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, except where any such
violation or violations in the aggregate would not have a Material Adverse
Effect or (ii) in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement, indenture, lease or
other instrument to which the Company or any of the Subsidiaries is a party or
by which any of them or any of their respective properties may be bound, except
where such default or defaults in the aggregate would not have a Material
Adverse Effect.
(m) None of the issuance, offer, sale or delivery of
the Senior Subordinated
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Notes or the Subsidiary Guarantees, the execution, delivery or performance of
this Agreement or the Indenture or the Registration Rights Agreement by the
Company and the Subsidiary Guarantors or the consummation by the Company and the
Subsidiary Guarantors of the transactions contemplated hereby or thereby (i)
requires any consent, approval, authorization or other order of, or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required in
connection with the registration under the Act of the Senior Subordinated Notes
in accordance with the Registration Rights Agreement, qualification of the
Indenture under the 1939 Act and compliance with the securities or Blue Sky laws
of various jurisdictions), or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiary Guarantors or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, in any material
respect, any material agreement, indenture, lease or other instrument to which
the Company or any of the Subsidiaries is a party or by which any of them or any
of their respective properties may be bound, or violates or will violate in any
material respect any statute, law, regulation or filing or judgment, injunction,
order or decree applicable to the Company or any of the Subsidiaries or any of
their respective properties, or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
the Subsidiaries pursuant to the terms of any agreement or instrument to which
any of them is a party or by which any of them may be bound or to which any of
the property or assets of any of them is subject.
(n) The accountants, Arthur Andersen LLP and Clark,
Schaefer, Hackett & Co., who have certified or shall certify the financial
statements included as part of the Offering Memorandum (or any amendment or
supplement thereto), each are independent public accountants under Rule 101 of
the AICPA'a Code of Professional Conduct, and its interpretation and rulings.
(o) The consolidated historical financial statements,
together with related schedules and notes, included in the Offering Memorandum
(and any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position of
the entities covered thereby on the basis stated in the Offering Memorandum at
the respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated, in accordance with generally
accepted accounting principles consistently applied throughout such periods. The
pro forma financial statements included in the Offering Memorandum (and any
amendment or supplement thereto) have been prepared on a basis consistent with
such historical financial statements, except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable basis and
present fairly the historical and proposed transactions contemplated by this
Agreement and the Offering Memorandum (and any amendment or supplement thereto).
The other financial and statistical data included in the Offering Memorandum,
historical and pro forma, are, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the entities covered thereby.
(p) The execution and delivery of, and the
performance by the Company and the Subsidiary Guarantors of their obligations
under, this Agreement and the Registration Rights Agreement have been duly and
validly authorized by the Company and the Subsidiary Guarantors, respectively,
and this Agreement has been duly executed and delivered by the Company and the
Subsidiary Guarantors and constitutes, and the Registration Rights Agreement
when executed by the Company and the Subsidiary Guarantors will constitute, the
valid and legally binding agreements of the Company and the Subsidiary
Guarantors, enforceable against the Company and the Subsidiary Guarantors in
accordance with their terms, except as the enforcement hereof and thereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to the applicability
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<PAGE>
of general principles of equity, and except as rights to indemnity and
contribution hereunder and thereunder may be limited by Federal or state
securities laws or principles of public policy, and the description of the
Registration Rights Agreement in the in the Offering Memorandum conforms in all
materials respects to the Registration Rights Agreement.
(q) Except as disclosed in the Offering Memorandum
(or any amendment or supplement thereto), subsequent to the date as of which
such information is given in the Offering Memorandum (or any amendment or
supplement thereto), neither the Company nor any of the Subsidiaries has
incurred any liability or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that is material to the
Company and the Subsidiaries taken as a whole, and there has not been any
material change in the capital stock, or material increase in the short-term or
long-term debt, of the Company or any of the Subsidiaries or any material
adverse change, or any development involving or which could reasonably be
expected to involve a prospective material adverse change, in the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole.
(r) Each of the Company and the Subsidiaries has
good and marketable title to all property (real and personal) described in the
Offering Memorandum as being owned by it, free and clear of all liens, claims,
security interests (except for security interests in favor of Citicorp USA, Inc.
as agent for the Company's various lenders), or other encumbrances except such
as are described in the Offering Memorandum, and all the property described in
the Offering Memorandum as being held under lease by each of the Company and the
Subsidiaries is held by it under valid, subsisting and enforceable leases, with
only such exceptions as in the aggregate are not materially burdensome and do
not interfere in any material respect with the conduct of the business of the
Company and the Subsidiaries taken as a whole.
(s) Except as permitted by the Act, the Company has
not distributed and, prior to the later to occur of the Closing Date and
completion of the distribution of the Senior Subordinated Notes, will not
distribute any offering material in connection with the offering and sale of the
Senior Subordinated Notes other than the Preliminary Offering Memorandum and
Offering Memorandum.
(t) Each of the Company and the Subsidiaries has such
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own their respective properties and
to conduct their business in the manner described in the Offering Memorandum,
subject to such qualifications as may be set forth in the Offering Memorandum;
each of the Company and the Subsidiaries has fulfilled and performed all their
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any such permit, subject in each case to such qualification as may
be set forth in the Offering Memorandum; and, except as described in the
Offering Memorandum, none of such permits contains any restriction that is
materially burdensome to the operation of the business conducted by the Company
or any of the Subsidiaries.
(u) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets
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at reasonable intervals and appropriate action is taken with respect to any
differences.
(v) Neither the Company nor any of the Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation,
which violation would have a Material Adverse Effect.
(w) The Company and each of the Subsidiaries have
filed all tax returns required to be filed on or prior to the date hereof
(giving effect to applicable extension periods), which returns are complete and
correct, and neither the Company nor any Subsidiary is in default in the payment
of any taxes which were payable pursuant to said returns or any assessments with
respect thereto.
(x) Except as disclosed in the Offering Memorandum,
no holder of any security of the Company has any right to request or demand
registration of shares of Common Stock or any other security of the Company
because of the consummation of the transactions contemplated by this Agreement
or the Registration Rights Agreement. Except as described in or contemplated by
the Offering Memorandum, there are no outstanding options, warrants or other
rights calling for the issuance of, and there are no commitments, plans or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable or exercisable for capital stock of
the Company.
(y) The Company and each of the Subsidiaries own or
possess all patents, trademarks, trademark registration, service marks, service
mark registrations, trade names, copyrights, licenses, inventions, trade secrets
and rights described in the Offering Memorandum as being owned by any of them or
necessary for the conduct of their respective businesses, and the Company and
the Subsidiary Guarantors are not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the Subsidiaries
with respect to the foregoing.
(z) Neither the Company nor any Subsidiary is, and
upon sale of the Senior Subordinated Notes and the Subsidiary Guarantees to be
issued and sold hereby in accordance herewith and the application of the net
proceeds to the Company of such sale as described in the Offering Memorandum
under the caption "Use of Proceeds," no such entity will be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(aa) When the Senior Subordinated Notes and the
Subsidiary Guarantees are issued and delivered pursuant to this Agreement,
neither such Senior Subordinated Notes nor the Subsidiary Guarantees will be of
the same class (within the meaning of Rule 144A(d)(3) under the Act) as any
security of the Company or Subsidiary Guarantor that is listed on a national
securities exchange registered under Section 6 of the Exchange Act or that is
quoted in a United States automated interdealer quotation system.
(bb) Neither the Company nor any affiliate (as
defined in Rule 501(b) of Regulation D ("Regulation D") under the Act) of the
Company has directly, or through any agent (provided that no representation is
made as to the Initial Purchasers or any person acting on their behalf) (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Act) which is or will be integrated
with the offering and sale of the Senior Subordinated Notes and the Subsidiary
Guarantees in a manner that would require the registration of the Senior
Subordinated Notes or the Subsidiary Guarantees under the Act or (ii) engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offering of the Senior Subordinated Notes
and the Subsidiary Guarantees.
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<PAGE>
(cc) The Company is not required to deliver the
information specified in Rule 144A(d)(4) in connection with the offering and
resale of the Senior Subordinated Notes and the Subsidiary Guarantees by the
Initial Purchasers.
(dd) Assuming (i) that the representations and
warranties in Section 2 hereof are true, (ii) that the Initial Purchasers comply
with the covenants set forth in Section 2 hereof and (iii) that each person to
whom the Initial Purchasers offer, sell or deliver the Senior Subordinated Notes
is a Qualified Institutional Buyer, the purchase and sale of the Senior
Subordinated Notes and the Subsidiary Guarantees pursuant hereto (including the
Initial Purchasers' proposed offering of the Senior Subordinated Notes and the
Subsidiary Guarantees on the terms and in the manner set forth in the Offering
Memorandum and Section 2 hereof) is exempt from the registration requirements of
the Act.
(ee) The Company and each of the Subsidiaries have
fulfilled their obligations, if any, under the minimum funding standards of
Section 302 of the United States Employee Retirement Income Security Act of 1974
("ERISA") and the regulations and published interpretations thereunder with
respect to each "plan" (as defined in ERISA and such regulations and published
interpretations) in which employees of the Company and the Subsidiaries are
eligible to participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such regulations
and published interpretations, and has not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA.
(ff) The execution and delivery of this Agreement,
the other Operative Documents and the sale of the Senior Subordinated Notes and
the Subsidiary Guarantees to the Initial Purchasers or by the Initial Purchasers
to Eligible Purchasers will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Code. The representation
made by the Company and the Subsidiary Guarantors in the preceding sentence is
made in reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by the Eligible Purchasers as
set forth in the Offering Memorandum under the section entitled "Notice to
Investors."
(gg) The Company and each of the Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds insuring the
Company or any of the Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
the Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of the Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause.
(hh) To the best knowledge of the Company and the
Subsidiary Guarantors, no labor problem exists with the Company's employees or
with employees of any Subsidiary or is imminent, which labor problem could
adversely affect the Company and the Subsidiaries, taken as a whole, and the
Company and the Subsidiary Guarantors are not aware of any existing or imminent
labor disturbance by the employees of any of their principal suppliers,
contractors or customers that could be expected to have a Material Adverse
Effect.
(ii) The Company and the Subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health
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and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) in receipt of all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a Material Adverse Effect. Neither the Company
nor any of the Subsidiaries has been named as a "potentially responsible party"
under the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended ("CERCLA").
(jj) Those persons listed in the Offering Memorandum
under the section entitled "Management -- Executive Officers" are the only
persons who constitute executive officers of the Company and have been the only
executive officers of the Company at all times since December 31, 1996.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the
Subsidiary Guarantors jointly and severally agree to indemnify and hold harmless
each Initial Purchaser and each person, if any, who controls any Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Memorandum or Offering Memorandum or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with information relating to any Initial
Purchaser furnished in writing to the Company by or on behalf of such Initial
Purchaser expressly for use in connection therewith; PROVIDED, HOWEVER, that the
indemnification contained in this paragraph (a) with respect to the Preliminary
Offering Memorandum shall not inure to the benefit of any Initial Purchaser (or
to the benefit of any person controlling such Initial Purchaser) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Senior Subordinated Notes by such Initial Purchaser to any person if the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in the Preliminary Offering Memorandum was corrected in
the Offering Memorandum and such Initial Purchaser sold Senior Subordinated
Notes to that person without sending or giving, at or prior to the written
confirmation of such sale, a copy of the Offering Memorandum (as then amended or
supplemented) if the Company or the Subsidiary Guarantors have previously
furnished sufficient copies thereof to the Initial Purchasers on a timely basis
to permit such sending or giving. The foregoing indemnity agreement shall be in
addition to any liability which the Company or the Subsidiary Guarantors may
otherwise have.
(b) If any action, suit or proceeding shall be
brought against any Initial Purchaser or any person controlling such Initial
Purchaser in respect of which indemnity may be sought against the Company or the
Subsidiary Guarantors, such Initial Purchaser or such controlling person shall
promptly notify the parties against whom indemnification is being sought (the
"indemnifying parties"), and such indemnifying parties shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such Initial Purchaser or any such controlling person shall have the
right to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Initial Purchaser or such controlling person
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel, or (iii) the named
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parties to any such action, suit or proceeding (including any impleaded parties)
include both such Initial Purchaser or such controlling person and the
indemnifying parties and such Initial Purchaser or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Initial Purchaser or such controlling person). It is understood, however, that
the indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Initial Purchasers and controlling persons not having actual or
potential differing interests with the Initial Purchasers or among themselves,
which firm shall be designated in writing by Salomon Brothers Inc, and that all
such fees and expenses shall be reimbursed on a monthly basis as provided in
paragraph (a) hereof. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Initial Purchaser,
to the extent provided in paragraph (a), and any such controlling person from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Subsidiary
Guarantors and their respective directors and officers, and any person who
controls the Company or any Subsidiary Guarantor within the meaning of Section
15 of the Act or Section 20 of the Exchange Act to the same extent as the
indemnity from the Company and the Subsidiary Guarantors to the Initial
Purchasers set forth in paragraph (a) hereof, but only with respect to
information relating to such Initial Purchaser furnished in writing by or on
behalf of such Initial Purchaser expressly for use in the Preliminary Offering
Memorandum or Offering Memorandum or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Company or the
Subsidiary Guarantors, any of their respective directors or officers, or any
such controlling person based on the Preliminary Offering Memorandum or Offering
Memorandum, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against the Initial Purchasers pursuant to this
paragraph (c), the Initial Purchasers shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof the Initial Purchasers shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the Initial
Purchasers' expense), and the Company and the Subsidiary Guarantors, their
respective directors and officers, and any such controlling person shall have
the rights and duties given to the Initial Purchasers by paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
any Initial Purchaser may otherwise have.
(d) If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under paragraph (a) or (c)
hereof in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Subsidiary Guarantors on the one hand
and the Initial Purchasers on the other hand from the offering of the Senior
Subordinated Notes, or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Subsidiary
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Guarantors on the one hand and the Initial Purchasers on the other in connection
with the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Subsidiary Guarantors on
the one hand and the Initial Purchasers on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total discounts and
commissions received by the Initial Purchasers. The relative fault of the
Company and the Subsidiary Guarantors on the one hand and the Initial Purchasers
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Subsidiary Guarantors on the one hand or by the
Initial Purchasers on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company, the Subsidiary Guarantors and the
Initial Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 6 were determined by a pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in paragraph (d) above. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in paragraph (d) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim or
defending any such action, suit or proceeding. Notwithstanding the provisions of
this Section 6, no Initial Purchaser shall be required to contribute any amount
in excess of the amount by which the total price of the Senior Subordinated
Notes purchased by it and distributed to the public exceeds the amount of any
damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 6 are several in proportion
to the respective principal amount of Senior Subordinated Notes set forth
opposite their names in Schedule I hereto and not joint.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or
expenses for which an indemnified party is entitled to indemnification or
contribution under this Section 6 shall be paid on a monthly basis by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution agreements
contained in this Section 6 and the representations and warranties of the
Company and the Subsidiary Guarantors set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of the Initial Purchasers or any person controlling any Initial
Purchaser, the Company, any Subsidiary Guarantor, their respective directors or
officers or any person controlling the Company or any Subsidiary Guarantor, (ii)
acceptance of any Senior Subordinated Notes and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to an Initial Purchaser or
any person controlling such Initial Purchaser, or to the Company, any Subsidiary
Guarantor, their respective directors or officers or any person controlling the
Company or any Subsidiary Guarantor, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
6.
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7. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the Initial Purchasers to purchase the Senior Subordinated Notes
hereunder are subject to the following conditions:
(a) At the time of execution of this Agreement and
on the Closing Date, no order or decree preventing the use of the Offering
Memorandum or any amendment or supplement thereto, or any order asserting that
the transactions contemplated by this Agreement are subject to the registration
requirements of the Act shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending or, to the knowledge of
the Company or any Subsidiary Guarantor, be contemplated. No stop order
suspending the sale of the Senior Subordinated Notes in any jurisdiction
designated by the Initial Purchasers shall have been issued and no proceedings
for that purpose shall have been commenced or shall be pending or, to the
knowledge of the Company or any Subsidiary Guarantor, shall be contemplated.
(b) Subsequent to the effective date of this
Agreement, there shall not have occurred (i) any change, or any development
involving a prospective change, in or affecting the condition (financial or
other), business, properties, net worth, or results of operations of the Company
or the Subsidiaries not contemplated by the Offering Memorandum, which in the
opinion of the Initial Purchasers, would materially adversely affect the market
for the Senior Subordinated Notes, or (ii) any event or development relating to
or involving the Company or any officer or director of the Company which makes
any statement made in the Offering Memorandum untrue or which, in the opinion of
the Company and its counsel or the Initial Purchasers and their counsel,
requires the making of any addition to or change in the Offering Memorandum in
order to state a material fact required by any law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Offering Memorandum to reflect such event or development
would, in the opinion of the Initial Purchasers, materially adversely affect the
market for the Senior Subordinated Notes.
(c) The Initial Purchasers shall have received on the
Closing Date an opinion of Akerman, Senterfitt & Eidson, P.A., counsel for the
Company and the Subsidiary Guarantors, dated the Closing Date and addressed to
the Initial Purchasers, to the effect that:
(i) The Company is a corporation duly organized and
validly existing in good standing under the laws of the
State of Delaware with full corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum (and any
amendment or supplement thereto) and is duly registered and
qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its
properties or the conduct of its business requires such
registration or qualification, except where the failure so
to register or qualify does not have a Material Adverse
Effect;
(ii) Each of the Subsidiaries (other than Aviation
Sales Company FSC, Ltd.) is a corporation duly organized and
validly existing and in good standing under the laws of the
jurisdiction of its organization, with full corporate power
and authority to own, lease, and operate its properties and
to conduct its business as described in the Offering
Memorandum (and any amendment or supplement thereto); and
all the outstanding shares of capital stock of each of the
Subsidiaries (other than Aviation Sales Company FSC, Ltd.)
have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned of record and, to the best
knowledge of such counsel after reasonable inquiry,
beneficially by the Company directly, or indirectly through
one of the other Subsidiaries, free and clear of any
perfected security interest (except for security interests
in favor of Citicorp USA, Inc. as agent for the Company's
various lenders) or, to the best knowledge of such counsel
after reasonable inquiry, any other security
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interest, lien, adverse claim, equity or other encumbrance;
(iii) The authorized capital stock of the Company is as
set forth under the caption "Capitalization" in the Offering
Memorandum;
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Senior Subordinated
Notes have been duly authorized and validly issued, are
fully paid and nonassessable;
(v) The Company and the Subsidiary Guarantors have
corporate power and authority to enter into this Agreement,
the Indenture and the Registration Rights Agreement and to
issue, sell and deliver the Senior Subordinated Notes and
the Subsidiary Guarantees, respectively, to the Initial
Purchasers as provided herein, and each of this Agreement,
the Indenture and the Registration Rights Agreement has been
duly authorized, executed and delivered by the Company and
the Subsidiary Guarantors and is a valid, legal and binding
agreement of the Company and the Subsidiary Guarantors;
(vi) No qualification of the Indenture under the 1939
Act is required in connection with the offer and sale of the
Senior Subordinated Notes and Subsidiary Guarantees
contemplated hereby or in connection with the Exempt
Resales;
(vii) The Senior Subordinated Notes have been duly and
validly authorized by the Company and when executed by the
Company in accordance with the Indenture and, assuming due
authentication of the Senior Subordinated Notes by the
Trustee, upon delivery to the Initial Purchasers against
payment therefor in accordance with the terms hereof, will
have been validly issued and delivered, and will constitute
valid and binding obligations of the Company entitled to the
benefits of the Indenture, and the description of the Senior
Subordinated Notes in the Offering Memorandum will conform
in all material respects to such Senior Subordinated Notes;
(viii) The Subsidiary Guarantees to be endorsed on the
Senior Subordinated Notes have been duly and validly
authorized by each Subsidiary Guarantor and when executed by
the Subsidiary Guarantors in accordance with the Indenture
and upon delivery to the Initial Purchasers, will have been
validly issued and delivered, and will constitute valid and
binding obligations of the Subsidiary Guarantors entitled to
the benefits of the Indenture, and the description of such
Subsidiary Guarantees in the Offering Memorandum will
conform in all material respects to such Subsidiary
Guarantees;
(ix) The Exchange Notes have been duly and validly
authorized by the Company and when executed by the Company
in accordance with the Indenture and, assuming due
authentication of the Exchange Notes by the Trustee, upon
delivery in accordance with the terms of the Registered
Exchange Offer and the Indenture, will have been validly
issued and delivered, and will constitute valid and binding
obligations of the Company entitled to the benefits of the
Indenture, and the description of the Exchange Notes in the
Offering Memorandum will conform in all material respects to
such Exchange Notes;
(x) The Subsidiary Guarantees to be endorsed on the
Exchange Notes have been duly and validly authorized by the
Company and when executed by the Subsidiary Guarantors in
accordance with the terms of the Registered Exchange Offer
and the Indenture, such
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Subsidiary Guarantees will have been validly issued and
delivered, and will constitute valid and binding obligations
of the Subsidiary Guarantors entitled to the benefits of the
Indenture, and the description of such Subsidiary Guarantees
in the Offering Memorandum will conform in all material
respects to such Subsidiary Guarantees;
(xi) Neither the offer, sale or delivery of the Senior
Subordinated Notes or the Subsidiary Guarantees, the
execution, delivery or performance by the Company and the
Subsidiary Guarantors of this Agreement, the Registration
Rights Agreement or the Indenture, compliance by the Company
and the Subsidiary Guarantors with the provisions hereof or
thereof nor consummation by the Company and the Subsidiary
Guarantors of the transactions contemplated hereby or
thereby conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, in any
material respect, the certificate or articles of
incorporation or bylaws or other organizational documents of
the Company or any of the Subsidiary Guarantors or any
material agreement, indenture, lease or other instrument
known to such counsel after reasonable inquiry, to which the
Company or any of the Subsidiaries is a party or by which
any of them or any of their respective properties is bound,
or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company or any of the Subsidiaries pursuant to the terms of
any material agreement or instrument known to such counsel
after reasonable inquiry, to which any of them is a party or
by which any of them may be bound or to which any of the
property or assets of any of them is subject, nor will any
such action result in any violation in any material respect
of any existing law, or any regulation, ruling (assuming
compliance with all applicable state securities and Blue Sky
laws and, in the case of the Registration Rights Agreement,
the Act, the Exchange Act and the 1939 Act), judgment,
injunction, order or decree known to such counsel after
reasonable inquiry, applicable to the Company, the
Subsidiaries or any of their respective properties;
(xii) No consent, approval, authorization or other
order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental
body, agency, or official is required on the part of the
Company or the Subsidiary Guarantors (except as may be
required under state securities or Blue Sky laws governing
the purchase, distribution and resale of the Senior
Subordinated Notes) for the valid issuance and sale of the
Senior Subordinated Notes and the Subsidiary Guarantees to,
or resale by, the Initial Purchasers as contemplated by this
Agreement;
(xiii) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or
contemplated in the Offering Memorandum (or any supplement
thereto), there are no legal or governmental proceedings
pending or threatened against the Company or any of the
Subsidiaries or to which the Company or any of the
Subsidiaries or any of their properties, are subject, which
are not disclosed in the Offering Memorandum and which, if
adversely decided, are reasonably likely to cause a Material
Adverse Effect or materially affects the issuance of the
Senior Subordinated Notes or the Subsidiary Guarantees or
the consummation of the transactions contemplated by this
Agreement and (B) there are no material agreements,
contracts, indentures, leases or other instruments, that are
not described in the Offering Memorandum (or any amendment
or supplement thereto);
(xiv) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the
Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having
jurisdiction over
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the Company or any of the Subsidiaries;
(xv) The Company and each of the Subsidiaries (other
than Aviation Sales Company FSC, Ltd.) have full corporate
power and authority, and all necessary governmental
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental
regulatory officials and bodies (except where the failure so
to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits, individually
or in the aggregate, would not have a Material Adverse
Effect and except as may be required under the Blue Sky laws
or state securities laws) to own their respective properties
and to conduct their respective businesses as now being
conducted, as described in the Offering Memorandum;
(xvi) The statements in the Offering Memorandum,
insofar as they are descriptions of contracts, agreements or
other legal documents, or refer to statements of law or
legal conclusions, are accurate in all material respects and
present fairly the information required to be shown;
(xvii) To the best knowledge of such counsel after
reasonable inquiry, except as described in the Offering
Memorandum, no person has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of
the Senior Subordinated Notes or the right, as a result of
the consummation of the transactions contemplated by this
Agreement, to require registration under the Act of any
shares of Common Stock or other securities of the Company;
(xviii) When the Senior Subordinated Notes and the
Subsidiary Guarantees are issued and delivered pursuant to
this Agreement, such Senior Subordinated Notes and
Subsidiary Guarantees will not be of the same class (within
the meaning of Rule 144A(d)(3) under the Act) as any
security of the Company or a Subsidiary Guarantor that is
listed on a national securities exchange registered under
Section 6 of the Exchange Act or that is quoted in a United
States automated interdealer quotation system;
(xix) No registration of the Senior Subordinated Notes
or the Subsidiary Guarantees under the Act is required for
the sale of the Senior Subordinated Notes and the Subsidiary
Guarantees to the Initial Purchasers as contemplated in this
Agreement or for the Exempt Resales (assuming (A) that any
Eligible Purchaser who buys the Senior Subordinated Notes in
the Exempt Resales is a Qualified Institutional Buyer, and
(B) the accuracy of the Initial Purchasers' representations
and those of the Company in this Agreement regarding the
absence of general solicitation in connection with the
Exempt Resales);
(xx) Such counsel is not aware of any material claim or
challenge by any other person to the rights of the Company
and the Subsidiaries with respect to any patents,
trademarks, trademark registrations, service marks, service
mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the
Offering Memorandum as being owned by them or any of them or
necessary for the conduct of their respective businesses;
(xxi) The Company is not required to deliver the
information specified in Rule 144A(d)(4) in connection with
the offering and resale of the Senior Subordinated Notes by
the Initial Purchasers;
(xxii) The Company is not required to obtain
stockholder consent for
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<PAGE>
the issuance or offering of the Senior Subordinated Notes;
and
(xxiii) Although such counsel have not undertaken,
except as otherwise indicated in their opinion, to determine
independently, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the
Offering Memorandum, such counsel have participated in the
preparation of the Offering Memorandum, including review and
discussion of the contents thereof, and nothing has come to
the attention of such counsel that has caused them to
believe that the Offering Memorandum, as of its date and as
of the Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading or that any amendment
or supplement to the Offering Memorandum, as of its
respective date, and as of the Closing Date contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion
with respect to the financial statements and the notes
thereto and the schedules and other financial and
statistical data included in the Offering Memorandum and
information furnished by or on behalf of the Initial
Purchasers).
(xxiv) To the best knowledge of such counsel after
reasonable inquiry, those persons listed in the Offering
Memorandum under the section entitled "Management --
Executive Officers" are the only persons who constitute
executive officers of the Company and have been the only
executive officers of the Company at all times since
December 31, 1996.
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by them or the Company as to laws of any jurisdiction other than the United
States or the States of Florida and Delaware, provided that (1) each such local
counsel is acceptable to the Initial Purchasers, (2) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
delivered to the Initial Purchasers and is, in form and substance satisfactory
to them and their counsel, and (3) counsel shall state in their opinion that
they believe that they and the Initial Purchasers are justified in relying
thereon. Counsel may also rely upon certificates of officers of the Company and
the Subsidiary Guarantors with respect to certain factual matters and upon
certificates and assurances from public officials.
For purposes of their opinion as aforesaid, the term "to the
best knowledge of such counsel after reasonable inquiry" or other similar words
means the actual current knowledge of those attorneys in counsel's law firm who
have provided services to the Company and the Subsidiary Guarantors, and that
such counsel has, among other actions deemed appropriate by such counsel, made
reasonable inquiries of those representatives of the Company and the Subsidiary
Guarantors who are, in the judgment of such counsel, likely to know the facts
upon which the opinion will be based and does not mean that such counsel has
made searches of public records or inquiries of third parties to verify the
facts underlying the opinion.
(d) The Initial Purchasers shall have received on the Closing
Date, an opinion of Paul, Hastings, Janofsky & Walker, special New York counsel
for the Company and the Subsidiary Guarantors, dated the Closing Date and
addressed to the Initial Purchasers to the effect that:
(i) Each of this Agreement, the Registration Rights
Agreement and (assuming due authorization, execution and delivery
by the Trustee) the Indenture is a valid, legal and binding
obligation of the Company and the Subsidiary Guarantors,
enforceable against the
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Company and the Subsidiary Guarantors in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that
rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or public policy relating
thereto.
(ii) Each of the Senior Subordinated Notes and the
Subsidiary Guarantees to be endorsed on the Senior Subordinated
Notes, when executed by the Company and the Subsidiary
Guarantors, respectively, and assuming due authentication by the
Trustee of the Senior Subordinated Notes, upon delivery to the
Initial Purchasers against payment therefore in accordance with
the terms hereof, will constitute a valid, legal and binding
obligation of the Company and the Subsidiary Guarantors,
respectively, enforceable against the Company and the Subsidiary
Guarantors, respectively, in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability,
to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at
law or in equity).
(iii) Each of the Exchange Notes and the Subsidiary
Guarantees to be endorsed on the Exchange Notes, when executed by
the Company and the Subsidiary Guarantors, respectively, and when
issued and authenticated in accordance with the terms of the
Registered Exchange Offer and the Indenture, upon delivery in
accordance with the terms of the Registered Exchange Offer and
the Indenture, will constitute a valid, legal and binding
obligation of the Company and the Subsidiary Guarantors,
respectively, enforceable against the Company and the Subsidiary
Guarantors, respectively, in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability,
to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at
law or in equity).
(e) The Initial Purchasers shall have received on the
Closing Date an opinion of Latham & Watkins, counsel for the Initial Purchasers,
dated the Closing Date, and addressed to the Initial Purchasers, with respect to
the Offering Memorandum and such other related matters as the Initial Purchasers
may reasonably request, and such counsel shall have received such certificates,
documents and information as they may reasonably request to enable them to pass
upon such matters.
(f) The Initial Purchasers shall have received
letters addressed to the Initial Purchasers, and dated the date hereof and the
Closing Date from Arthur Andersen LLP, independent certified public accountants,
substantially in the forms heretofore approved by the Initial Purchasers.
(g)(i) There shall not have been any change in the
capital stock of the Company nor any material increase in the short-term or
long-term debt of the Company (other than in the ordinary course of business)
from that set forth or contemplated in the Offering Memorandum (or any amendment
or supplement thereto); (ii) there shall not have been, since the respective
dates as of which information is given in the Offering Memorandum (or any
amendment or supplement thereto), except as may otherwise be stated in the
Offering Memorandum (or any amendment or supplement thereto), any material
adverse change in the condition (financial or other), business, prospects,
properties, net worth or results of
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operations of the Company and the Subsidiaries taken as a whole; (iii) the
Company and the Subsidiaries shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Offering Memorandum (or any amendment or supplement
thereto); and (iv) all the representations and warranties of the Company and the
Subsidiary Guarantors contained in this Agreement shall be true and correct in
all material respects on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and the Initial Purchasers shall
have received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief accounting officer of the Company (or such other
officers as are acceptable to the Initial Purchasers), to the effect set forth
in this Section 7(g) and in Section 7(h) hereof.
(h) The Company and the Subsidiary Guarantors shall
not have failed at or prior to the Closing Date to have performed or complied
with any of their agreements herein contained and required to be performed or
complied with by them hereunder at or prior to the Closing Date.
(i) There shall not have been any announcement by
any "nationally recognized statistical rating organization," as defined for
purposes of Rule 436(g) under the Act, that (i) it is downgrading its rating
assigned to any class of securities of the Company, or (ii) it is reviewing its
ratings assigned to any class of securities of the Company with a view to
possible downgrading, or with negative implications, or direction not
determined.
(j) The Senior Subordinated Notes shall have been
approved for trading on PORTAL.
(k) The Company and the Subsidiary Guarantors shall
have furnished or caused to be furnished to the Initial Purchasers such further
certificates and documents as the Initial Purchasers shall have requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers.
Any certificate or document signed by any officer of the
Company or any Subsidiary Guarantor and delivered to the Initial Purchasers, or
to counsel for the Initial Purchasers, shall be deemed a representation and
warranty by the Company or such Subsidiary Guarantor, respectively, to the
Initial Purchasers as to the statements made therein.
8. EXPENSES. The Company and the Subsidiary Guarantors agree
to pay the following costs and expenses and all other costs and expenses
incident to the performance by the Company and the Subsidiary Guarantors of
their obligations hereunder: (i) the preparation, printing or reproduction of
the Offering Memorandum (including financial statements thereto), and each
amendment or supplement to any of them, this Agreement and the Indenture; (ii)
the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the Offering
Memorandum, the Preliminary Offering Memorandum, and all amendments or
supplements to any of them as may be reasonably requested for use in connection
with the offering and sale of the Senior Subordinated Notes; (iii) the
preparation, printing, authentication, issuance and delivery of certificates for
the Senior Subordinated Notes, including any stamp taxes in connection with the
original issuance and sale of the Senior Subordinated Notes; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or
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<PAGE>
reproduced) and delivered in connection with the offering of the Senior
Subordinated Notes; (v) the application for quotation of the Senior Subordinated
Notes on the PORTAL market; (vi) the qualification of the Senior Subordinated
Notes for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 4(f) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Initial Purchasers relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such qualification); (vii) the performance
by the Company and the Subsidiary Guarantors of their obligations under the
Registration Rights Agreement; and (viii) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and the Subsidiary Guarantors.
9. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the execution and delivery hereof by all the parties hereto.
10. TERMINATION OF AGREEMENT. (a) This Agreement shall be
subject to termination in the absolute discretion of the Initial Purchasers,
without liability on the part of any Initial Purchaser to the Company or any
Subsidiary Guarantor, by notice to the Company, if prior to the Closing Date,
(i) trading in securities generally on the New York Stock Exchange, American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Florida shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in the judgment of
the Initial Purchasers, impracticable or inadvisable to commence or continue the
offering of the Senior Subordinated Notes on the terms set forth in the Offering
Memorandum or to enforce contracts for the resale of the Senior Subordinated
Notes by the Initial Purchasers. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
(b) If on the Closing Date any one or more of the
Initial Purchasers shall fail or refuse to purchase the Senior Subordinated
Notes which it or they have agreed to purchase hereunder on such date and the
amount of Senior Subordinated Notes which such defaulting Initial Purchaser or
Initial Purchasers, as the case may be, agreed but failed or refused to purchase
is not more than one-tenth of the total amount of Senior Subordinated Notes to
be purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the aggregate
principal amount of such securities set forth opposite its name in Schedule I
bears to the total amount of such Senior Subordinated Notes which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to purchase,
or in such other proportion as the Initial Purchasers may specify, to purchase
the securities which such defaulting Initial Purchaser or Initial Purchasers, as
the case may be, agreed but failed or refused to purchase on such date; provided
that in no event shall the aggregate principal amount of such securities which
any Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such aggregate amount of such Senior Subordinated Notes without the written
consent of such Initial Purchaser. If on the Closing Date any Initial Purchaser
or Initial Purchasers shall fail or refuse to purchase such Senior Subordinated
Notes and the aggregate amount of Senior Subordinated Notes with respect to
which such default occurs is more than one-tenth of the total amount of Senior
Subordinated Notes to be purchased by all Initial Purchasers and arrangements
satisfactory to the Initial Purchasers and the Company for the purchase of such
securities are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Initial Purchaser
and the Company. In any such case which does not result in termination of this
Agreement, either the Initial Purchasers or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Offering Memorandum or any other
documents or arrangements may be effected. Any action taken under this
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paragraph shall not relieve any defaulting Initial Purchaser from liability in
respect of any default of any such Initial Purchaser under this Agreement.
11. INFORMATION FURNISHED BY THE INITIAL PURCHASERS. The
statements set forth in the stabilization legend on page (i) and the last
paragraph on the cover page in the Preliminary Offering Memorandum and Offering
Memorandum, constitute the only information furnished by or on behalf of the
Initial Purchasers as such information is referred to in Sections 5(b) and 6
hereof.
12. MISCELLANEOUS. Except as otherwise provided in Sections 4
and 10 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company, at the office of the
Company at 6905 N.W. 25th Street, Miami, Florida 33172, Attention: Dale S.
Baker, President, with a copy to Akerman, Senterfitt & Eidson, P.A., Suntrust
International Center, 28th Floor, One Southeast Third Avenue, Miami, FL 33131,
Attention: Philip B. Schwartz or (ii) if to the Initial Purchasers, to care of
Salomon Brothers Inc., Seven World Trade Center, New York, NY 10048, Attention:
Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of
the Initial Purchasers, the Company, the Subsidiary Guarantors, their directors,
officers and the controlling persons referred to in Section 6 hereof and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from the Initial Purchasers of any of
the Senior Subordinated Notes in his status as such purchaser.
13. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York
and without regard to the conflicts of law principles thereof.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
24
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
Very truly yours,
AVIATION SALES COMPANY
By: _____________________________
Name:
Title:
AVIATION SALES OPERATING COMPANY
By: _____________________________
Name:
Title:
AVIATION SALES BEARINGS COMPANY
By: _____________________________
Name:
Title:
AVIATION SALES LEASING COMPANY
By: _____________________________
Name:
Title:
AVIATION SALES MANUFACTURING &
REPAIR COMPANY
By: _____________________________
Name:
Title:
S-1
<PAGE>
AVIATION SALES FINANCE COMPANY
By: _____________________________
Name:
Title:
AEROCELL STRUCTURES, INC.
By: _____________________________
Name:
Title:
AVS\KRATZ-WILDE MACHINE COMPANY
By: _____________________________
Name:
Title:
APEX MANUFACTURING INC.
By: _____________________________
Name:
Title:
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
CITICORP SECURITIES, INC.
By: SALOMON BROTHERS INC
By: __________________________
Managing Director
S-2
<PAGE>
SCHEDULE I
NAME OF COMPANY
PRINCIPAL AMOUNT
INITIAL PURCHASER OF SENIOR SUBORDINATED
- ----------------- ----------------------
NOTES
-----
Salomon Brothers Inc $82,500,000
BT Alex. Brown Incorporated $57,750,000
Citicorp Securities Inc. $24,750,000
Total $165,000,000
============
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the inclusion
in this registration statement of our report dated February 5, 1997 on the
consolidated financial statements of Aviation Sales Company and subsidiaries as
of December 31, 1996 and 1995, and for the three years in the period ended
December 31, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 24, 1998.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the inclusion
in this registration statement of our report dated October 10, 1997 on the
financial statements of Kratz-Wilde Machine Company as of October 31, 1996 and
1995, and for the year ended October 31, 1996 and to references to our firm
related to those statements included in this registration statement.
Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
March 24, 1998.
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
81/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
AVIATION SALES COMPANY
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF ALL OF
THEIR OUTSTANDING 81/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR
81/8% SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED ___________, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________,
1998, OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED
(THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN PRIOR TO THE
EXPIRATION DATE.
TO: SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION (THE "EXCHANGE
AGENT")
By Registered or Certified Mail
or Overnight Courier: By Facsimile: By Hand Delivery:
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS TO A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the
Prospectus (the "Prospectus"), dated ___________ ___, 1998, of Aviation Sales
Company (the "Company"), which, together with this Letter of Transmittal and the
Instructions hereto (the "Letter of Transmittal"), constitute the Company's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 8 1/8%
Series B Senior Subordinated Notes due 2008 (the "New Notes") that have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
for each $1,000 principal amount of its outstanding 8 1/8% Senior Subordinated
Notes due 2008 (the "Old Notes"), upon the terms and subject to the conditions
set forth in the Prospectus.
This Letter of Transmittal is to be used by Holders if: (i)
certificates representing Old Notes are to be physically delivered to the
Exchange Agent herewith by Holders; (ii) tender of Old Notes is to be made by
book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer--Procedures for Tendering" by any financial institution that
is a participant in DTC and whose name appears on a security position listing as
the owner of Old Notes (such participants, acting on behalf of Holders (as
defined below), are referred to herein, together with such Holders, as "Acting
Holders"); or (iii) tender of Old Notes is to be made according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any persons:
(i) in whose name Old Notes are registered on the books of the Issuer or any
other person who has obtained a properly completed bond power from the
<PAGE>
registered Holder or (ii) whose Old Notes are held of record by DTC and who
desires to deliver such Old Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 10 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
<TABLE>
<CAPTION>
===================================================================================================================
DESCRIPTION OF OLD NOTES (See INSTRUCTIONS 3 AND 4)
===================================================================================================================
Certificate(s) Tendered
(Attach Additional Signed Schedule if Necessary)
--------------------------------------------------
Aggregate
Principal Principal
Name(s) and Address(es) of Registered Holders: Certificate Amount of Amount
(Please Fill In, if Blank) Number(s)* Certificates* Tendered**
- -------------------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- -------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Old Notes
evidenced by any certificates delivered to the Exchange Agent are being
tendered. See Instruction 4 of this Letter of Transmittal.
2
<PAGE>
| | CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):_______________________________________
Window Ticket No. (if any):____________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________
Name of Eligible Institution which Guaranteed Delivery:________________
If Delivered by Book-Entry Transfer, the Account Number:_______________
Transaction Code Number:_______________________________________________
| | CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_________________________________________
Account Number:________________________________________________________
Transaction Code Number:_______________________________________________
Principal Amount of Tendered Notes:____________________________________
If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i)
time will not permit this Letter of Transmittal, certificates representing Old
Notes or other required documents to reach the Exchange Agent prior to the
Expiration Date, or (ii) the procedures for book-entry transfer cannot be
completed prior to the Expiration Date, such Holders may effect a tender of such
Old Notes in accordance with the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 2 below.
| | CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS
AFTER THE EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS
AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH
RESALES OF THE NEW NOTES.
Name:__________________________________________________________________
Address:_______________________________________________________________
Attention:_____________________________________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Subject to the terms of the Exchange Offer, the undersigned hereby
tenders to the Company the principal amount of Old Notes indicated above.
Subject to and effective upon acceptance for exchange of the principal amount of
Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sell, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Old Notes that are being tendered
hereby and irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
the Exchange Agent also acts as the agent of the Company and as Trustee under
the Indenture for the Old Notes and the New Notes) with respect to such Old
Notes, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest), to (a) deliver certificates
for such Old Notes to the Company, or transfer ownership of such Old Notes on
the account books maintained by DTC, together, in either such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Old Notes for transfer on the Company's books and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Old Notes, all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to validly tender, sell, assign and transfer the Old
Notes tendered hereby and, the Company will acquire good, valid and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims, when the same are acquired
by the Company. The undersigned also acknowledges that this Exchange Offer is
being made in reliance upon an interpretation by the staff of the Securities and
Exchange Commission that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. The undersigned
acknowledges that if he or she is participating in the Exchange Offer for the
purpose of distributing the New Notes, the undersigned must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of the New Notes. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes and the undersigned represents that such Old Notes were acquired as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such New
Notes, the undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The undersigned represents that (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of such Holder's
business, (ii) such Holder has no arrangements with any person to participate in
the distribution of such New Notes and (iii) such Holder is not an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company or, if such
Holder is an affiliate, that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
The undersigned will, upon request, execute any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. If any tendered Old Notes are
not accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Old Notes will be returned (except as noted
below with respect to tenders through DTC), without expense, to the undersigned
at the address shown below or at a different address shown below or at a
different address as may be indicated under "Special Issuance Instructions" as
soon as practicable following the Expiration Date.
4
<PAGE>
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by and shall survive the death or incapacity of the undersigned.
The undersigned understands that the valid tender of Old Notes pursuant
to the procedures described under the caption "The Exchange Offer--Procedures
for Tendering" in the Prospectus and in the Instructions hereto will constitute
a binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated herein under "Special Issuance
Instructions," please issue the certificates representing the New Notes issued
in exchange for the Old Notes accepted for exchange and return any Old Notes not
tendered or not exchanged in the name(s) of the undersigned (or in such event in
the case of Old Notes tendered by DTC, by credit to the account at DTC).
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please send the certificates representing the New Notes issued in exchange for
the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address(es) shown below the undersigned's signatures, unless,
in either event, tender is being made through DTC. In the event that both the
Special Issuance Instructions and the Special Delivery Instructions are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and return any certificates for
Old Notes not tendered or not exchanged in the name(s) of, and send said
certificates to, the person or persons so indicated. The undersigned recognizes
that the Company has no obligation pursuant to the Special Issuance Instructions
and Special Delivery Instructions to transfer any Old Notes from the name of the
registered holder(s) thereof if the Company does not accept for exchange any of
the Old Notes so tendered.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES REGARDLESS
OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below under "Capacity" and submit evidence satisfactory to the Issuer of
such person's authority to so act. See Instruction 5 herein.
If the signature appearing below is not of the registered Holder(s) of
the Old Notes, then the registered Holder(s) must sign a valid proxy.
X___________________________________
X___________________________________
Date:_______________________________
Date:_______________________________
Signature(s) of Holder(s) or Authorized Signatory
Name(s):____________________________
____________________________________
(Please Print)
Capacity:___________________________
Social Security No.:________________
Address:____________________________
____________________________________
(including zip code)
Area Code and Telephone No.:________
5
<PAGE>
SIGNATURE GUARANTEE (SEE INSTRUCTIONS 1 AND 5 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
_____________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
_____________________________________________________________________________
(Address (including zip code) and Telephone Number
(including area code) of Firm)
_____________________________________________________________________________
(Authorized Signatures)
_____________________________________________________________________________
(Printed Name)
_____________________________________________________________________________
(Title)
Date:___________________________________
6
<PAGE>
________________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered are to be issued in the name of, or the New Notes issued
pursuant to the Exchange Offer are to be issued to the order of, someone other
than the person or persons whose signature(s) appear(s) within this Letter of
Transmittal or issued to an address different from that shown in the box
entitled "Description of Old Notes" within this Letter of Transmittal, or if Old
Notes tendered by book-entry transfer that are not accepted for exchange are to
be credited to an account maintained at DTC.
Name:___________________________________________________________________________
(Please print or type)
Address:________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered or not accepted for exchange or the New Notes issued pursuant to the
Exchange Offer are to be sent to someone other than the person or persons whose
signature(s) appear(s) within this Letter of Transmittal or to an address
different from that shown in the box entitled "Description of Old Notes" within
this Letter of Transmittal.
Name:___________________________________________________________________________
(Please print or type)
Address:________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURE. No signature guarantee is required on this
Letter of Transmittal (i) if this Letter of Transmittal is signed by the
registered Holder(s) (including any participant in DTC whose name appears on a
security position listing as the owner of the Old Notes) of Old Notes tendered
herewith, unless such Holder(s) has completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Issuance Instructions" on
page 7 hereof or (ii) if such Old Notes are tendered for the account of a firm
which is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having and office, branch or agency in the United States (each, an
"Eligible Institution," and, collectively, "Eligible Institutions"). In all
other cases all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution (See Instruction 5).
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. For Old Notes
to be validly tendered pursuant to the Exchange Offer, (i) certificates for all
tendered Old Notes (or a confirmation of a book-entry into the Exchange Agent's
account at DTC of all Old Notes delivered electronically), together with a
properly completed and duly executed copy of this Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at the address set forth herein, prior to 5:00 p.m., New York
City time, on the Expiration Date.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes and all
other required documents to the Exchange Agent prior to the Expiration Date must
tender their Old Notes by properly completing and duly executing the Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in
the Prospectus. Pursuant to such procedure:(i) such tender must be made by or
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent must have received a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Old Notes, the certificate
number or numbers of the Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five business days after the
Expiration Date, this Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Old Notes (or a confirmation of electronic
book-entry delivery into the Exchange Agent's account at DTC) and any of the
required documents will be deposited by the Eligible Institution with the
Exchange Agent and (iii) the certificates for all tendered Old Notes in proper
form for transfer (or a confirmation of electronic mail delivery of book-entry
delivery into the Exchange Agent's account at DTC), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees, and any other required documents, must be
received by the Exchange Agent within five business days after the Expiration
Date, all as provided in the Prospectus under the caption "Guaranteed Delivery
Procedures." Any Holder of Old Notes who wishes to tender his Old Notes pursuant
to the guaranteed delivery procedures described above must ensure that the
Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m. New
York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR OLD
NOTES, IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. AS AN ALTERNATIVE TO DELIVERY BY MAIL, THE HOLDER MAY WISH TO USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NEITHER THE COMPANY NOR THE EXCHANGE AGENT IS
UNDER ANY OBLIGATION TO NOTIFY ANY TENDERING HOLDER OF THE COMPANY'S ACCEPTANCE
OF TENDERED OLD NOTES PRIOR TO THE COMPLETION OF THE EXCHANGE OFFER. NO LETTER
OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
3. INADEQUATE SPACE. If the space provided is inadequate, the
information required under "Description of Old Notes" should be listed on a
separate signed schedule and attached hereto.
8
<PAGE>
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If tenders are
to be made with respect to less than the entire principal amount of Old Notes
evidenced by any certificate, fill in the principal amount of Old Notes which
are tendered in column four of the "Description of Old Notes" box. In the case
of partial tenders, Old Notes for the principal amount of the Old Notes not
tendered and a certificate or certificates representing New Notes issued in
exchange for any Old Notes accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box in this Letter of Transmittal or unless tender is made through DTC, as
promptly as practicable after the Old Notes are accepted for exchange. All Old
Notes represented by the certificates delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS.
If this Letter of Transmittal (or facsimile hereof) is signed by the registered
Holder of the Old Notes tendered hereby, the signature must correspond with the
name as written on the face of the Old Notes without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and proper
evidence satisfactory to the Company of his authority so to act must be
submitted with this Letter of Transmittal.
When this Letter of Transmittal is signed by the registered Holder(s)
of the Old Notes listed and transmitted hereby and the certificate(s) for New
Notes issued in exchange thereof is to be issued (or any untendered principal
amount of Old Notes is to be reissued) to the registered Holders(s), no
endorsements of certificates or separate bond powers are required. In any other
case, such Holder(s) must either properly endorse the Old Notes tendered or
transmit a properly completed separate bond power with this Letter of
Transmittal, with the signatures on such certificates or bond powers guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the certificates listed, the certificates must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder(s) appear on the
certificates. Signatures on such certificates or bond powers must be guaranteed
by an Eligible Institution.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, the
Company will pay any transfer taxes payable with respect to the exchange of Old
Notes pursuant to the Exchange Offer. If, however, certificates representing New
Notes or Old Notes for principal amounts not tendered or accepted for exchange
are to be registered or issued in the name of any persons other than the
registered Holder(s) of the Old Notes tendered hereby, or if tendered Old Notes
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of the
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
9
<PAGE>
8. SUBSTITUTE FORM W-9. The tendering holder is required to provide the
Exchange Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify that the holder is not subject to backup withholding by checking
the box in Part 2 of the form. Failure to provide the information on the
Substitute Form W-9 may subject the tendering holder to 31% federal income tax
withholding on payments made by the Company on account of New Notes issued
pursuant to the Exchange Offer. The box in Part 3 of the Substitute Form W-9 may
be checked if the tendering holder has not been issued a TIN and has applied for
a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is
checked and the Company (or the Transfer Agent with respect to the New Notes) is
not provided with a TIN within 60 days, the Transfer Agent will withhold 31% on
all payments thereafter until a TIN is provided to the Transfer Agent. Foreign
Note holders are required to submit Form W-8 in order to avoid backup
withholding.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Old Notes to be deemed invalidly tendered, but may require the Company or the
Transfer Agent with respect to the New Notes, broker or custodian to withhold
31% of the amount of any payments made on account of the New Notes. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
9. MUTILATED, LOST OR DESTROYED CERTIFICATES. If any certificate(s)
representing Old Notes has been lost or destroyed, the Holder should promptly
notify the Exchange Agent. The Holder will then be instructed as to the
procedure to be followed in order to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until procedures for
replacing lost or destroyed certificates have been followed.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance or additional copies of the Prospectus, the Letter of
Transmittal, the Notice of Guaranteed Delivery and the Substitute Form W-9 may
be directed to the Exchange Agent at its address set forth above.
11. VALIDITY OF TENDERS. All questions as to the validity, form
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the right in its sole discretion to waive
any conditions of the Exchange Offer or defects or irregularities in tenders of
Old Notes as to any ineligibility of any Holder who seeks to tender Old Notes in
the Exchange Offer. The interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) by the Company shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes, but shall not incur any liability for failure
to give such notification. Tenders of Old Notes will not be deemed to have been
made until such effects or irregularities have been cured or waived.
12. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive, or modify specified conditions in the Exchange Offer in the case
of any tendered Old Notes.
13. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN
OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue Old Notes therefor as soon
as practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Old Notes when, as and if the Company has
given written and oral notice thereof to the Exchange Agent. If any tendered Old
Note are not exchange pursuant to the Exchange Offer for any reason, such
unexchanged Old Notes will be returned, without expense, to the undersigned at
the address shown above (or credited to the undersigned's account at the
Book-Entry Transfer Facility designated above) or at a different address as my
be indicated under "Special Delivery Instructions."
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<PAGE>
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
IMPORTANT TAX INFORMATION
Under federal income tax law, a person exchanging Old Notes for New
Notes must provide the Exchange Agent with his correct TIN on Substitute Form
W-9 on this Letter of Transmittal. If the Holder is an individual, his TIN is
his social security number. If the correct TIN is not provided, the Holder may
be subject to a penalty imposed by the Internal Revenue Service and payments
made pursuant to the Exchange Offer may be subject to backup withholding of 31%
Certain persons (including, among others, all corporations and certain
foreign individuals) are not subject to backup withholding. In order for a
foreign individual to qualify as an exempt recipient, that person must submit a
statement, signed under penalties of perjury, attesting to his exempt status.
Such statements can be obtained from the Exchange Agent.
<TABLE>
<CAPTION>
<S> <C> <C>
_________________________________________________________________________________________________________
Part 1 - Please provide your TIN in the box at right Social Security
and certify by signing and dating below. Number
SUBSTITUTE ______________________________________________________
FORM W-9 Part 2 - Check the box if you are NOT subject to OR_____________
backup withholding under the provisions of Section
DEPARTMENT OF 3408(a)(1)(C) of the Internal Revenue Code of 1986 Employer
THE TREASURY because (1) you have not been notified that you are Identification
INTERNAL REVENUE subject to backup withholding as a result of failure Number
SERVICE to report all interest or dividends or (2) the
Internal Revenue Service has notified you that you are
no longer subject to backup withholding. [ ] [ ] Awaiting TIN
PAYER'S REQUEST FOR ______________________________________________________
TAXPAYER Part 3 - Certification - Under the penalties of perjury.
IDENTIFICATION
NUMBER I certify that the information provided on this form
is true, correct and complete.
Print your name:______________________________________
Address:______________________________________________
______________________________________________________
Signature:____________________________________________
Date:_________________________________________________
_________________________________________________________________________________________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING ON ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
11
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
____________________________________ _________________________________
Signature Date
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
81/8% SENIOR SUBORDINATED NOTES DUE 2008 (THE "OLD NOTES")
OF
AVIATION SALES COMPANY
This form, or one substantially equivalent hereto, must be used to
tender Old Notes pursuant to the Exchange Offer described in the Prospectus
dated ________, 1998 (the "Prospectus") of Aviation Sales Company (the
"Company"), if a holder of Old Notes cannot deliver a Letter of Transmittal to
the Exchange Agent listed below (the "Exchange Agent") or cannot either deliver
the Old Note to be tendered or complete the procedure for book-entry transfer
prior to 5:00 p.m., New York City time, on ___________, 1998 or such later date
and time to which the Exchange Offer may be extended (the "Expiration Date").
This form, or one substantially equivalent hereto, must be delivered by hand or
sent by facsimile transmission or mail to the Exchange Agent, and must be
received by the Exchange Agent on or prior to the Expiration Date. See "The
Exchange Offer--Procedures for Tendering" in the Prospectus. Capitalized terms
used herein and not defined herein shall have the meanings ascribed thereto in
the Prospectus.
TO: SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
By Mail, by Hand or Overnight Delivery:
By Facsimile:
Confirm by Telephone:
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
13
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the holder of the
Old Notes indicated below and that the Letter of Transmittal cannot be delivered
to the Exchange Agent and/or either the certificates representing such Old Notes
cannot be delivered to the Exchange Agent or the procedure for book-entry
transfer cannot be completed prior to the Expiration Date. The undersigned
hereby tenders the Old Notes indicated below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and the Letter of Transmittal, receipt of
which is hereby acknowledged.
Name(s) of Tender Holder(s):_________________________________________
(Please Print or Type)
_________________________________________
(Signature)
Address(es):_________________________________________________________
Telephone Number(s):_________________________________________________
Name(s) in which Old Notes are registered____________________________
Aggregate Principal Aggregate Principal
Certificate No(s) (if applicable)* Amount Represented Amount Tendered
or Account Number at the Book-Entry Facility
- --------------------------
* Need not be completed by book-entry holders.
14
<PAGE>
GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealer, Inc., a commercial
bank or trust company having an office or a correspondent in the United States
or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing the
Old Notes being tendered hereby in proper form for transfer (or a confirmation
of book-entry transfer of such Old Notes, into the Exchange Agent's account at
the book-entry transfer facility) with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, all within five business
days after the Expiration Date.
Name of Firm:
Address:________________________
________________________________
(include zip code)
Telephone No.:__________________
Authorized Signature:
Name:___________________________
(Please Print or Type)
Title:__________________________
Dated:__________________________
The institution that completes this form must communicate the guarantee
to the Exchange Agent and must deliver the certificates representing any Old
Notes (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility) and the Letter of
Transmittal to the Exchange Agent within the time period shown herein. Failure
to do so could result in a financial loss to such institution.
15
