AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
<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 NUMBER)
</TABLE>
<TABLE>
<S> <C>
DALE S. BAKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6905 N.W. 25TH STREET
6905 N.W. 25TH STREET
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 592-4055 (305) 592-4055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES TO:
<TABLE>
<S> <C>
PHILIP B. SCHWARTZ, ESQ. LEE D. CHARLES, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. BAKER & BOTTS, L.L.P.
ONE S.E. THIRD AVENUE 599 LEXINGTON AVENUE
28TH FLOOR NEW YORK, NY 10022
MIAMI, FL 33131
</TABLE>
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement and the effective time of the proposed merger (the "Merger") of
Whitehall Corporation ("Whitehall") with a subsidiary of the registrant, as
described in the Agreement and Plan of Merger, dated as of March 26, 1998
attached as Annex A to the Proxy Statement/Prospectus forming a part 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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
$0.001 par value per share..... 3,101,229(1) Not Applicable 106,670,700 $ 31,470.00(2)
</TABLE>
- --------------------------------------------------------------------------------
(1) Based upon the product of (a) 6,030,000 the number of outstanding shares of
common stock, par value $0.10 per share ("Whitehall Common Stock") of
Whitehall Corporation ("Whitehall"), assuming the exercise of all
outstanding options issued by Whitehall to purchase Whitehall Common Stock
(whether or not currently exercisable) and (b) .5143, the Exchange Ratio
(as defined in the attached Merger Agreement).
(2) Estimated solely for the purpose of calculating the registration fee. The
registration fee was computed pursuant to Rules 457(f)(1) and 457(c) under
the Securities Act of 1933, as amended, by multiplying (a) $17.69, the
average of the high and low sales prices of a share of Whitehall Common
Stock on April 28, 1998 as quoted on the New York Stock Exchange, and (b)
6,030,000 the number of outstanding shares of Whitehall Common Stock,
assuming the exercise of all outstanding stock options issued by Whitehall
to purchase Whitehall Common Stock.
---------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
WHITEHALL CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.10 par value per share of Whitehall Corporation
(2) Aggregate number of securities to which transaction applies:
3,101,229
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$17.69. The proposed per unit price is based on the average of the high
and low sale price of the common stock, $0.10 par value per share, of
Whitehall Corporation, on April 28, 1998 as quoted by the New York
Stock Exchange.
(4) Proposed maximum aggregate value of transaction:
$106,670,700
(5) Total fee paid:
$31,470.00
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
$31,470.00
(2) Form, Schedule or Registration Statement No.:
Form S-4
(3) Filing Party:
Aviation Sales Company
(4) Date Filed:
April 30, 1998
<PAGE>
PRELIMINARY COPY
WHITEHALL CORPORATION
2659 NOVA DRIVE
DALLAS, TEXAS 75229
(972) 247-8747
, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
(the "Meeting") of Whitehall Corporation ("Whitehall") to be held June , 1998
at 10:00 a.m., local time, at , Florida.
A notice of the Meeting, a proxy card and a Proxy Statement/Prospectus
containing information about the matters to be acted upon at the Meeting are
enclosed. At the Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
March 26, 1998 (together with the exhibits and schedules thereto, the "Merger
Agreement"), pursuant to which a wholly-owned subsidiary of Aviation Sales
Company ("AVS") will be merged with and into Whitehall (the "Merger"). As a
result of the Merger, Whitehall will become a wholly-owned subsidiary of AVS.
The Merger Agreement provides for the conversion and exchange of each
outstanding share of common stock of Whitehall (the "Whitehall Common Stock")
into the right to receive .5143 shares of common stock of AVS ("AVS Common
Stock"). The accompanying Proxy Statement/Prospectus contains detailed
information concerning the other terms of the proposed Merger and certain
additional information. Please give all of this information your careful
attention. A copy of the Merger Agreement is included as Annex A to the
accompanying Proxy Statement/Prospectus and should be read in its entirety.
Your Board of Directors (the "Whitehall Board") has carefully reviewed and
considered the terms and conditions of the proposed Merger. In connection with
this review and consideration, the Whitehall Board retained Ladenburg Thalmann
& Co. Inc. ("Ladenburg") which has rendered an opinion (the "Ladenburg
Opinion") to the effect that the proposed exchange ratio of .5143 shares of AVS
Common Stock for each share of Whitehall Common Stock is fair from a financial
point of view to the holders of Whitehall Common Stock. A copy of the Ladenburg
Opinion, which sets forth the matters considered and the scope of review
undertaken in connection therewith, is included as Annex B to the accompanying
Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT,
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF WHITEHALL AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT THE STOCKHOLDERS OF WHITEHALL VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Approval and adoption of the Merger Agreement at the Meeting requires the
affirmative vote of a majority of the outstanding shares of Whitehall Common
Stock.
Whether or not you plan to attend the Meeting, please complete, sign and
date the enclosed proxy card and return it in the enclosed postage-paid
envelope, as soon as possible. If you attend the Meeting, you may vote in
person if you wish, even though you have previously returned your proxy card.
Thank you for your cooperation.
Sincerely,
George F. Baker
Chairman of the Board
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
WHITEHALL CORPORATION
2659 NOVA DRIVE
DALLAS, TEXAS 75229
(972) 247-8747
----------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE , 1998
----------------------------------------------------
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Meeting") of Whitehall Corporation, a Delaware corporation ("Whitehall"), will
be held on June , 1998, at 10:00 a.m., local time, at , Florida for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of March 26, 1998, among Aviation Sales
Company, a Delaware corporation ("AVS"), WHC Acquisition Corp., Inc., a
Delaware corporation and a wholly-owned subsidiary of AVS (the "Sub"), and
Whitehall (the "Merger Agreement"). Pursuant to the Merger Agreement, (a)
Sub will be merged with and into Whitehall (the "Merger") and, in
connection therewith, (b) each share of Whitehall's common stock, $0.10
par value per share ("Whitehall Common Stock"), outstanding immediately
prior to the Effective Time (as defined in the Merger Agreement) will be
converted into the right to receive, and will be exchangeable for, .5143
shares of common stock, $0.001 par value per share, of AVS (the "AVS
Common Stock"). The terms of the Merger Agreement and the AVS Common Stock
are described in detail in the accompanying Proxy Statement/Prospectus,
and the full text of the Merger Agreement is included as Annex A thereto.
2. To transact such other business as may properly come before the Meeting
or at any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on , 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting and at any adjournments or postponements thereof.
Whether or not you plan to attend the Meeting, holders of Whitehall Common
Stock should complete, sign, date and return the accompanying proxy card in the
enclosed envelope, which does not require postage if mailed in the United
States. This action will not limit your right to vote in person if you wish to
attend the Meeting and vote personally.
BY ORDER OF THE BOARD OF DIRECTORS,
Bruce C. Conway, Secretary
Dallas, Texas
, 1998
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE MEETING. DO NOT SEND ANY STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD. THE PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER
THE MERGER IS CONSUMMATED IS SET FORTH IN THE ATTACHED PROXY
STATEMENT/PROSPECTUS.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 30, 1998
PROXY STATEMENT
WHITEHALL CORPORATION
---------------
PROSPECTUS
AVIATION SALES COMPANY
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to stockholders of Whitehall Corporation, a Delaware
corporation ("Whitehall"), in connection with the solicitation of proxies by
the Board of Directors of Whitehall (the "Whitehall Board") for use in
connection with the special meeting of stockholders of Whitehall to be held on
June , 1998 and any adjournments or postponements thereof (the "Meeting").
At the Meeting, Whitehall's stockholders will consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
March 26, 1998, by and among Aviation Sales Company, a Delaware corporation
("AVS"), WHC Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of AVS (the "Sub") and Whitehall (the "Merger Agreement"). Pursuant
to the Merger Agreement, Sub is to be merged with and into Whitehall (the
"Merger"), and Whitehall is to become a wholly-owned subsidiary of AVS. The
Merger will become effective (the "Effective Time") upon the filing of a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, or at such later time as may be agreed to by AVS and
Whitehall and specified in the Certificate of Merger. Such filing is expected
to take place on the closing date of the transactions contemplated by the
Merger Agreement.
At the Effective Time, pursuant to the Merger Agreement, each share of
common stock, $0.10 par value per share, of Whitehall ("Whitehall Common
Stock") outstanding immediately prior to the Effective Time will be converted
into the right to receive, and will be exchangeable for, .5143 shares of common
stock, $0.001 par value per share, of AVS ("AVS Common Stock"). Based on
5,530,000 shares of Whitehall Common Stock issued and outstanding on April 29,
1998, and options to purchase 500,000 shares of Whitehall Common Stock
outstanding on April 29, 1998, AVS will issue approximately 2,844,079 shares of
AVS Common Stock, subject to adjustment, to the holders of shares of the
Whitehall Common Stock at the Effective Time, which excludes 257,150 shares of
AVS Common Stock to be issued upon exercise of outstanding options to purchase
Whitehall Common Stock.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY WHITEHALL STOCKHOLDERS IN VOTING UPON THE MERGER AGREEMENT.
AVS has filed a Registration Statement on Form S-4 (together with all
amendments, annexes, schedules and exhibits thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of AVS Common Stock that will be issued in connection
with the Merger. This Proxy Statement/Prospectus constitutes the Prospectus of
AVS filed as part of the Registration Statement. All information contained in
this Proxy Statement/ Prospectus concerning AVS has been provided by AVS. All
information contained in this Proxy Statement/Prospectus concerning Whitehall
has been provided by Whitehall.
---------------
THE SHARES OF AVS COMMON STOCK TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and the accompanying Notice of Special
Meeting of Stockholders and Proxy are first being mailed to the stockholders of
Whitehall on or about , 1998.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information .......................................................... 1
Incorporation of Certain Documents by Reference ................................ 2
Forward-Looking Statements ..................................................... 2
Summary ........................................................................ 3
Comparative per Share Data ..................................................... 13
Comparative Market Data ........................................................ 14
Risk Factors ................................................................... 15
The Meeting .................................................................... 19
The Merger ..................................................................... 21
Opinion of Whitehall's Financial Advisor ....................................... 32
Opinion of AVS's Financial Advisor ............................................. 36
The Merger Agreement ........................................................... 40
Comparative Rights of Stockholders ............................................. 50
Description of AVS Capital Stock ............................................... 54
AVS's Business ................................................................. 55
AVS's Management ............................................................... 64
AVS's Selected Consolidated Financial Information .............................. 66
AVS's Management's Discussion .................................................. 68
AVS's Security Ownership of Certain Beneficial Owners and Management ........... 76
Whitehall's Business ........................................................... 77
Whitehall's Selected Consolidated Financial Information ........................ 86
Whitehall's Management's Discussion ............................................ 87
Whitehall's Security Ownership of Certain Beneficial Owners and Management ..... 89
Legal Matters .................................................................. 90
Experts ........................................................................ 90
Stockholders' Proposals ........................................................ 90
Index to Financial Statements .................................................. F-1
AVS's Consolidated Financial Statements ........................................ F-2
Whitehall's Consolidated Financial Statements .................................. F-27
Unaudited Pro Forma Condensed Combined Financial Statements .................... P-1
ANNEX
A--Agreement and Plan of Merger ................................................ A-1
B--Opinion of Ladenburg Thalmann & Co. Inc. .................................... B-1
C--Opinion of SBC Warburg Dillon Read Inc. ..................................... C-1
D--AVS Voting Agreement and Irrevocable Proxy .................................. D-1
E--Whitehall Voting Agreement and Irrevocable Proxy ............................ E-1
</TABLE>
i
<PAGE>
AVAILABLE INFORMATION
AVS and Whitehall are subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information are available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission, located at Suite 1300, 7 World Trade Center, New
York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such materials can also be obtained by
mail from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Shares of AVS Common Stock and Whitehall Common Stock are traded on the
New York Stock Exchange ("NYSE"). Information filed by AVS and Whitehall can be
inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005. In
addition, electronic copies of the Registration Statement and all related
exhibits and schedules may be accessed on the World Wide Web via the
Commission's EDGAR database at its website (http://www.sec.gov).
This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Proxy Statement/Prospectus or in any
document incorporated in this Proxy Statement/Prospectus by reference as to the
contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each circumstance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or documents incorporated in this Proxy Statement/Prospectus. Each
such statement is qualified in all respects by such reference. The Registration
Statement and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above.
No person is authorized to give any information or to make any
representation in connection with the solicitation of proxies or the offering
of securities made hereby other than those contained in this Proxy
Statement/Prospectus or in the documents incorporated herein by reference and,
if given or made, such information or representation must not be relied upon as
having been authorized by AVS or Whitehall. This Proxy Statement/Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction, to any person
to whom it is not lawful to make any such offer or solicitation in each
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor the
issuance of securities made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of AVS or Whitehall
since the date hereof or that the information in this Proxy
Statement/Prospectus or in any documents incorporated herein by reference is
correct as of any time subsequent to its date.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by AVS (File
No. 001-11775) or Whitehall (File No. 033-65497) pursuant to the Exchange Act
are incorporated by reference in this Proxy Statement/Prospectus: (i) AVS's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended by
Form 10-K/A (Amendment No. 1); (ii) AVS's Current Report on Form 8-K/A dated
December 31, 1997; (iii) the description of AVS Common Stock contained in AVS
Registration Statement on Form 8-A12B, dated May 28, 1996; and (iv) Whitehall's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended by
Form 10-K/A (Amendment No. 1).
In addition, all documents filed by AVS or Whitehall with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date and prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein or contained in this Proxy Statement/Prospectus shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein (or in any other subsequently filed
document which also is incorporated by reference herein) modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement/Prospectus, except as so modified or
superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO
AVS, FROM AVIATION SALES COMPANY, 6905 N.W. 25TH STREET, MIAMI, FLORIDA,
TELEPHONE NUMBER (305) 592-4055; ATTENTION: JOSEPH E. CIVILETTO, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER, AND IN THE CASE OF DOCUMENTS RELATING TO
WHITEHALL, FROM WHITEHALL CORPORATION, P.O. BOX 29709, DALLAS, TEXAS 75229,
TELEPHONE NUMBER (972) 247-8747; ATTENTION: GARLAN BRAITHWAITE, SENIOR VICE
PRESIDENT. IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETING,
REQUESTS SHOULD BE MADE BY , 1998.
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus and in the documents
incorporated herein by reference constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of AVS, Whitehall, or industry results, to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. With respect to AVS, such risks, uncertainties and
other factors include, in addition to those described in "Risk Factors"
elsewhere in this Proxy Statement/Prospectus and in any Commission filing:
uncertainties with respect to changes or developments in social, business,
economic, industry, market, legal and regulatory circumstances and conditions
and actions to be taken or omitted to be taken or omitted to be taken by third
parties, including AVS's contractors, customers, suppliers, competitors,
stockholders, legislative, regulatory, judicial and other governmental
authorities. With respect to Whitehall, such risks, uncertainties and other
factors include, among others: general economic and business conditions,
aircraft and aviation industry trends, availability of financing and the
inability or failure to identify or consummate successful acquisitions or to
assimilate the operations of any acquired business with those of Whitehall.
These forward-looking statements speak only as of the date of this Proxy
Statement/ Prospectus. AVS and Whitehall expressly disclaim any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in AVS's or Whitehall's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE
TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO. WHITEHALL'S STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THIS PROXY STATEMENT/PROSPECTUS AND
THE ANNEXES ATTACHED HERETO.
PARTIES TO THE MERGER
AVIATION SALES COMPANY
AVS is a leading provider of fully integrated aviation inventory services
and a recognized worldwide leader in the redistribution of aircraft spare
parts. AVS 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 AVS 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 AVS include
purchasing services, repair management, warehouse management, aircraft
disassembly services, and consignment and leasing of inventories of aircraft
parts and engines. AVS 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 United States
Federal Aviation Administration ("FAA")--licensed repair facilities.
AVS's principal executive offices are located at 6905 N.W. 25th Street,
Miami, Florida 33122. Its telephone number is (305) 592-4055. AVS is currently
traded on the NYSE under the symbol "AVS."
WHITEHALL CORPORATION
Whitehall is an independent provider of maintenance and modification
services for commercial, military and freighter aircraft. Whitehall focuses
primarily on two categories of commercial customers: established traditional
commercial carriers that view outsourcing as a way to reduce operating expenses
and increase their competitiveness and new entrant, low-cost air carriers that
rely on outsourcing for scheduled heavy maintenance. Whitehall operates two FAA
and Joint Aviation Authority of the European Economic Community ("JAA")
certified repair stations that specialize in heavy maintenance and modification
of Boeing 707, 727, 737, McDonnell Douglas DC-8, DC-9, DC-10 and Lockheed
L-100, L-188 and C-130 aircraft. Aviation services offered by Whitehall include
scheduled "A," "B," "C" and "D" level inspections, block overhauls and repairs,
corrosion prevention and control programs and exterior stripping and painting.
Modification services provided by Whitehall include interior reconfiguration,
cargo conversions and avionics installations. Through a joint venture,
Whitehall also designs and markets hushkits which reduce the noise created by
Boeing 737-100 and 737-200 series aircraft to levels which comply with
FAA-mandated Stage 3 noise reduction standards.
Whitehall's principal executive officers are located at 2659 Nova Drive,
Dallas, Texas 75229. Its telephone number is (972) 247-8747. Whitehall is
currently traded on the NYSE under the symbol "WHT."
3
<PAGE>
THE MEETING
DATE, TIME AND PLACE OF MEETING
A special meeting of stockholders of Whitehall will be held on June ,
1998 at 10:00 a.m., local time, at , Florida. At the Meeting, Whitehall's
stockholders will be asked to consider and vote upon the proposal to approve
and adopt the Merger Agreement and such other matters as may be properly
brought before the Meeting. See "The Merger Agreement."
RECORD DATE AND VOTE REQUIRED
Holders of record of Whitehall Common Stock as of the close of business on
, 1998 (the "Record Date"), are entitled to notice of, and to vote at, the
Meeting and any adjournment or postponement thereof. Pursuant to the General
Corporation Law of the State of Delaware (the "DGCL"), Whitehall's Restated
Certificate of Incorporation (the "Whitehall Charter") and Whitehall's Bylaws,
the presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Whitehall Common Stock on the Record Date
is necessary to constitute a quorum at the Meeting, and the affirmative vote of
a majority of the outstanding shares of Whitehall Common Stock on the Record
Date is required to approve and adopt the Merger Agreement. Each share of
Whitehall Common Stock is entitled to one vote on each matter that is properly
presented to stockholders at the Meeting. As of the Record Date, directors and
executive officers of Whitehall and affiliates were beneficial owners of
outstanding shares of Whitehall Common Stock representing approximately %
of the total voting power of the shares of Whitehall Common Stock outstanding
on such date. See "Whitehall's Security Ownership of Certain Beneficial Owners
and Management." Pursuant to a Voting Agreement and Irrevocable Proxy, dated as
of March 26, 1998, among AVS, Cambridge Capital Fund, L.P. ("Cambridge") and
Baker Nye, L.P. ("Baker Nye") (the "Whitehall Voting Agreement"), each of
Cambridge and Baker Nye have agreed to vote their respective shares of
Whitehall Common Stock (representing in the aggregate approximately 34% of the
shares outstanding as of the Record Date) in favor of the adoption and approval
of the Merger Agreement. See "The Merger--Interests of Certain Persons in the
Merger--Voting Agreements" and Annex E to this Proxy Statement/Prospectus,
which contains the complete text of the Whitehall Voting Agreement.
THE MERGER
EFFECT OF THE MERGER
Pursuant to the Merger Agreement, upon consummation of the Merger, Sub
will merge with and into Whitehall, with Whitehall being the surviving
corporation (the "Surviving Corporation"). As a result of the Merger, Whitehall
will become a wholly-owned subsidiary of AVS. The Merger will become effective
upon the filing with the Delaware Secretary of State of the Certificate of
Merger in accordance with the applicable provisions of the DGCL, or at such
later time as may be agreed to by AVS and Whitehall and specified in the
Certificate of Merger. Such filing is expected to take place on the date of the
closing of the transactions contemplated by the Merger Agreement. The date on
which the closing of the transactions contemplated by the Merger Agreement
takes place, which, unless otherwise agreed among the parties, shall be on the
date on which the last of the conditions precedent to the Merger set forth in
the Merger Agreement (other than the filing of the Certificate of Merger and
other than any such conditions which by their terms are not capable of being
satisfied prior to such date) is satisfied or, when permissible, waived, is
herein called the "Closing Date." See "The Merger Agreement--Effective Time;
Effect of the Merger."
MERGER CONSIDERATION
Pursuant to the Merger Agreement, at the Effective Time, each share of
Whitehall Common Stock outstanding immediately prior to the Effective Time will
be converted into the right to receive, and will
4
<PAGE>
be exchangeable for, .5143 shares of AVS Common Stock (the "Exchange Ratio").
Fractional shares of AVS Common Stock will not be issued in the Merger and
holders of Whitehall Common Stock otherwise entitled to a fractional share of
AVS Common Stock will receive an amount in cash equal to the same fraction of
the current market value of a whole share of AVS Common Stock determined as
described herein under "The Merger Agreement--Conversion of Shares." For a
summary of the material differences between the rights of holders of AVS Common
Stock and the rights of holders of Whitehall Common Stock, see "Comparative
Rights of Stockholders." For a description of the AVS Common Stock to be issued
in the Merger, see "Description of AVS Capital Stock--AVS Common Stock."
At the Effective Time, outstanding options to purchase shares of Whitehall
Common Stock (collectively, "Whitehall Options") will be converted into the
right to purchase that number of shares of AVS Common Stock as the holder of
such would have been entitled to receive had they exercised such options prior
to the consummation of the Merger and participated in the Merger. As of April
29, 1998, there were outstanding options to purchase 500,000 shares of
Whitehall Common Stock. Additionally, options to purchase shares of Whitehall
Common Stock granted pursuant to Whitehall's 1992 Incentive Stock Option Plan
(which will be converted into options to purchase shares of AVS Common Stock,
as described above) will, in accordance with the terms of such plans,
immediately vest upon consummation of the Merger. All other Whitehall Options
will continue to vest in accordance with the vesting schedules contained in the
agreements evidencing such Whitehall Options.
FAIRNESS OPINIONS
Ladenburg Thalmann & Co. Inc. ("Ladenburg"), has delivered its written
opinion (the "Ladenburg Opinion") to the Whitehall Board to the effect that the
Exchange Ratio is fair, from a financial point of view, to Whitehall's
stockholders as of March 26, 1998. The full text of the Ladenburg Opinion is
set forth as Annex B of this Proxy Statement/Prospectus and should be read in
its entirety. Upon the completion of the Merger, Ladenburg will receive certain
fees for its role as financial advisor to Whitehall in the transaction. See
"Opinion of Whitehall's Financial Advisor," "The Merger--Interests of Certain
Persons in the Merger" and Annex B.
SBC Warburg Dillon Read Inc. ("SBCWDR"), acting as financial advisor to
AVS in connection with the Merger, has rendered an opinion to AVS Board of
Directors to the effect that the Exchange Ratio to be paid by AVS in the Merger
is fair to AVS from a financial point of view, as of March 26, 1998. The full
text of the opinion is set forth as Annex C to the Proxy Statement/Prospectus.
See "Opinion of AVS's Financial Advisor" which is annexed hereto as Annex C.
RECOMMENDATION OF WHITEHALL'S BOARD OF DIRECTORS
The Whitehall Board has unanimously adopted the Merger Agreement,
authorized the Merger and the transactions contemplated by the Merger
Agreement, and has determined that the Merger is in the best interest of, and
is on terms that are fair to, Whitehall's stockholders. Accordingly, the
Whitehall Board recommends approval and adoption of the Merger Agreement by
Whitehall's stockholders. For a discussion of the factors considered by the
Whitehall Board in reaching its decision, see "The Merger-- Background of the
Merger" and "--Reasons for the Merger." For a discussion of the interests of
certain members of the Whitehall Board in the Merger, see "The
Merger--Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Whitehall Board with respect to
the Merger, stockholders should be aware that some of the members of
Whitehall's management and the Whitehall Board have certain interests in the
Merger that are in addition to or different from the interests of
5
<PAGE>
stockholders of Whitehall generally. See "The Merger--Interests of Certain
Persons in the Merger." The Whitehall Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement.
In connection with the Merger Agreement, Cambridge and Baker Nye, which
together own in the aggregate approximately 34% of the outstanding shares of
Whitehall Common Stock, have entered into the Whitehall Voting Agreement .
Similarly, certain stockholders of AVS, owning in the aggregate approximately
30% of the outstanding shares of AVS Common Stock, have entered a Voting
Agreement and Irrevocable Proxy with Whitehall (the "AVS Voting Agreement")
containing terms substantially identical to those contained the Whitehall
Voting Agreement. Pursuant to the Whitehall Voting Agreement, Cambridge and
Baker Nye have agreed to vote their shares of Whitehall Common Stock, and have
given AVS an irrevocable proxy to vote their shares of Whitehall Common Stock,
(i) in favor of the adoption and approval of the Merger Agreement and the
Merger at a meeting of Whitehall stockholders where such matters are considered
and (ii) against any Alternative Proposal. George F. Baker, the Chairman of the
Board and Chief Executive Officer of Whitehall, is a general partner of
Cambridge and Baker Nye and may be deemed to own beneficially the 1,893,400
shares of Whitehall Common Stock owned by them.
Pursuant to the AVS Voting Agreement, Robert Alpert, RCP Management L.P.
("RCP") and AVAC Corporation ("AVAC"), Dale S. Baker and Harold M. Woody have
agreed to vote their shares of AVS Common Stock, and have given Whitehall an
irrevocable proxy to vote their shares of AVS Common Stock, (i) in favor of the
adoption and approval of the Merger Agreement and the Merger at a meeting of
AVS stockholders where such matters are considered and (ii) against any
Alternative Proposal (as defined in the Merger Agreement). Robert Alpert is a
director of AVS and beneficially owns the shares of AVS Common Stock owned by
RCP and AVAC. Dale S. Baker is the Chairman of the Board, President and Chief
Executive Officer of AVS and Harold M. Woody is Executive Vice President and a
director of AVS.
Under the Merger Agreement, AVS has agreed that effective immediately
following the closing of the Merger, it will increase the number of members of
the AVS Board of Directors from six (6) to eight (8) and appoint George F.
Baker and Jeffrey N. Greenblatt as members of the AVS Board of Directors.
George F. Baker and Jeffrey N. Greenblatt are to serve for respective terms
expiring at the annual meeting of the AVS stockholders to be held in 2001 and
2000. George F. Baker is the Chairman of the Board and Chief Executive Officer
of Whitehall and a general partner of Cambridge and Baker Nye. Jeffrey N.
Greenblatt is an employee of Whitehall and a general partner of Cambridge and
Baker Nye.
As a condition to Whitehall's obligation to consummate the Merger AVS has
agreed to enter into on the Closing Date, a registration rights agreement
("Registration Rights Agreement") with certain persons. Pursuant to the
Registration Rights Agreement, AVS has agreed to (i) prepare and file with the
Commission a registration statement for the offering or sale, on a delayed or
continuous basis, shares of AVS Common Stock issued to such persons pursuant to
the Merger Agreement and (ii) grant, in certain situations, demand and
"piggyback" registration rights for such shares. In addition to AVS, the
parties to the Registration Rights Agreement are Cambridge, Baker Nye, George
F. Baker, John H. Wilson, the President and a director of Whitehall, Bruce R.
Conway, the Secretary, and a director of Whitehall, Arthur R. Hutton, John J.
McAtee, Jr., Jack S. Parker and Lewis S. White, each of whom are directors of
Whitehall.
APPROVAL OF AVS STOCKHOLDERS
At the annual meeting of AVS's stockholders to be held on June , 1998,
(the "AVS Annual Meeting"), stockholders of AVS will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement. Approval of the
Merger Agreement requires the affirmative vote of a majority of the outstanding
shares of AVS Common Stock on the record date for the AVS Annual
6
<PAGE>
Meeting. As of such record date, directors and executive officers of AVS and
affiliates were beneficial owners of outstanding shares of AVS Common Stock
representing approximately % of the total voting power of the shares of AVS
Common Stock outstanding on such date. See "AVS's Security Ownership of Certain
Beneficial Owners and Management." Pursuant to the AVS Voting Agreement,
certain stockholders of AVS representing an aggregate of approximately 30% of
the total number of shares of AVS Common Stock outstanding have agreed to vote
their respective shares in favor of the adoption and approval of the Merger
Agreement. See "The Merger--Interests of Certain Persons in the Merger--Voting
Agreement."
INDEMNIFICATION
The Merger Agreement provides that the present and former directors,
officers, employees and agents of Whitehall will be indemnified by AVS after
the Effective Time against certain liabilities to the extent that (a) a
corporation is permitted under Delaware law to indemnify its own directors,
officers, employees or agents, as the case may be, and (b) such indemnification
otherwise is permitted by applicable law. See "The Merger
Agreement--Indemnification of Directors and Officers."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The obligation of Whitehall and AVS to consummate the Merger is
conditioned upon the receipt by Whitehall and AVS of an opinion from each of
Akerman, Senterfitt & Eidson, P.A., counsel to AVS, and Baker & Botts, L.L.P.,
counsel to Whitehall, to the effect that, for federal income tax purposes, the
Merger will constitute a tax-free reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended
(the "Code"). If, as anticipated, the Merger qualifies as a tax-free
reorganization, among other things, no gain or loss would be recognized by
Whitehall's stockholders as a result of the Merger, except gain or loss
recognized on the receipt of cash paid in lieu of fractional shares. The Merger
Agreement does not require the parties to obtain a ruling from the Internal
Revenue Service as to the tax consequences of the Merger. Whitehall's
stockholders are urged to consult their own tax advisors regarding the
particular tax consequences of the Merger to them. See "The Merger--Certain
Federal Income Tax Consequences."
FEDERAL SECURITIES LAWS CONSEQUENCES
The AVS Common Stock issuable in connection with the Merger has been
registered under the Securities Act. Accordingly, there will be no restrictions
upon the resale or transfer of such shares by Whitehall's stockholders who are
not deemed to be "affiliates" of Whitehall, as such term is used in Rule 145
under the Securities Act. With respect to those stockholders who may be deemed
to be "affiliates" of Whitehall, Rule 144 and Rule 145 under the Securities Act
place certain restrictions on the transfer of AVS Common Stock which may be
received by them pursuant to the Merger. AVS has agreed to register such shares
for resale or transfer by such "affiliates" of Whitehall pursuant to a
registration statement. If AVS fails to register such shares of AVS Common
Stock on a shelf registration statement in accordance with the registration
rights agreement, then such persons will have certain demand and "piggyback"
registration rights. See "The Merger--Interests of Certain Persons in the
Merger." Additionally, it is a condition to the consummation of the Merger that
all persons deemed "affiliates" of Whitehall enter into an agreement whereby
each such person agrees not to sell their shares of AVS Common Stock received
by them in connection with the Merger until combined operating results covering
a minimum thirty day period of AVS and Whitehall are publicly released. See
"The Merger Agreement--Conditions to the Merger."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon receipt by AVS and Whitehall of a letter
7
<PAGE>
from their respective independent public accountants of letters stating that
the Merger will qualify as a "pooling of interests" for accounting and
financial reporting purposes. See "The Merger Agreement--Conditions to the
Merger."
ABSENCE OF DISSENTERS' RIGHTS
The DGCL does not provide holders of Whitehall Common Stock who object to
the Merger and who vote against or abstain from voting in favor of the Merger
and the Merger Agreement with any appraisal rights or the right to receive cash
for shares of stock in lieu of the consideration to be paid pursuant to the
Merger Agreement, and Whitehall does not intend to make available any such
rights to its stockholders. See "The Merger--Absence of Appraisal Rights."
REGULATORY APPROVAL
The obligations of AVS and Whitehall to consummate the Merger are subject
to the expiration or termination of the waiting period applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and the rules promulgated thereunder.
AVS and Whitehall filed the Pre-Merger Notification under the HSR Act with the
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice on April 13, 1998. On April 27, 1998, the Federal Trade Commission
notified AVS and Whitehall that it granted early termination of the waiting
period applicable to the acquisition of the Whitehall Common Stock by AVS
pursuant to the Merger. Holders of Whitehall Common Stock who, pursuant to the
Merger, will be acquiring shares of AVS Common Stock having a value of more
than $15 million or a value which, when aggregated with the value of shares of
AVS Common Stock owned by such persons prior to the Merger, exceeds $15
million, may be subject to the notification and waiting period requirements of
the HSR Act. All such waiting periods would have to expire or be terminated
before any issuance of shares of AVS Common Stock to those particular
stockholders could be effected in the Merger. See "The Merger Agreement--
Conditions to the Merger" and "The Merger--Regulatory Approval."
CERTAIN COVENANTS
Under the Merger Agreement, Whitehall has agreed, prior to the Effective
Time, to conduct its business in the ordinary and usual course consistent with
past practice, to use its reasonable efforts to preserve intact its business
organization and assets and to refrain from issuing additional capital stock,
amending its charter, entering into or modifying material agreements or taking
certain other actions. The Merger Agreement contains similar covenants on the
part of AVS. See "The Merger Agreement--Certain Covenants."
The Merger Agreement also provides that prior to the Effective Time,
Whitehall will not, directly or indirectly, initiate or solicit from, cooperate
with or furnish any nonpublic information to, or negotiate with any person
other than AVS with respect to any proposal for a merger, consolidation,
acquisition or other similar transaction involving Whitehall. The Merger
Agreement does not prohibit the Whitehall Board, to the extent required by its
fiduciary duties under applicable law, from providing information to, or
participating in discussions with, any party that makes an unsolicited inquiry
with respect to Whitehall if the Whitehall Board reasonably believes that such
party may make a proposal on terms that are superior, from a financial point of
view, to the terms of the Merger for the stockholders of Whitehall. Whitehall
has agreed to provide AVS with written notice of its receipt of any such
proposal or inquiry. Further, the Merger Agreement provides that, subject to
the fiduciary duties of the Whitehall Board under applicable law, the Whitehall
Board will not approve or recommend or cause Whitehall to enter into any
agreement with respect to any alternative proposal for a merger, consolidation,
acquisition or other similar transaction, except for certain alternative
proposals (a "Superior Proposal") which the Whitehall Board determines in its
good faith judgment, and based upon the advice of legal counsel, to be more
favorable to Whitehall stockholders than the Merger. In
8
<PAGE>
such event, Whitehall will be obligated to pay AVS the Termination Fee
described below. See "The Merger Agreement--Termination" and "--No
Solicitation; Termination Fee."
TERMINATION OF THE MERGER
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (i) by the mutual consent of the Boards of
Directors of Whitehall and AVS; (ii) by the Board of Directors of either
Whitehall or AVS if there has been a material breach by the other of any
representation or warranty in the Merger Agreement or of any covenant in the
Merger Agreement, which breach of a covenant has not, or cannot be, cured
within 30 days after written notice thereof; (iii) by the Board of Directors of
either Whitehall or AVS if the Merger has not occurred by September 30, 1998
(except that neither Whitehall nor AVS shall be entitled to terminate if such
party is in willful and material violation of the Merger Agreement); (iv) by
the Board of Directors of either Whitehall or AVS if the required approval of
the stockholders of AVS and Whitehall shall not have been obtained; (v) by the
Board of Directors of either Whitehall or AVS if a governmental authority shall
have issued a final and non-appealable order or ruling permanently restraining,
enjoining, or otherwise prohibiting the Merger or compelling AVS, the Sub or
the Surviving Corporation to dispose of or hold separate all or a material
portion of the respective businesses or assets of AVS or Whitehall, or sell or
license any material product of AVS or Whitehall; or (vi) by the Board of
Directors of AVS if the Whitehall Board recommends a Superior Proposal to its
stockholders.
TERMINATION FEE
In the event the Merger Agreement is terminated by AVS as a result of the
Whitehall Board recommending a Superior Proposal and Whitehall enters into an
agreement or an understanding with respect to a Superior Proposal within one
(1) year of the date of termination and thereafter consummates such
transaction, then AVS shall be entitled to receive from Whitehall a cash fee of
$7.5 million (the "Termination Fee"). Additionally, if the Merger Agreement is
terminated by Whitehall or AVS because a material breach by the other of a
representation or warranty in the Merger Agreement or of any covenant in the
Merger Agreement, which breach of a covenant has not, or cannot be cured within
30 days after written notice thereof, then the breaching party shall reimburse
the non-breaching party for its out of pocket costs and expenses incurred in
connection with the Merger Agreement up to a maximum of $500,000. Such
reimbursement amount shall be due and payable upon the date of termination of
the Merger Agreement. If the fees described above are not paid when due, all
amounts owing will accrue interest at a rate equal to 12% per annum.
CONDITIONS PRECEDENT
The respective obligations of AVS and Whitehall to consummate the
transactions contemplated by the Merger Agreement are subject to the
satisfaction or, where permissible, waiver of a number of conditions, including
(a) approval and adoption of the Merger Agreement by the requisite vote of
stockholders of AVS and Whitehall; (b) absence of any effective injunction or
similar order preventing consummation of the transactions contemplated by the
Merger Agreement as provided therein; (c) receipt of certain opinions of legal
counsel; (d) execution and delivery of certain agreements entered into in
connection with the Merger; and (e) certain other usual and customary
conditions for a transaction of the type of the Merger. See "The Merger
Agreement--Conditions to the Merger."
RISK FACTORS
The consummation of the Merger and the related transactions and an
investment in shares of AVS Common Stock each involves certain risks.
Accordingly, stockholders of Whitehall should carefully consider the
information set forth under the caption "Risk Factors."
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
AVS. Set forth below are summary historical financial data of AVS which
are based upon the historical financial statements of AVS. The following data
for each of the years ended December 31, 1995, 1996 and 1997 are derived from
AVS's audited consolidated financial statements and the notes thereto included
elsewhere in this Proxy Statement/Prospectus. Historical financial data for AVS
for the years ended December 31, 1993 and 1994 are derived from audited
financial statements not included herein.
AVIATION SALES COMPANY
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues .............................. $ 23,429 $ 28,191 $ 113,803 $ 161,944 $ 256,899
Gross profit .................................... 12,267 16,174 42,489 51,585 76,186
Operating expenses .............................. 9,382 10,525 23,916 29,301 41,192
-------- -------- --------- --------- ---------
Income from operations .......................... 2,885 5,649 18,573 22,284 34,994
Interest and other expenses, net ................ 6,041 4,458 8,287 5,350 7,432
-------- -------- --------- --------- ---------
Income (loss) before taxes and
extraordinary item ............................ (3,156) 1,191 10,286 16,934 27,562
Extraordinary item, net of income taxes ......... -- -- -- 1,862 --
-------- -------- --------- --------- ---------
Net income (loss) ............................... $ (3,156) $ 1,191 $ 10,286 $ 15,498 $ 16,781
======== ======== ========= ========= =========
Pro Forma Data:
Pro forma net income (loss) .................... $ (1,925) $ 726 $ 6,274 $ 8,468 $ 16,781
Pro forma diluted net income (loss)
per share (3) ................................. $ (0.33) $ 0.12 $ 1.00 $ 1.08 $ 1.77
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
BALANCE SHEET DATA ------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Working capital .............. 24,519 51,871 46,641 68,999 82,789
Total assets ................. 42,401 89,264 93,478 145,183 284,987
Total debt ................... 31,992 69,152 62,043 38,984 151,285
Stockholders' equity ......... 2,888 7,079 14,199 81,071 98,241
</TABLE>
- ----------------
(1) Dixie Bearings, Inc. ("Dixie"), which was acquired on August 9, 1996, and
AVS/Kratz-Wilde Machine Company ("Kratz"), which was acquired on October
17, 1997, were accounted for under the purchase method of accounting and
accordingly, Dixie's and Kratz's results of operations have been included
in AVS's historical results of operations from the date of acquisition.
AvEng Trading Partners, Inc. ("AvEng"), which was acquired on December 10,
1996, Aerocell Structures, Inc. ("Aerocell"), which was acquired on
September 30, 1997, and Apex Manufacturing, Inc. ("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 AVS's
historical financial results for all periods presented subsequent to 1995,
and Aerocell and Apex are 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 and Apex, due to the immateriality of the
restated amounts.
(2) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as AVS conducted its business as a partnership prior to June
26, 1996.
(3) Weighted average common and common equivalent shares used in calculating
diluted earnings per share are 5,859,542 for 1993; 5,923,103 for 1994;
6,259,542 for 1995; 7,819,837 for 1996 and 9,484,097 for 1997.
10
<PAGE>
WHITEHALL. The summary historical consolidated financial data of Whitehall
set forth below has been derived from the financial statements of Whitehall for
each of the five fiscal years for the period ended December 31, 1997. The data
set forth in the table below is qualified in its entirety by, and should be
read in conjunction with, the historical financial statements and notes thereto
of Whitehall contained elsewhere in this Proxy Statement/Prospectus.
WHITEHALL CORPORATION
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales ................................... $ 30,910 $ 32,098 $ 56,229 $ 70,170 $ 65,791
Cost of sales ............................... 26,455 27,586 48,385 59,809 64,197
Gross profit ................................ 4,455 4,512 7,844 10,361 1,594
Income (loss) before taxes .................. (3,190) (1,224) 3,838 6,523 (15,547)
Net income (loss) ........................... (1,868) (1,224) 2,949 4,317 (11,937)
Net income (loss) per share*
Basic ...................................... (0.34) (0.23) 0.54 0.79 (2.16)
Diluted .................................... (0.34) (0.23) 0.52 0.75 (2.16)
Weighted average shares outstanding*
Basic ...................................... 5,562,348 5,397,230 5,426,384 5,491,476 5,518,402
Diluted .................................... 5,562,348 5,397,230 5,642,304 5,735,118 5,518,402
Cash flow from (used in) operations ......... (2,001) 1,990 (1,802) (4,084) (4,545)
Capital expenditures ........................ 2,313 467 1,668 4,438 3,739
Year-end Position:
Total assets ................................ 32,863 32,213 41,182 44,936 48,599
Working capital ............................. 20,813 17,739 21,398 19,223 7,741
Current ratio ............................... 5.7 4.5 3.0 3.0 1.4
Property, plant and equipment--net .......... 7,099 6,384 6,869 9,654 17,567
Common shareholders' equity ................. 28,239 26,989 30,099 34,825 23,039
Per share outstanding* ...................... 5.22 4.99 5.54 6.33 4.17
</TABLE>
- ----------------
* Adjusted to reflect the 2 for 1 stock split declared January 29, 1997.
11
<PAGE>
SUMMARY UNAUDITED
PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
The following tables set forth certain unaudited pro forma condensed
combined financial information for AVS after giving effect to the Merger, as if
it had been consummated, with respect to statement of operations data, at the
beginning of the periods presented, or, with respect to balance sheet data, as
of the date presented. The following tables present such information as if the
Merger had been accounted for as a pooling of interests. The information
presented is derived from, should be read in conjunction with, and is qualified
in its entirety by reference to, the unaudited pro forma condensed combined
financial data and the notes thereto appearing elsewhere in this Proxy
Statement/Prospectus and the separate historical financial statements and the
notes thereto appearing elsewhere in this Proxy Statement/Prospectus or
incorporated elsewhere in this Proxy Statement/Prospectus by reference. The
unaudited pro forma condensed combined financial data have been included for
comparative purposes only and do not purport to be indicative of the results of
operations or financial position which actually would have been obtained if the
Merger had been effected at the beginning of the periods or as of the date
indicated or of the financial position or results of operations which may be
obtained in the future. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
PRO FORMA REFLECTING AVS AFTER GIVING EFFECT TO THE MERGER
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995(3) 1996(3) 1997(1)(2)
----------------- ----------------- ------------------
<S> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net Revenues ....................................... $ 169,770,550 $ 231,733,617 $ 351,249,846
Income from continuing operations .................. 9,141,510 14,514,163 9,855,422
Income from continuing operations per common
share, diluted ................................... 1.00 1.35 0.80(5)
Weighted average number of shares, diluted ......... 9,161,223 10,769,348 12,322,044
COMBINED BALANCE SHEET DATA:
Working capital .................................... $ 90,445,915
Total assets ....................................... 333,585,849
Total long-term debt ............................... 57,049,550
Shareholders' equity ............................... 121,279,647
Book value per common share ........................ 9.91(4)
</TABLE>
- ----------------
(1) The unaudited pro forma information does not give effect to the March 1998
acquisition of Caribe Aviation, Inc. ("Caribe").
(2) The 1997 unaudited pro forma information has been restated to reflect the
1997 acquisitions of Apex and Aerocell, which were accounted for as
poolings of interests. Kratz was acquired on October 17, 1997, in a
transaction accounted for as a purchase. The unaudited pro forma
information has been prepared assuming the Merger and the acquisition of
Kratz occurred as of January 1, 1997 for statement of operations data.
(3) The 1995 and 1996 unaudited pro forma information is presented to show the
effect of the Merger under the pooling of interests method of accounting.
The 1996 unaudited pro forma information has been restated to reflect the
1996 acquisition of AvEng, which was accounted for as a pooling of
interests. Dixie was acquired on August 9, 1996, in a transaction
accounted for as a purchase and accordingly its results of operations are
included since that date. Pro forma adjustments to record the
pre-acquisition results of operations of Dixie in 1996 have not been made
due to the immateriality of the amounts. The 1995 and 1996 results of
operations do not include Apex and Aerocell due to the immateriality of
the amounts. The 1995 results of operations do not include AvEng due to
the immateriality of the amounts.
(4) This calculation assumes the issuance of approximately 2,844,079 shares of
AVS common stock in the Merger, which is calculated based on an exchange
ratio of .5143 shares of AVS common stock for each share of Whitehall
common stock outstanding at December 31, 1997. Pro forma book value per
share was computed by adding the 2,844,079 shares of AVS common stock to
be issued in the Merger to the actual number of shares of AVS common stock
outstanding at December 31, 1997.
(5) This calculation assumes the conversion of Whitehall's weighted average
number of shares into the weighted average number of shares of AVS common
stock, using an exchange ratio of .5143 for each respective period.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of AVS
and Whitehall and combined per share data on an unaudited pro forma basis,
based on the assumption that the merger occurred at the beginning of the
earliest period presented and was accounted for as a pooling of interests. The
pro forma comparative per share data gives effect to the merger at the exchange
ratio of .5143. The pro forma comparative per share data does not purport to
represent what AVS's financial position or results of operations would actually
have been had the merger occurred at the beginning of the beginning of the
earliest period presented or to project AVS' financial position or results of
operations for any future date or period. This data should be read in
conjunction with the unaudited pro forma condensed combined financial
statements included elsewhere herein and the separate historical financial
statements and notes thereto of avs and whitehall included elsewhere in this
proxy statement/prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
----------------- -------------------- --------------------
<S> <C> <C> <C>
AVS:
Historical income from continuing operations per
common share, diluted ............................ $ 1.77 $ 1.08(A)(B) $ 1.00(A)(B)
Historical book value per common share ............. 10.45 8.60 2.27 (B)
WHITEHALL:
Historical income (loss) from continuing operations
per common share, basic .......................... $ (2.16) $ 0.75 $ 0.52(C)
Historical book value per common share ............. 4.17 6.33 5.53 (C)
Equivalent pro forma income (loss) from continuing
operations per common share, diluted ............. $ (4.21)(E) $ 1.46(E) $ 1.02(E)
Equivalent pro forma book value per common share 8.10 (F) n/a n/a
PRO FORMA:
Pro forma combined income from continuing
operations per common share, diluted ............. $ 0.80(G) $ 1.35(G) $ 1.00(G)
Pro forma combined book value per common share ..... 9.91 (D) n/a n/a
</TABLE>
- ----------------
(A) The 1995 and 1996 earnings per share for AVS include pro forma adjustments
to record income taxes, as AVS conducted its business as a partnership
prior to June 26, 1996.
(B) The 1995 and 1996 AVS per share data assumes that the 4,425,000 common
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 Aviation Partners, were
outstanding for periods prior to the closing of AVS's initial public
offering in July 1996.
(C) The Whitehall per share data has been adjusted to give retroactive effect
to the two-for-one stock split of Whitehall Common Stock, in the form of a
100% stock dividend on April 15, 1997 to the stockholders of record at the
close of business on March 25, 1997.
(D) This calculation assumes the issuance of approximately 2,844,079 shares of
AVS common stock in the Merger, which is calculated based on an exchange
ratio of .5143 shares of AVS common stock for each share of Whitehall
common stock outstanding at December 31, 1997. Pro forma book value per
share was computed by adding the 2,844,079 shares of AVS common stock to
be issued in the Merger to the actual number of shares of AVS common stock
outstanding at December 31, 1997.
(E) This calculation assumes the conversion of Whitehall's weighted average
number of shares into the weighted average number of shares of AVS common
stock, using an exchange ratio of .5143, for each respective period.
(F) This calculation assumes the conversion of Whitehall's shares of common
stock outstanding at December 31, 1997 into shares of AVS common stock,
using an exchange ratio of .5143.
(G) This calculation assumes the conversion of Whitehall's weighted average
number of shares into the weighted average number of shares of AVS common
stock, using an exchange ratio of .5143, for each respective period, added
to the actual weighted average number of shares of AVS common stock.
13
<PAGE>
COMPARATIVE MARKET DATA
AVS Common Stock is traded on the NYSE under the symbol "AVS" and the
Whitehall Common Stock is traded on the NYSE under the symbol "WHT". The
following table sets forth, for the calendar quarters indicated, the high and
low sales prices per share reported on the NYSE Composite Tape for AVS Common
Stock and for Whitehall Common Stock. Prices for Whitehall Common Stock have
been adjusted to give retroactive effect to the two-for-one stock split of
Whitehall Common Stock distributed in the form of a 100% stock dividend on
April 15, 1997 to stockholders of record at the close of business on March 25,
1997.
<TABLE>
<CAPTION>
AVS WHITEHALL
COMMON STOCK COMMON STOCK
------------------------- -------------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
First Quarter ............ N/A N/A $ 16.75 $ 13.75
Second Quarter ........... $ 20.75 $ 19.00 $ 21.69 $ 15.75
Third Quarter ............ $ 21.50 $ 18.00 $ 20.00 $ 15.69
Fourth Quarter ........... $ 20.75 $ 18.75 $ 22.13 $ 18.50
1997:
First Quarter ............ $ 26.75 $ 20.50 $ 22.88 $ 17.13
Second Quarter ........... $ 25.87 $ 21.25 $ 20.88 $ 15.88
Third Quarter ............ $ 31.25 $ 20.87 $ 24.94 $ 18.63
Fourth Quarter ........... $ 38.93 $ 30.37 $ 20.25 $ 15.75
1998:
First Quarter(1) ......... $ 43.87 $ 42.75 $ 23.25 $ 21.75
</TABLE>
- ----------------
(1) As of March 25, 1998.
The last reported sale prices per share of AVS Common Stock and Whitehall
Common Stock on (i) March 25, 1998, the last business day prior to the public
announcement of the execution of the Merger Agreement were $43.87 and $22.00,
respectively, and (ii) on , 1998, the latest practicable date prior to the
printing of this Proxy Statement/Prospectus, were $ and $ ,
respectively.
Neither AVS nor Whitehall has paid any cash dividends on its common stock.
AVS has no present intention of paying cash dividends in the near future.
As of the Record Date, there were approximately record holders of
AVS Common Stock and record holders of Whitehall Common Stock.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR AVS COMMON
STOCK AND WHITEHALL COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET
PRICE OF AVS COMMON STOCK AFTER THE MERGER.
14
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS,
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF WHITEHALL
COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT
AND THEREBY ACQUIRE SHARES OF AVS COMMON STOCK.
FIXED EXCHANGE RATIO
The Exchange Ratio is fixed and will not be adjusted in the event of any
increase or decrease in the relative or respective stock prices of AVS Common
Stock and Whitehall Common Stock. The relative and respective prices of AVS
Common Stock and the Whitehall Common Stock at the Effective Time may vary from
the prices as of the date the Merger Agreement was approved by the respective
Boards of Directors of AVS and Whitehall, the date that the Ladenburg Opinion
was rendered, or the date that the Merger is consummated, due to changes in the
business operations and prospects of AVS or Whitehall, market assessments of
the likelihood that the Merger will be consummated, and the timing thereof,
general market and economic conditions, and other factors.
UNCERTAINTIES IN INTEGRATION OF THE BUSINESS
The Merger involves the integration of two companies that have previously
operated independently. There can be no assurance that AVS and Whitehall will
not encounter difficulties in integrating the operations of the two companies
or that the benefits expected from such integration will be realized. Any
delays or unexpected costs incurred in connection with such integration could
have a material adverse effect on the combined company's business, operating
results or financial condition. Furthermore, there can be no assurance that the
operations, managements and personnel of the two companies will be compatible
or that AVS or Whitehall will not experience the loss of key personnel.
SIGNIFICANT LEVERAGE
As of March 31, 1998, Whitehall had outstanding indebtedness of $16.8
million. As of March 31, 1998 AVS had outstanding indebtedness of $203.3
million, of which $25.2 million is indebtedness under its Third Amended Credit
Agreement dated October 17, 1997 with certain financial institutions (the
"Credit Facility"), and $164.0 million in indebtedness in the AVS senior
subordinated 81/8% notes due 2008 (the "Notes"). See "AVS's Management's
Discussion--Liquidity and Capital Resources." As of April 28, 1998, AVS had
availability under the Credit Facility of $56.8 million. The Credit Facility is
secured by substantially all of the assets of AVS. Subject to certain
limitations in the documents governing its indebtedness, AVS may be able to
incur additional amounts of secured indebtedness. AVS'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 AVS is leveraged could have important
consequences to holders of AVS Common Stock, including (i) AVS's vulnerability
to adverse general economic and industry conditions, (ii) AVS'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 AVS'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. AVS's debt service requirement for 1998 is
approximately $28.6 million.
RESTRICTIONS IMPOSED BY LENDERS
The instruments governing the indebtedness of AVS impose significant
operating and financial restrictions on AVS. Such restrictions will affect, and
in many respects, limit or prohibit, among other things, the ability of AVS 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 AVS to effect future financings,
make needed capital expenditures, withstand a future downturn in the business
or the economy, or otherwise conduct necessary corporate activities.
15
<PAGE>
EFFECTS OF THE ECONOMY ON AVS'S SPARE PARTS BUSINESS
Since AVS's customers consist of airlines, maintenance and repair
facilities that service airlines and other aircraft spare parts redistributors,
as well as original equipment manufacturers, AVS'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 AVS's business, financial condition or results of operations.
RISKS REGARDING AVS'S SPARE PARTS INVENTORY
AVS'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 AVS may not meet applicable standards or
standards may change in the future, causing parts which are already contained
in AVS's inventory to be scrapped or modified. Aircraft manufacturers may also
develop new parts to be used in lieu of parts already contained in AVS's
inventory. In all such cases, to the extent that AVS 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 countries by similar agencies. While AVS'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, AVS must be certified by the
FAA and, in some cases, by original equipment manufacturers in order to
manufacture or repair aircraft components. AVS believes that its newly acquired
manufacturing and repair operations are in material compliance with applicable
regulations. 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 AVS's
business, financial condition or results of operations.
FLUCTUATIONS IN OPERATING RESULTS
AVS'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 AVS's inventory. A large portion of AVS's operating expenses are
relatively fixed. Since AVS 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 AVS's business, financial
condition or results of operations.
GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS
A key element of the strategy of AVS 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 AVS's existing business. AVS's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable aircraft
parts inventories, acquisition candidates
16
<PAGE>
and capital, and by restrictions contained in AVS's credit agreements. In
addition, acquisitions involve risks that could adversely affect AVS'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 AVS will be able to consummate acquisitions on satisfactory
terms.
RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES
The continued success of AVS is dependent to a significant degree upon the
services of its executive officers and upon AVS's ability to attract and retain
qualified personnel experienced in the various phases of AVS's business. AVS
has employment agreements with almost all of its executive officers. The
employment agreements between AVS and its executive officers are individually
terminable by each executive officer upon a change of control of AVS. The
ability of AVS to operate successfully could be jeopardized if one or more of
its executive officers were unavailable and capable successors were not found.
See "AVS's Management."
COMPETITION
The markets for AVS's products and services are extremely competitive, and
AVS 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 competitors of AVS have
substantially greater financial and other resources than AVS. There can be no
assurance that competitive pressures will not materially and adversely affect
AVS's business, financial condition or results of operations. See "AVS's
Business--Competition."
PRODUCT LIABILITY
The business of AVS 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 AVS 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 AVS, 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 AVS's business,
financial condition or results of operations. See "AVS's Business--Product
Liability."
POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS
As of the date of this Proxy Statement/Prospectus, one of AVS's
stockholders beneficially owns 24.6% of the outstanding AVS Common Stock
(assuming 2,844,079 shares of AVS Common Stock are issued pursuant to the
Merger, such stockholder would beneficially own 19.0% of the combined company
immediately following the Merger), and AVS's directors and executive officers,
as a group, beneficially own an aggregate of 32.8% (including the 24.6%
referred to above) of the outstanding AVS Common Stock (assuming 2,844,079
shares of AVS Common Stock are issued pursuant to the Merger, such
stockholders, as a group, would beneficially own 25.4% of the combined company
immediately following the Merger). 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 to exercise substantial influence on the election of all of
the members of AVS's Board of Directors and, therefore, to exercise substantial
influence over the business, policies and affairs of AVS. See "AVS's Security
Ownership of Certain Beneficial Owners and Management."
NO-SHOP PROVISIONS
The Merger Agreement contains certain "no-shop" provisions which prohibit
Whitehall from soliciting Alternative Proposals or, subject to the Whitehall
Board's fiduciary duties to Whitehall's
17
<PAGE>
stockholders, negotiation with a potential acquiror. These provisions could
deter other parties who might be interested in Whitehall and could deter an
auction process with respect to a potential sale of Whitehall.
CLOSING
The closing of the Merger is subject to the conditions contained in the
Merger Agreement. See "The Merger Agreement--Conditions to the Merger." Many of
these conditions are beyond the control of AVS and Whitehall. Although AVS and
Whitehall believe that such conditions will be fully satisfied, there can be no
assurance that the closing of the Merger will occur. The Closing is subject to
the satisfaction of certain significant conditions, including, among others,
approval by the stockholders of Whitehall and AVS, the receipt by AVS and
Whitehall of an opinion from their independent public accountants with respect
to certain matters relating to the availability of pooling of interests
accounting treatment for the Merger, and the absence of any material adverse
change in the business results of operations or financial condition or
prospects of either AVS or Whitehall. In addition, the Merger Agreement may be
terminated by either party if the closing does not occur by September 30, 1998.
18
<PAGE>
THE MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus and the accompanying form of proxy are
being furnished to holders of Whitehall Common Stock in connection with the
solicitation of proxies by the Whitehall Board for use at the Meeting to be
held on , , 1998, at , Florida, commencing at 10:00 a.m.
local time, and at any adjournment or postponement thereof. At the Meeting,
holders of Whitehall Common Stock will be asked to consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and (ii) such other matters
as may properly be brought before the Meeting. A copy of the Merger Agreement
is included as Annex A to this Proxy Statement/Prospectus.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The Whitehall Board has fixed the close of business on , 1998, as the
Record Date for the determination of the Whitehall stockholders entitled to
notice of and to vote at the Meeting. Accordingly, only holders of record of
shares of Whitehall Common Stock at the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting. At the close of
business on the Record Date, there were 5,530,000 shares of Whitehall Common
Stock outstanding and entitled to vote, held by holders of record. Each
holder of record of shares of Whitehall Common Stock on the Record Date is
entitled to cast one vote per share on each proposal properly submitted for the
vote of the Whitehall stockholders, either in person or by properly executed
proxy, at the Meeting. Pursuant to the DGCL, the Whitehall Charter and
Whitehall's Bylaws, the presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of Whitehall Common Stock
on the Record Date is necessary to constitute a quorum at the Meeting.
Abstentions will be counted in determining whether a quorum is present.
Approval and adoption of the Merger Agreement requires the affirmative
vote of a majority of the outstanding shares of Whitehall Common Stock issued
and outstanding on the Record Date. Abstentions will have the same effect as
negative votes. Pursuant to the Whitehall Voting Agreement, which is attached
as Annex C to this Proxy Statement/Prospectus, each of Cambridge and Baker Nye,
who together own in the aggregate shares of Whitehall Common Stock or
% of the Whitehall Common Stock outstanding on the Record Date, have
agreed to vote their shares of Whitehall Common Stock (or cause them to be
voted) in favor of adoption and approval of the Merger Agreement. See "Interest
of Certain Persons in the Merger--Voting Agreements."
As of the Record Date, directors, executive officers and affiliates of
Whitehall were beneficial owners of outstanding shares of Whitehall Common
Stock representing approximately % of the total voting power of the shares
of Whitehall Common Stock outstanding on such date. See "Whitehall's Security
Ownership of Certain Beneficial Owners and Management."
VOTING AND REVOCATION OF PROXIES
Shares of Whitehall Common Stock represented by properly executed proxies
received at or prior to the Meeting and not revoked will be voted in the manner
specified on such proxies; however, properly executed proxies marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum at the
Meeting, will not be voted. Properly executed Proxies which do not contain
voting instructions will be voted FOR approval and adoption of the Merger
Agreement. Under applicable NYSE rules, brokers will not be permitted to submit
proxies authorizing a vote on the Merger Agreement in the absence of specific
instructions from beneficial owners. Broker non-votes and abstentions will have
the effect of votes against the adoption and approval of the Merger Agreement.
Under Delaware law, both abstentions and broker non-votes contained on a
returned proxy card will be considered present for purposes of determining the
existence of a quorum at the Meeting.
At the date of this Proxy Statement/Prospectus, the Whitehall Board does
not know of any business to be presented at the Meeting other than as set forth
in the notice accompanying this Proxy
19
<PAGE>
Statement/Prospectus. If any other matters should properly be presented at the
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Meeting to another time and/or place, the persons named
in the enclosed form of proxy and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
A shareholder may revoke his or her proxy at any time prior to its use by
(i) delivering to the Secretary of Whitehall a signed notice of revocation
bearing a later date than the proxy, or a duly executed later-dated proxy
relating to the same shares or (ii) attending the Meeting and voting in person.
Attendance at the Meeting will not in itself constitute the revocation of a
proxy. Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to Whitehall at 2659 Nova Drive, Dallas, Texas 75229,
Attention: Secretary, or hand-delivered to the Secretary of Whitehall at the
aforementioned address at or before the taking of the vote at the Meeting.
SOLICITATION OF PROXIES
Costs and expenses incurred in connection with the printing and mailing of
this Proxy Statement/Prospectus will be paid one-half by AVS and one-half by
Whitehall. In addition to solicitation by mail, proxies may be solicited by
directors, officers and employees of Whitehall in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will receive no additional compensation for such services, but may be reimbursed
for reasonable out-of-pocket expenses in connection with such solicitation.
Custodians, nominees and fiduciaries will be requested to forward proxy
solicitation materials to the beneficial owners of shares held of record by
them, and will be reimbursed for the reasonable expenses incurred by them in
connection therewith.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
FOLLOWING THE EFFECTIVE DATE OF THE MERGER, WHITEHALL'S STOCKHOLDERS WILL BE
PROVIDED WITH INSTRUCTIONS AND A LETTER OF TRANSMITTAL RELATING TO THE EXCHANGE
OF THEIR STOCK CERTIFICATES.
20
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
The terms and conditions of the Merger were determined through
arm's-length negotiations between the management and the Boards of Directors of
AVS and Whitehall. In determining the definitive terms of the Merger Agreement,
numerous factors were considered by the Boards of Directors of AVS and
Whitehall. See "Reasons for the Merger" below. The following is a brief
discussion of these negotiations and certain related events.
During 1997, in connection with its continuing efforts to position itself
for the future, AVS's management and Board made a strategic decision to expand
the services which AVS offers to its customers to include the maintenance,
repair and overhaul ("MRO") of aircraft. AVS believed that the combination of
its worldwide leading aircraft parts redistribution business with a fully
integrated MRO business would provide it with a competitive advantage in the
marketplace. To this end, in September 1997 and March 1998, respectively, AVS
acquired three FAA-licensed repair stations: (i) Aerocell, which specializes in
the MRO of airframe components, including bonded and structural assemblies for
commercial aircraft, (ii) Caribe, which specializes in the MRO of hydraulic,
pneumatic, electrical and electromagnetic aircraft components, as well as
avionics and instruments on Airbus and Boeing aircraft, and (iii) Aircraft
Interior Design, Inc. ("Aircraft"), a wholly-owned subsidiary of Caribe, which
manufactures plastic cabin interior replacement parts under FAA-PMA approval
and refurbishes aircraft interior components.
In early 1997, management of Whitehall identified certain objectives it
believed would assist Whitehall in achieving its strategic and financial goals.
Among the objectives identified were (i) reducing Whitehall's dependence on
commercial maintenance customers by selectively pursuing military contracts
which have the potential of generating sustained revenues over several years,
(ii) strengthening Whitehall's relationships with its core customers and
developing new relationships with major commercial airlines, and (iii)
identifying and acquiring companies with a customer base or product line which
complements or expands Whitehall's existing operations. In furtherance of its
strategy, in April 1997, Whitehall was awarded a five-year contract (the "C-130
Contract") by the United States Air Force (the "USAF") to perform programmed
depot maintenance on the USAF's fleet of C-130 cargo aircraft. In June 1997,
the C-130 Contract was canceled by the U.S. government because the USAF elected
to perform this work with government personnel rather than outsourcing it to
private contractors. In July 1997, Whitehall purchased from Zantop
International Airlines, Inc. ("Zantop") certain assets used in connection with
Zantop's third party aircraft maintenance business located in Macon, Georgia.
Throughout 1997 and during the first quarter of 1998, Whitehall had discussions
with several other companies in the aircraft service industry concerning a
possible acquisition or other business combination, however none of those
discussions resulted in any agreement or transaction.
During the fall of 1997, in furtherance of AVS's strategy, William H.
Alderman ("Alderman"), AVS's Senior Vice President, Corporate Development,
contacted George F. Baker ("G. Baker"), Whitehall's Chairman of the Board and
Chief Executive Officer and a general partner of Cambridge and Baker Nye (which
control approximately 34% of Whitehall's outstanding common stock), to
determine whether there was any interest on Whitehall's part about pursuing a
dialogue concerning a possible amalgamation of the two companies.
As a result of this initial contact, on December 16, 1997, Dale S. Baker
("D. Baker"), AVS's Chairman, President and CEO, Joseph E. Civiletto
("Civiletto"), AVS's Vice President and CFO, Alderman, G. Baker and Jeffrey N.
Greenblatt ("Greenblatt"), an employee of Whitehall and a general partner of
Cambridge and Baker Nye, met in New York. At this meeting, the parties
discussed generally the aviation industry, the MRO market, their respective
visions of the future of the aviation industry and the current status of their
respective companies. D. Baker expressed an interest to Messrs. G. Baker and
Greenblatt in pursuing a dialogue as to a possible amalgamation of the two
companies.
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As a result of these discussions, in early January 1998, the parties
entered into a confidentiality agreement and exchanged preliminary financial
and other information regarding their respective business activities.
In late January 1998, Messrs. D. Baker, Civiletto, Alderman, G. Baker,
Greenblatt and John Wilson, Whitehall's President ("Wilson"), met in New York
and further discussed the aviation industry, their respective companies and
what a combined company might look like. Again, no agreements were reached
during these discussions. However, the parties agreed to commence preliminary
due diligence regarding their respective companies. To this end, during
mid-February 1998, D. Baker, Harold Woody, AVS's Executive Vice President,
Civiletto and various other AVS representatives, visited Whitehall's Lake City
and Macon repair facilities and Messrs. G. Baker and Wilson visited AVS's Miami
facility.
On February 25, 1998, Messrs. G. Baker, D. Baker, Greenblatt and Wilson
met for dinner in New York. At that meeting, the parties agreed that
discussions should be pursued to determine whether an acceptable arrangement
could be reached. While there was general discussion at this meeting regarding
the parties respective views as to the terms of a proposed transaction, no
agreements were reached on these issues. The parties did agree, however, that
the form of any such transaction should be a stock-for-stock merger accounted
for on a pooling of interests basis.
On March 6, 1998, Messrs. G. Baker, Greenblatt, Wilson and Garlan
Braithwaite, Whitehall's Senior Vice President and CFO, met at AVS's Miami
headquarters to discuss the terms of a proposed amalgamation. At that meeting,
a tentative agreement was reached for AVS and Whitehall to merge in a
stock-for-stock transaction accounted for as a pooling of interest. The parties
agreed on an exchange ratio that could form the basis of a definitive agreement
but was subject to continued legal and business due diligence. No decision was
made as to other terms of the Merger Agreement. The parties also expressed
their desire for the principal shareholders of both entities to enter into
voting agreements and irrevocable proxies to vote their respective shares of
AVS Common Stock and Whitehall Common Stock in favor of the merger at
stockholders meetings to be called for that purpose.
Between March 7, 1998 and March 10, 1998, representatives of AVS and
Whitehall and their respective legal, financial and accounting advisors
participated in discussions in which the terms of the Merger Agreement were
negotiated and legal and business information concerning the companies was
exchanged. During this time, management of Whitehall engaged Ladenburg to
assist the Whitehall Board in analyzing the fairness of the proposed exchange
ratio to the holders of Whitehall Common Stock. Mr. G. Baker also telephoned
members of the Whitehall Board to advise them of a possible transaction with
AVS.
On March 13, 1998, the Whitehall Board met by telephone conference to
review, among other things, the potential combination with AVS and the terms
thereof. At this meeting, representatives of Baker & Botts, L.L.P. ("Baker &
Botts") summarized issues relating to the proposed merger and the fiduciary
duties of the Whitehall Board in connection therewith. Representatives of
Ladenburg also provided to the Whitehall Board a preliminary review of the
proposed merger from a financial point of view and provided an oral opinion
that the proposed exchange ratio was fair, from a financial point of view, to
the stockholders of Whitehall. The Whitehall Board authorized management to go
forward with the negotiations.
Between March 15, 1998 and March 22, 1998, representatives of AVS and
Whitehall, and their legal counsel, met continually to conduct due diligence,
to negotiate the terms of the Merger and to prepare a definitive agreement and
plan of merger with respect to the proposed transaction.
In connection with AVS's due diligence investigation, Whitehall presented
AVS with various financial projections regarding its future business. AVS's
management took a more conservative view of these projections than was taken by
Whitehall's management. Further, in connection with its due diligence
investigation, AVS determined that it believed that for the 1997 fiscal year,
Whitehall would need to significantly increase its reserves for environmental
remediation and write-down the value of certain inventory, due to items which
it had reviewed while completing its diligence investigation on Whitehall.
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As a result of all of these factors, AVS's and Whitehall's management
teams met at AVS's Miami headquarters on March 22, 1998 to further discuss the
proposed transaction. At that meeting, and based upon these factors, AVS
revised its offer downward. AVS's revised proposal was that it would acquire
all of the outstanding shares of Whitehall Common Stock on a share for share
exchange ratio of .5143 shares of AVS Common Stock for each share of Whitehall
Common Stock outstanding. Whitehall's management team agreed to consider the
revised proposal.
On March 24, 1998, the Whitehall Board held a special meeting to review
AVS's revised proposal and the proposed Merger. Representatives of Baker &
Botts discussed with the Whitehall Board the terms of the Merger Agreement.
Representatives of Ladenburg also provided to the Whitehall Board a review of
the proposed Merger from a financial point of view and provided an oral opinion
that the revised exchange ratio of .5143 shares of AVS Common Stock for each
share of Whitehall Common Stock was fair, from a financial point of view, to
the stockholders of Whitehall. The expected business synergies, consolidation
benefits and various other qualitative aspects of the proposed merger were also
discussed. Messrs. Wilson and Braithwaite also discussed with the Whitehall
Board Whitehall's preliminary financial results for 1997. At that point, the
Whitehall Board voted to adjourn the meeting until the following evening when
it expected to have the final 1997 financial results and the report of Arthur
Andersen, L.L.P ("Arthur Andersen"), Whitehall's independent auditors. Prior to
adjourning the meeting, the Whitehall Board agreed in principle to the terms of
the Merger Agreement but determined to postpone a formal vote thereon until the
meeting was reconvened.
On March 25, 1998, the meeting of the Whitehall Board was reconvened by
telephone conference. Messrs. Wilson and Braithwaite reported that Arthur
Andersen was prepared to issue an unqualified report on Whitehall's 1997
financial statements in substantially the form outlined for the Whitehall Board
the previous evening. After discussion of the final terms of the Merger and the
Merger Agreement and after having received notice that AVS Board had
unanimously approved the Merger and the Merger Agreement earlier that day, the
Whitehall Board unanimously approved the Merger and the Merger Agreement and
approved a resolution recommending that the Merger Agreement be submitted to
Whitehall's stockholders for their approval. Further, at a meeting held on
March 25, 1998, AVS's Board, after receiving an opinion from SBCWDR that as of
that date the Exchange Ratio is fair to AVS's shareholders from a financial
point of view, approved the Merger Agreement.
The final negotiations on the Merger Agreement and the exhibits thereto
took place on March 24, 1998 and March 25, 1998, and the Merger Agreement, the
Whitehall Voting Agreement and the AVS Voting Agreement were executed and
delivered early in the morning on March 26, 1998. A press release announcing
the Merger was disseminated before the opening of business on March 26, 1998.
REASONS FOR THE MERGER
JOINT REASONS FOR THE MERGER
Based upon their respective experiences and their internal analysis of the
current environment of the aviation and MRO industries, AVS's and Whitehall's
Board of Directors and the Whitehall Board have concluded that the combination
of AVS with Whitehall creates a fully integrated participant in both the
worldwide aviation MRO business and the aviation parts market. In reaching
their conclusions, the respective Boards of the two companies were aware that
the combination of AVS, with its leading market position in aircraft parts
redistribution and its previously acquired MRO's and aircraft parts
manufacturing capacity, with Whitehall, with its two FAA-licensed repair
stations specializing in heavy maintenance of aircraft, would create a more
formidable competitor in the market and should allow the combined entity to
offer parts, inventory management services and repair services to the same
airline customers on an integrated basis, making the combined entity more
competitive in the market.
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AVS REASONS FOR THE MERGER
At a meeting held on March 25, 1998, AVS's Board of Directors determined
that the Merger was fair to AVS's stockholders from a financial point of view
and approved the Merger Agreement. In reaching its conclusions, AVS's Board of
Directors considered the following factors, as well as the reasons set forth
above:
1. The effects on its future estimated earnings per share due to the
acquisition of Whitehall and whether such transaction would be accretive or
dilutive to AVS's stockholders. AVS believes that the combination of the
businesses and the elimination of certain costs will allow AVS to expand its
presence in the MRO industry and enable AVS to achieve significant increases in
its earnings per share in 1999 and subsequent years.
2. The Merger will create a combined entity that should help AVS achieve
the strategic goals which it has established, to benefit from the anticipated
trends in the MRO and aircraft parts business and should allow the combined
entity to have significant growth opportunities after consummation of the
Merger. In that regard, Board of Directors of AVS and AVS management believe
that: (a) AVS's ability to provide parts support will enable AVS's repair
operations, including Whitehall, to avoid delays often encountered in the MRO
industry due to parts shortages; (b) AVS will enjoy a cost advantage based upon
the costs associated with Whitehall's Lake City operation compared to the cost
structures of many of Whitehall's competitors; (c) by focusing on "turn time"
and quality, and by cross selling its MRO services to its existing airline
customers, AVS can substantially increase Whitehall's business; and (d)
Whitehall's recent capital expenditures program to enhance its Lake City
facilities will allow Whitehall to support significant additional growth in
revenues without significant additional capital costs.
3. The Merger will be deleveraging to AVS, in that AVS will add
substantial stockholder equity without adding significant additional debt.
4. The terms and conditions of the Merger, the Merger Agreement and related
matters. In considering the terms of the Merger, particular attention was given
by the Board of Directors of AVS to: (a) the consideration to be received by
Whitehall's stockholders and (b) the termination provisions, including the
potential payment by Whitehall of a $7.5 million termination fee, in the event
that the Whitehall Board recommends a Superior Proposal and AVS terminates the
Merger Agreement and, within one year Whitehall enters into a Superior Proposal.
The Board of Directors of AVS also considered the treatment of outstanding
options to purchase shares of Whitehall Common Stock. The Board of Directors of
AVS also considered the terms of the Merger Agreement as a whole (and not
individually) and, given its experience in similar transactions and analysis of
comparable transactions, determined to approve the Merger and adopt the Merger
Agreement.
5. Current market conditions, historical market prices and trading
information for both AVS and Whitehall.
6. The historical and current financial conditions, results of operations,
prospects and businesses of AVS and Whitehall before and after giving effect to
the Merger.
7. The opinion of SBCWDR that as of the date of its opinion the Exchange
Ratio is fair, from a financial point of view, to AVS's stockholders.
8. The AVS Board of Directors also considered: (i) the potential for
increases in operating efficiencies for the combined company, (ii) the ability
for AVS to obtain additional sales through sales of parts to Whitehall to be
used in connection with services offered to customers of Whitehall, as well as
to further leverage the existing services of AVS's other MRO operations by
providing ancillary repair services required by Whitehall in connection with
their providing heavy maintenance of aircraft to their customers, and (iii) the
ability of AVS after the Merger to provide "nose to tail" MRO and inventory
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management solutions to its airline customers, allowing AVS to more fully meet
the inventory and MRO requirements of its customers. The AVS Board of Directors
was also aware of the substantial consolidation which is ongoing in the MRO
business and concluded that large, well capitalized entities will have better
opportunities in the MRO market in the future.
The AVS Board believes that the Merger will not change the nature of the
business in which stockholders have invested, but will provide for that
investment to be in a larger, more competitive, more efficient enterprise.
In reaching its conclusions on the Merger, the Board of Directors of AVS
also considered a number of potentially negative factors in its deliberations,
including (a) the charges typically expected to be incurred in connection with
the Merger, primarily in the fiscal quarter in which the Merger closes; (b) the
risk that the aggregate consideration to be paid by AVS to acquire Whitehall
may exceed the amount of consideration justified based upon the current
earnings level of Whitehall or based upon the future performance of Whitehall;
(c) the fact that AVS may not terminate the Merger Agreement due solely to
fluctuations in the market price of Whitehall's common stock or AVS Common
Stock; (d) the risk that the market price of AVS Common Stock may be adversely
affected by the public announcement of the Merger; (e) the risks involved in
the integration of the two companies, and the risks that the perceived benefits
of the Merger will not be realized; (f) the risks arising from disruption of
Whitehall's business or employee base due to the uncertainties which may arise
after the Merger is announced or during the period after the Merger is
consummated but before the operations of AVS and Whitehall have been combined;
(g) the risks associated with the possibility of material adverse changes in
Whitehall's business; and (h) the possibility that the Merger might not be
consummated and the corresponding potential adverse effect of such a result on
the market price of AVS Common Stock. In the view of the Board of Directors of
AVS, these considerations were not sufficient, either individually or
collectively, to outweigh the potential advantages of the Merger.
In view of a wide variety of factors, both positive and negative,
considered by AVS's Board of Directors, AVS's Board of Directors did not find
it practicable to quantify or otherwise assign relative weights to the specific
factors considered. Rather, AVS's Board of Directors viewed its determination
and recommendations as being based on the totality of the information presented
to it and considered by it. Individual members of the AVS Board of Directors
may have given different weight to different factors.
WHITEHALL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE WHITEHALL BOARD
The Whitehall Board has approved and adopted the Merger Agreement,
believes that the Merger is in the best interests of Whitehall and its
stockholders and unanimously recommends the adoption of the Merger Agreement by
the holders of Whitehall Common Stock.
In reaching its conclusion to approve the Merger Agreement and to
recommend that the Whitehall stockholders vote to approve the Merger Agreement,
Whitehall's Board of Directors considered the following material factors:
1. The results of operations, financial condition, competitive position
and prospects of each of Whitehall and AVS, and Whitehall's projected future
performance and prospects as a stand-alone entity and on a combined basis with
AVS.
2. The nature and quality of AVS's business, including the reputation of
its management, and the benefits anticipated from its pursuit of its
acquisition strategy.
3. The possible enhancement in Whitehall's existing business as a result
of combining with AVS, attributable in part to the greater size and financial
strength of the combined company and to the broader range of products and
services that the combined company would be able to offer than either would be
able to offer individually.
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4. The substantially single service nature of Whitehall's business and the
risks associated with the cyclical and unpredictable nature of the aviation
industry generally and the MRO business in particular. While the Whitehall
Board recognized that AVS's business was also dependent upon the aviation
industry, overall the combined company would have a less cyclical earnings
stream than Whitehall on a stand-alone basis.
5. The increasing competitive pressures on maintenance providers such as
Whitehall as a result of the continuing consolidation in the aviation service
industry.
6. The recommendation of the Merger by management of Whitehall based in
part on its own belief that the combination was important to the future of
Whitehall's business and its concerns about Whitehall's future growth and
success as a stand-alone company for the reasons set forth in paragraphs 3
through 5 above.
7. The opinion of Ladenburg that the Exchange Ratio provided in the Merger
Agreement is fair, from a financial point of view, to the holders of Whitehall
Common Stock.
8. The support of the Merger by Whitehall's two largest stockholders,
Cambridge and Baker Nye, as evidenced by their willingness to enter into the
Whitehall Voting Agreement.
9. The increased liquidity of shares of AVS Common Stock compared to
shares of Whitehall Common Stock.
10. The ability of current stockholders of Whitehall to continue to
participate in the upside of Whitehall's business through the AVS Common Stock
to be issued in the Merger, while limiting their exposure to the uncertainties
of Whitehall's business and also having an opportunity to participate in the
upside of AVS's business.
11. The expectation that the Merger will be largely tax-free to
Whitehall's stockholders and that it will be treated as a pooling of interests
for accounting purposes.
12. The Whitehall Board's view that it was unlikely that any other company
would be willing to acquire Whitehall on terms more favorable than those
proposed by AVS. The Whitehall Board also took into account the provisions of
the Merger Agreement that would permit Whitehall to provide confidential
information to and negotiate with any other entity making a proposal which it
deems to be a "Superior Proposal" (as defined in the Merger Agreement) and to
enter into an acquisition agreement with that entity. The Whitehall Board noted
that if Whitehall were to enter into an agreement with respect to a Superior
Proposal, it would be obligated, under certain circumstances, to pay to AVS a
$7.5 million fee. The Whitehall Board did not view the termination fee
provision of the Merger Agreement as unreasonably impeding any interested third
party from proposing a Superior Proposal.
At various times prior to the unanimous approval of the Merger Agreement
by the Whitehall Board, certain members of the Whitehall Board expressed
concern over the fixed nature of the Exchange Ratio which left the stockholders
of Whitehall vulnerable to a decline in the market price for the AVS Common
Stock until the closing of the Merger. Ultimately, despite these concerns, each
director determined, having considered all of the factors outlined above and
giving the weight to each such factor that each director, in the exercise of
his best business judgment, deemed to be appropriate, that the Merger was in
the best interests of Whitehall's stockholders and voted accordingly.
In view of the numerous factors considered in connection with its
evaluation of the Merger and in light of each director's differing perspective,
the Whitehall Board considered the factors above as a whole and did not assign
specific or relative weights to such factors. In addition, individual directors
may have evaluated specific factors differently.
THE WHITEHALL BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
WHITEHALL AND ITS STOCKHOLDERS AND RECOMMENDS THAT WHITEHALL'S STOCKHOLDERS
VOTE IN FAVOR OF THE MERGER.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Whitehall Board with respect to
the Merger, Whitehall stockholders should be aware that certain members of
Whitehall's management and the Whitehall Board have certain interests in the
Merger in addition to the interests of Whitehall's stockholders generally. The
Whitehall Board was aware of these interests and considered them among other
matters, in approving the Merger Agreement.
VOTING AGREEMENTS. In connection with the Merger Agreement, certain
stockholders of Whitehall, owning in the aggregate approximately 34% of the
outstanding shares of Whitehall Common Stock, have entered into the Whitehall
Voting Agreement and Irrevocable Proxy with AVS and certain stockholders of
AVS, owning in the aggregate approximately 30% of the outstanding shares of
AVS Common Stock, have entered the AVS Voting Agreement.
Pursuant to the Whitehall Voting Agreement, and for so long as it remains
in effect, each of Cambridge and Baker Nye have agreed to vote their shares of
Whitehall Common Stock, and have given AVS an irrevocable proxy to vote their
shares of Whitehall Common Stock, (i) in favor of the adoption and approval of
the Merger Agreement and the Merger at every meeting of Whitehall stockholders
where such matters are considered and (ii) against any actions or approval that
would compete with or could serve to materially interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the Merger,
including any Alternative Proposal (as defined in the Merger Agreement). George
F. Baker, the Chairman of the Board and Chief Executive Officer of Whitehall is
a general partner of each of Cambridge and Baker Nye and may be deemed to own
beneficially the 1,893,400 aggregate shares of Whitehall Common Stock owned by
them.
Pursuant to the AVS Voting Agreement, and for so long as it remains in
effect, Robert Alpert, RCP and AVAC, Dale S. Baker and Harold M. Woody have
agreed to vote their shares of AVS Common Stock, and have given Whitehall an
irrevocable proxy to Whitehall to vote their shares of AVS Common Stock, (i) in
favor of the adoption and approval of the Merger Agreement and the Merger at
every meeting of AVS stockholders where such matter is considered and (ii)
against any actions or approval that would compete with or could serve to
materially interfere with, delay, discourage, adversely affect or inhibit the
timely consummation of the Merger. Robert Alpert is a director of AVS and
beneficially owns the shares of AVS Common Stock owned by RCP and AVAC. Dale S.
Baker is the Chairman of the Board, President and Chief Executive Officer of
AVS and Harold M. Woody is Executive Vice President and a director of AVS.
The foregoing summary of the AVS Voting Agreement and the Whitehall Voting
Agreement is qualified in its entirety by reference to the complete text of
such agreements, which are included as Annex D and E, respectively, to this
Proxy Statement/Prospectus.
APPOINTMENT OF ADDITIONAL DIRECTORS. Under the Merger Agreement, AVS has
agreed that effective immediately following the Effective Time, it will
increase the number of members of the AVS Board of Directors from six (6) to
eight (8) and appoint George F. Baker and Jeffrey N. Greenblatt as members of
the AVS Board of Directors to serve for respective terms expiring at the annual
meeting of the AVS stockholders to be held in 2001 and 2000. George F. Baker is
the Chairman of the Board and Chief Executive Officer of Whitehall and a
general partner of Cambridge and of Baker Nye. Jeffrey Greenblatt is an
employee of Whitehall and a general partner of Cambridge and of Baker Nye.
REGISTRATION RIGHTS. As a condition to Whitehall's obligation to
consummate the Merger, AVS has agreed to enter into prior to the Effective
Time, the Registration Rights Agreement with certain persons. Pursuant to the
Registration Rights Agreement, AVS has agreed to (i) prepare and file with the
Commission within thirty days from Closing Date a registration statement for
the offering and sale, on a delayed or continuous basis, shares of AVS Common
Stock issued to such persons pursuant to the Merger Agreement and (ii) grant,
in certain situations, demand and "piggyback" registration rights for such
shares. In addition to AVS, the parties to the Registration Rights Agreement
are Cambridge,
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Baker Nye, George F. Baker, the Chairman of the Board and Chief Executive
Officer of Whitehall and a general partner of Cambridge and Baker Nye, John H.
Wilson, the President and a director of Whitehall, Bruce R. Conway, the
Secretary and a director of Whitehall, Arthur R. Hutton, John J. McAttee, Jr.,
Jack S. Parker and Lewis S. White each of whom are directors of Whitehall.
ACCELERATION OF OPTIONS. At the Effective Time, outstanding Whitehall
Options will be converted into the right to purchase that number of shares of
AVS Common Stock as the holder of such would have been entitled to receive had
they exercised such Whitehall Options prior to consummation of the Merger and
participated in the Merger. Whitehall Options issued pursuant to Whitehall's
1992 Incentive Stock Option Plan (which will be converted into options to
purchase shares of AVS Common Stock, as described above), will, in accordance
with the terms of the plans and such agreements, immediately vest at the
closing of the Merger. All other Whitehall Options will continue to vest in
accordance with the vesting schedules contained in the agreements evidencing
such Whitehall Options.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
After the Effective Time, AVS agreed to, and agreed to cause the Surviving
Corporation to, indemnify and hold harmless each person who is, as of March 26,
1998, or has been at any time prior to such date or who becomes prior to the
Effective Time, an officer, director, employee or agent of Whitehall and its
subsidiaries (each an "Indemnified Person"), from and against all losses,
reasonable expenses (including reasonable attorneys' fees), claims, damages,
liabilities or amounts paid in settlement of, or otherwise in connection with
any threatened or actual claim, action, suit, proceeding or investigation,
based in whole or in part on or arising in whole or in part out of the fact
that the Indemnified Person (or person controlled by the Indemnified Person) is
or was an officer, director, employee or agent of Whitehall or its subsidiaries
and pertaining to any matter existing or arising out of actions or omissions
occurring at or prior to the Effective Time to the extent permitted under DGCL.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. federal income tax
considerations relevant to Whitehall and Whitehall's stockholders relating to
the Merger. This discussion does not deal with all federal income tax
considerations that may be relevant to particular Whitehall stockholders in
light of their particular circumstances, such as dealers in securities,
stockholders who do not hold their Whitehall Common Stock as capital assets,
foreign persons, tax exempt entities or persons who acquired their shares in
compensatory transactions. Furthermore, no foreign, state or local tax
considerations are addressed herein. ACCORDINGLY, WHITEHALL STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
Subject to the accuracy of representation letters received from AVS, Sub
and Whitehall, which letters will be reconfirmed immediately prior to the
Effective Time, it is the opinion of Baker & Botts, counsel to Whitehall, the
material tax consequences of the Merger to Whitehall and Whitehall's
stockholders are as follows:
NATURE OF THE MERGER. The Merger should constitute a reorganization as
defined in Section 368(a)(1)(A) of the Code by virtue of the application of
Section 368(a)(2)(E) of the Code if carried out in the manner set forth in the
Merger Agreement.
CONSEQUENCES TO WHITEHALL. In such event, no gain or loss will be
recognized by Whitehall upon AVS's issuance of AVS Common Stock in exchange for
Whitehall Common Stock and the transfer by operation of law of Sub's assets and
liabilities to Whitehall upon consummation of the Merger.
CONSEQUENCES TO WHITEHALL'S STOCKHOLDERS. Generally, no gain or loss will
be recognized by Whitehall's stockholders upon their receipt in the Merger of
AVS Common Stock (except to the extent of cash received in lieu of a fractional
share of AVS Common Stock).
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The aggregate tax basis of AVS Common Stock received in the Merger
(including any fractional share deemed received) will be the same as the
aggregate tax basis of the Whitehall Common Stock surrendered in exchange
therefor.
The holding period, for federal income tax purposes, of each share of AVS
Common Stock received by each of Whitehall's stockholders in the Merger will
include the period during which such Whitehall stockholder held his or her
Whitehall Common Stock surrendered in exchange therefor, provided that the
Whitehall Common Stock is held as a capital asset at the time of the Merger.
Cash payments in lieu of a fractional share should be treated as if a
fractional share of AVS Common Stock had been issued in the Merger and then
redeemed by AVS. A Whitehall stockholder receiving such cash should generally
recognize gain or loss upon such payment equal to the difference (if any)
between the amount of cash received and such stockholder's basis in the
fractional share (which will be a pro rata portion of the stockholder's basis
in the AVS Common Stock received in the Merger).
Even if the Merger qualifies as a reorganization, a recipient of shares of
AVS Common Stock could recognize income to the extent that such shares were
considered by the Internal Revenue Service (the "Service") to be received in
exchange for consideration other than the Whitehall Common Stock, such as
dividends accrued on such Whitehall Common Stock. All or a portion of such
income may be taxable as ordinary income.
LIMITATIONS ON OPINION AND DISCUSSION. The opinion of Baker & Botts will
not bind the Service and the Service is, therefore, not precluded from
asserting a contrary position. In addition, as noted earlier, the tax opinion
is subject to certain assumptions, including, but not limited to, the truth and
accuracy of certain representations made by AVS, Sub and Whitehall.
No party to the Merger has requested a ruling from the Service with
respect to the federal income tax consequences of the Merger. Whitehall's
stockholders should be aware that the opinion rendered by Baker & Botts will
not be binding on the Service and that there can be no assurance that future
legislative, judicial or administrative changes or interpretations will not
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the Merger.
A successful challenge by the Service to the tax-free reorganization
status of the Merger would result in Whitehall's stockholders recognizing
taxable gain or loss with respect to each share of Whitehall Common Stock
surrendered equal to the difference between the stockholder's basis in such
share and the fair market value, as of the Effective Date, of the AVS Common
Stock and any cash received in exchange therefor. In such event, a
stockholder's aggregate basis in AVS Common Stock so received would equal its
fair market value at the Effective Date and the holding period for such stock
would begin on the day after the Effective Date.
FEDERAL SECURITIES LAWS CONSEQUENCES
The shares of AVS Common Stock to be received by Whitehall's stockholders
in connection with the Merger have been registered under the Securities Act.
Accordingly, there will be no restrictions upon the resale or transfer of such
shares by Whitehall's stockholders, except for those stockholders who are
deemed to be "affiliates" of Whitehall as such term is defined in Rule 144
under the Securities Act.
With respect to those stockholders who may be deemed to be "affiliates" of
Whitehall, Rule 144 and Rule 145 place certain restrictions on the transfer of
the shares of AVS Common Stock which may be received by them pursuant to the
Merger. Persons who may be deemed to be "affiliates" of Whitehall generally
include individuals who, or entities which, directly or indirectly, control or
are controlled by or are under common control with Whitehall and may include
certain officers and directors of Whitehall as well as principal stockholders
of Whitehall. This Proxy Statement/Prospectus
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does not cover resales of AVS Common Stock received by any person who may be
deemed to be an affiliate of Whitehall. AVS has agreed to register such shares
of AVS Common Stock for resale or transfer by such "affiliates" of Whitehall.
See "Interests of Certain Persons in the Merger-Registration
Rights."Additionally, it is a condition to the consummation of the Merger that
all persons deemed "affiliates" of Whitehall enter into an agreement whereby
each such person agrees, among other things, not to sell their shares of AVS
Common Stock received by them in connection with the Merger until combined
operating results covering a minimum thirty day period of AVS and Whitehall are
publicly released.
REGULATORY APPROVAL
Certain acquisitions such as the Merger are reviewed by the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the Federal
Trade Commission (the "FTC") to determine whether such transactions comply with
applicable antitrust laws. Under the provisions of the HSR Act, the Merger
could not be consummated until notifications had been given and certain
information had been furnished to the FTC and the Antitrust Division and
certain waiting period requirements of the HSR Act had been satisfied.
Information and material required under the HSR Act was filed with the
Antitrust Division and the FTC by AVS and Whitehall on April 13, 1998. AVS and
Whitehall were notified that early termination of the waiting period applicable
to the acquisition of the Whitehall Common Stock by AVS in the Merger was
granted on April 27, 1998. Notwithstanding such early termination, at any time
before or after consummation of the Merger, the FTC or the Antitrust Division
could take such action under the antitrust laws as they deem necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of AVS or Whitehall.
At any time before or after the Effective Date, and notwithstanding that the
HSR Act waiting period has been terminated, any state having appropriate
jurisdiction could take such action under the antitrust laws as it deems
necessary or desirable. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture by AVS of Whitehall or
certain of the businesses of AVS or Whitehall. Private parties may also seek to
take legal action under antitrust laws under certain circumstances. In
addition, holders of Whitehall Common Stock who, pursuant to the Merger, will
be acquiring shares of AVS Common Stock having a value of more than $15 million
or a value which, when aggregated with the value of shares of AVS Common Stock
owned by such persons prior to the Merger, exceeds $15 million, may be subject
to the notification and waiting period requirements of the HSR Act. All such
waiting periods would have to expire or be terminated before any issuance of
shares of AVS Common Stock to those particular stockholders in the Merger could
be effected.
AVS and Whitehall are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws of the various states.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes.
Under this method of accounting, the assets and liabilities of AVS and
Whitehall will be combined based on the respective carrying values of the
accounts in the historical financial statements of each entity. Results of
operations of the combined company will include income of AVS and Whitehall for
the entire fiscal period in which the combination occurs and the historical
results of operations of the separate companies for fiscal years prior to the
Merger will be combined and reported as the results of operations of the
combined company.
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NYSE LISTING; EXCHANGE ACT REGISTRATION
As a condition to the closing of the Merger, the shares of AVS Common
Stock to be issued upon consummation of the Merger and the shares reserved for
issuance in connection with Whitehall's stock option plans will be approved for
listing on the NYSE, subject to official notice of issuance.
Following completion of the Merger, it is expected that the Whitehall
Common Stock will cease being traded on the NYSE and that Whitehall's
registration under the Exchange Act will be terminated. Accordingly, Whitehall
will no longer be required to file periodic reports with the Commission.
ABSENCE OF APPRAISAL RIGHTS
Delaware law does not require that holders of Whitehall Common Stock who
object to the Merger and who vote against or abstain from voting in favor of
the Merger Agreement be afforded any appraisal rights or the right to receive
cash for their shares of Whitehall Common Stock in lieu of the consideration to
be paid pursuant to the Merger Agreement, and Whitehall does not intend to make
available such rights to its stockholders.
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OPINION OF WHITEHALL'S FINANCIAL ADVISOR
OPINION OF FINANCIAL ADVISOR
On March 24, 1998 Ladenburg delivered its oral opinion to the Whitehall
Board, which was thereafter confirmed in writing on March 26, 1998, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the stockholders of Whitehall. A copy of the Ladenburg
Opinion dated March 26, 1998 is attached hereto as Annex B. Whitehall's
stockholders are urged to read the Ladenburg Opinion in its entirety for
assumptions made and matters considered by Ladenburg.
In rendering the Ladenburg Opinion, Ladenburg noted that the Exchange
Ratio of 0.5143 shares of AVS Common Stock per share of Whitehall Common Stock
as of March 25, 1998 implies a value of $22.57 per share of Whitehall Common
Stock and a total implied equity value for Whitehall of $124.8 million. With
the assumption of $13.3 million in net debt, which was management's estimated
net debt outstanding as of December 31, 1997, the Merger would provide for an
implied enterprise value for Whitehall of $138.1 million.
INFORMATION AND MATERIALS CONSIDERED
In connection with rendering its Opinion, Ladenburg has reviewed such
information as it deems necessary or appropriate for the purpose of rendering
its Opinion. Ladenburg has reviewed information including, but not limited to,
the following: (i) the Merger Agreement; (ii) audited financial statements for
Whitehall for the years ended December 31, 1994, 1995, 1996 and 1997; (iii)
projected financial statements as developed by Ladenburg and reviewed by
Whitehall for the years ended December 31, 1998, 1999, 2000, 2001 and 2002;
(iv) Whitehall's common stock price and volume trading history; (v) AVS's
audited financial statements for the years ended December 31, 1994, 1995, 1996
and 1997; (vi) AVS's common stock price and volume trading history; (vii) AVS's
Offering Memorandum dated February 11, 1998 for $165 million of 81/8% Senior
Subordinated Notes due 2008 and; (viii) publicly available market information
regarding the aviation services industry, AVS, Whitehall and its competitors.
In addition, Ladenburg had several conversations with senior management of AVS
and Whitehall regarding Whitehall, its competitors and the industry but noted,
in the course of these discussions, that Whitehall's management did not have
projected financial statements of their own but were apprised of and approved
Ladenburg's projections.
In rendering the Ladenburg Opinion, Ladenburg assumed and relied upon the
accuracy and completeness of all financial and other material furnished to
Ladenburg by Whitehall and AVS regarding Whitehall, AVS, the Merger, the
industry in which Whitehall and AVS operate and their respective competitors.
Ladenburg did not attempt to independently verify the information provided to
it by Whitehall. Ladenburg has not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Whitehall. Ladenburg did not express any opinion as to what the value of AVS
Common Stock actually will be when issued to Whitehall stockholders or the
price at which AVS would trade subsequent to the closing of the transaction.
Ladenburg was not authorized to, and did not, solicit third party indications
of interest in acquiring all or part of Whitehall, and Ladenburg was not asked
to consider, and the Ladenburg Opinion does not address, the consideration
Whitehall might receive from a third-party purchaser, the relative merits of
the Merger as compared to any alternative business strategies that might exist
for Whitehall or the effect of any other transaction in which Whitehall might
engage. The Ladenburg Opinion is necessarily based upon information available
to it, and financial, stock market and other conditions and circumstances
existing and disclosed to Ladenburg, as of the date of the Ladenburg Opinion.
THE FULL TEXT OF THE WRITTEN LADENBURG OPINION DATED MARCH 26, 1998, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY
REFERENCE. WHITEHALL STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN
ITS ENTIRETY. THE LADENBURG
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OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW TO THE STOCKHOLDERS OF WHITEHALL AND DOES NOT ADDRESS ANY OTHER
ASPECT OF THE TRANSACTION. THE SUMMARY OF THE LADENBURG OPINION SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
OVERVIEW OF ANALYSES
Ladenburg used both quantitative and qualitative assessments to evaluate
Whitehall. Ladenburg's determination that the Exchange Ratio in the Merger is
fair, from a financial point of view, to the public shareholders of Whitehall
is based on all the quantitative and qualitative analyses described herein.
For its quantitative evaluations, Ladenburg calculated a range of values
using four separate approaches: (i) a Market Multiples Analysis based upon
comparable publicly-traded companies, (ii) an Acquisition Multiples Analysis
based upon acquisitions of comparable companies since January 1, 1996, (iii) a
Discounted Cash Flow Analysis, and (iv) a review of the historical trading
price and volume of Whitehall Common Stock. Ladenburg used the median per share
equity value from each analysis to develop a range of values for Whitehall.
Ladenburg compared the consideration to be received in the Merger to the range
of derived equity values for Whitehall. In examining all the approaches
thoroughly, Ladenburg reached the conclusion that certain approaches were more
relevant, represented more direct comparability or provided a higher degree of
certainty than others. However, Ladenburg did not ascribe different weights to
each analysis because in every analysis the median value was less than the
proposed consideration.
QUALITATIVE CONSIDERATIONS
In addition to the quantitative analyses discussed below, Ladenburg
considered a number of qualitative factors related to Whitehall. Ladenburg did
not apply weightings to any of these qualitative analyses. Among the
qualitative factors relating to Whitehall, Ladenburg noted Whitehall's: (i)
dependence on key individuals; (ii) increasingly competitive business
environment; (iii) limited access to capital versus its competitors; (iv)
ownership structure; and (vi) market position.
QUANTITATIVE ANALYSES
Ladenburg evaluated Whitehall, through various methods described below, to
derive implied aggregate equity values and implied per share equity values for
100% of the value of Whitehall.
(a) Historical and Projected Financial Performance. Ladenburg reviewed
Whitehall historical financial performance for each of the three fiscal years
in the three-year period ended December 31, 1997 and its projected performance
as developed by Ladenburg and deemed appropriate after review by management,
for the fiscal years ended 1998, 1999, 2000, 2001 and 2002.
(b) Historical Market Price Analysis. Ladenburg examined the closing
market prices of Whitehall Common Stock over the 90-day trading period prior to
March 26, 1998 during which time the closing market price ranged from $23.50 to
$16.25 and the Whitehall Common Stock had an average high and low trading price
of $19.16 and $18.74, respectively, and a closing price of $22.00 on March 25,
1998, one day prior to the date of the Ladenburg Opinion.
(c) Market Multiples Analysis. Ladenburg conducted a market multiples
analysis for Whitehall which determined the implied public market value based
on the multiples of comparable public companies. Due to Whitehall's minimal
earnings before interest, tax, depreciation and amortization ("EBITDA"), after
adding back certain non-recurring corporate charges, and negative earnings
before interest and tax ("EBIT") it was determined that the best way to perform
analysis based on market multiples would be to use comparable companies for
which 1998 projections were available from Wall Street analysts to value the
projected Whitehall 1998 EBITDA and EBIT multiples. The following
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group of Projected Comparable Companies ("Projected Comparable Companies") were
determined to be comparable to Whitehall and had 1998 projections available:
AAR Corp.; AVS; AVTEAM, Inc.; Kellstrom Industries; Triumph Group, Inc. All
other multiple analysis was based on the last twelve months (LTM) of reported
financials of a different universe of comparable companies ("LTM Comparable
Companies"). Ladenburg believes the following group of LTM Comparable Companies
are comparable to Whitehall: AAR Corp.; AVS; Aviall Inc.; AVTEAM, Inc.; Banner
Aerospace, Inc; Hawker Pacific Aerospace; Kellstrom Industries, Inc.; Triumph
Group, Inc.
Ladenburg derived the following median common stock trading multiples for
the comparable companies: (i) projected EBITDA; (ii) projected EBIT; (iii)
projected net income; and (iv) current book value. Projected EBITDA and
projected EBIT multiples are based on total enterprise value divided by each
financial measure, respectively. Total enterprise value is defined as the
market value of common stock, plus total debt, less cash and cash equivalents.
Total enterprise value is essentially the value of a company assuming an
unleveraged capital structure. The remaining multiples are derived by dividing
the market value of the common stock in aggregate, or per share as appropriate,
projected net income and book value.
The implied equity valuations for Whitehall based on the projected EBITDA
and projected EBIT were calculated by multiplying Whitehall projected EBITDA
and projected EBIT by the median projected EBITDA and projected EBIT multiples,
respectively, for the universe of Projected Comparable Companies, then
subtracting debt outstanding and adding cash and cash equivalents as of
December 31, 1997. For the valuations based on projected net income and current
book value, Ladenburg multiplied Whitehall projected 1998 and 1999 net income
and current book value by the median projected net income and current book
value multiples, respectively, for the LTM Comparable Company Universe. This
range of implied equity values was divided by the total number of Whitehall
shares outstanding to derive a range of implied equity values per share.
The median market multiples for the Projected Comparable Companies and the
LTM Comparable Companies used for their respective analyses were as follows:
(i) 8.6x as a multiple of projected EBITDA; (ii) 9.4x as a multiple of
projected EBIT; (iii) 20.5x as a multiple of projected 1998 net income; (iv)
16.2x as a multiple of projected 1999 net income; and (vi) 3.6x as a multiple
of current book value. The result of this analysis indicated a range of equity
values for Whitehall from $14.85 to $24.54 per share, the median of which was
$17.83 per share.
(d) Acquisition Multiples Analysis. Ladenburg conducted an acquisition
multiples analysis which was similar to the market multiples analysis but
instead relied upon multiples from comparable merger and acquisition
transactions that Ladenburg deemed to be relevant. For purposes of this
analysis, the equity value was equal to the amount paid for the target's equity
and the transaction value was equal to the purchase price, plus the target's
outstanding interest-bearing debt, less cash and cash equivalents. Ladenburg
compared multiples from merger and acquisition transactions of the following
target and acquiring companies, respectively: the acquisition of Rohr Inc. by
BF Goodrich Co.; the acquisition of Aero Support USA Inc. by Kellstrom
Industries, Inc.; the acquisition of Northwings Accessories Corp. by Heico
Corp.; the acquisition of Greenwich Air Services Inc. by General Electric Co.;
the acquisition of UNC Inc. by General Electric Co.; the acquisition of Aviall
Inc. (Commercial CES Divisions) by Greenwich Air Services Inc.; and the
acquisition of Garrett Aviation Services by UNC Inc.
The median multiples utilized in the valuation of Whitehall for the
selected transactions were as follows: (i) 9.0x as a multiple of EBITDA; (ii)
10.9x as a multiple of EBIT; (iii) 16.4x as a multiple of net income; and (iv)
3.4x as a multiple of book value. The range of implied equity values derived
from the acquisition multiples analysis was divided by the number of shares of
Whitehall Common Stock outstanding to derive implied equity value per share.
The range of implied equity values per share of Whitehall Common Stock was
$14.19 to $19.78, the median of which was $19.22.
(e) Discounted Cash Flow Analysis. Ladenburg conducted a discounted cash
flow analysis which derived implied equity values based on the present value of
future net cash flows, less current total debt,
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plus current total cash and cash equivalents. The cash flows were discounted
using a range of discount rates based upon the median weighted average cost of
capital for the LTM Comparable Companies. For purposes of this analysis, annual
free cash flow equals de-levered net income, plus depreciation and
amortization, less capital expenditures, less the change in working capital. In
the exit year, free cash flow also included proceeds from the sale of the
business, which is typically assumed for valuation purposes as a more
representative "terminal value" than using cash flows in perpetuity. The
terminal value was determined by applying a range of exit multiples based on
the median EBITDA multiple of the target companies in the Acquisition Multiples
Analysis. Ladenburg applied discount rates of 7.8% to 9.8% and exit multiples
of 8.5x to 9.5x. The equity value was divided by the number of shares of
Whitehall common stock outstanding to derive equity value per share. The equity
value per share ranged from $15.09 to $18.51, the median of which was $16.73.
COMPARISON OF THE CONSIDERATION TO THE VALUES OF WHITEHALL
Ladenburg concluded that the Exchange Ratio is fair, from a financial
point of view, to the stockholders of Whitehall, as of March 26, 1998. The
Exchange Ratio of 0.5143 shares of AVS Common Stock per share of Whitehall
Common Stock and AVS's closing stock price of $43.88 on March 25, 1998 imply a
per share value of $22.57 per share of Whitehall Common Stock. This implied
value of $22.57 per share to be received by Whitehall's stockholders falls
above the range of median per share values for Whitehall as determined by
Ladenburg of $16.73 to $19.22.
LIMITATIONS OF ANALYSES
Although each analysis employed by Ladenburg in rendering the Ladenburg
Opinion is summarized above, the above summary does not purport to be a
complete description of Ladenburg's analyses and contains those aspects of
Ladenburg's analyses deemed most relevant. In its analyses, Ladenburg made
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, based on, among
other things, information provided to (and relied upon by) Ladenburg by
Whitehall and AVS, many of which are beyond the control of Whitehall. Any
estimates contained in Ladenburg's analyses are not necessarily indicative of
actual values, which may be significantly more or less favorable than as set
forth therein. Additionally, estimates of the value of businesses do not
purport to be appraisals or necessarily to reflect the prices at which
businesses actually may be sold. Because such estimates are inherently subject
to uncertainty since the assumptions upon which such estimates are based may
not materialize, neither Whitehall, Ladenburg nor any other person assumes
responsibility for the accuracy of such estimates. Ladenburg's analysis does
not reflect, among other things, changes since the date of the Ladenburg
Opinion for Whitehall business or prospects, changes in general business and
economic conditions or any other transaction or event that has occurred or that
may occur and that was not anticipated at the time such materials were
prepared.
Ladenburg is an internationally recognized investment banking firm which,
as part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, merchant banking, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
Ladenburg was engaged to render the Ladenburg Opinion in connection with
the Merger and received a fee in connection therewith. In addition, Whitehall
agreed to reimburse Ladenburg for its related expenses. Whitehall also agreed,
in a separate letter agreement, to indemnify Ladenburg, its affiliates and each
of their respective directors, officers, agents, consultants and employees and
each person, if any, controlling Ladenburg or any of its affiliates against
certain liabilities, including liabilities under federal securities laws. In
the ordinary course of its business Ladenburg may trade the securities of
Whitehall or AVS for its own account and for the account of its customers, and
may at any time hold a long or short position in such securities.
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OPINION OF AVS'S FINANCIAL ADVISOR
The Board of Directors of AVS retained SBCWDR to act as its financial
advisor for the purpose of providing an opinion as to the fairness of the
Exchange Ratio from a financial point of view.
On March 25, 1998 SBCWDR delivered its oral opinion to the Board of
Directors of AVS, which opinion was subsequently confirmed in a written opinion
dated March 26, 1998 to the effect that, and based upon and subject to the
assumptions, limitations and qualifications set forth therein, as of the date
of such opinion, the Exchange Ratio was fair to the holders of AVS Common Stock
from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF SBCWDR, DATED MARCH 26, 1998,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS ANNEX C
TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
SBCWDR's opinion is directed only to the Exchange Ratio and does not constitute
a recommendation to any AVS stockholder as to how such stockholder should vote
at any special meeting of the AVS stockholders called to approve and adopt the
Merger Agreement and the Merger. The summary of the opinion of SBCWDR set forth
in this Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion.
In arriving at its opinion, SBCWDR, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to AVS and Whitehall, (ii) reviewed certain internal financial
information and other data relating to the business and prospects of AVS,
including financial estimates, that were provided to it by AVS and are not
publicly available, (iii) reviewed certain internal financial information and
other data relating to the business and prospects of Whitehall, including
financial estimates, provided by the management of AVS, that were provided to
it by the management of AVS and are not publicly available, (iv) conducted
discussions with members of the senior management of AVS and Whitehall with
respect to the operations, financial condition, history, and prospects of each
company, (v) reviewed the historical market prices and trading activity of the
common stocks of AVS and Whitehall, (vi) considered certain pro forma effects
of the Merger on the financial results of AVS (including the effects of assumed
combination savings and synergies that were provided to it by AVS), (vii)
reviewed publicly available financial and stock market data with respect to
certain other companies that SBCWDR believes to be generally comparable to AVS
and Whitehall, (viii) compared the financial terms of the Merger with the
financial terms of certain other transactions that SBCWDR believes to be
relevant, (ix) considered the strategic implications of the Merger as presented
to it by management of AVS, (x) reviewed drafts of the Merger Agreement, and
(xi) conducted such other financial studies, analyses, and investigations, and
considered such other information as it deemed necessary or appropriate.
SBCWDR's opinion was necessarily based on economic, monetary, market, and other
conditions as in effect on, and the information made available to SBCWDR as of,
the date thereof.
In connection with its review and arriving at its opinion, SBCWDR did not,
with the consent of AVS, assume any responsibility for independent verification
of any of the information reviewed by it for the purpose of this opinion and,
with the consent of AVS, relied on its being complete and accurate in all
material respects. In addition, with the consent of AVS, SBCWDR did not made
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of AVS or Whitehall nor was SBCWDR furnished with any
such evaluation or appraisal. With respect to the financial estimates
(including the effects of assumed Merger savings and synergies) provided to or
otherwise reviewed by or discussed with it, SBCWDR assumed, with the consent of
AVS, that they have been reasonably prepared, on bases reflecting the best
currently available estimates and judgments of AVS management as to the future
financial performance of each company and that they will be realized in the
amounts and at the times contemplated thereby. At the direction of AVS, SBCWDR
assumed that there will be no material difference between the actual financial
results which will be obtained by AVS, Whitehall or the combined company and
those specified in the estimates, forecasts, and projections provided to it.
With respect to the business and financial information pertaining to Whitehall,
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SBCWDR did not hold any independent discussions with Whitehall management as to
any aspect of the information provided. With the consent of AVS, SBCWDR assumed
that the Merger would not result in taxable income for AVS or its stockholders
and would be accounted for as a pooling-of-interests. For the purposes of the
opinion, with the consent of AVS, SBCWDR assumed that the representations and
warranties of each party contained in the Merger Agreement were true and
accurate, that each party would perform all of the covenants and agreements
required to be performed by it under the Merger Agreement, and that all
conditions to the consummation of the Merger would be satisfied without waiver
thereof. AVS did not place any limitations upon SBCWDR regarding the procedures
to be followed and the factors to be considered in rendering its opinion.
In arriving at its opinion, SBCWDR did not assign any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
based on its experience in providing such opinions and on the existing
economic, monetary, market, and other conditions as to the significance and
relevance of each analysis and factor. SBCWDR believes that its analyses must
be considered as a whole and that selecting portions of its analyses and other
factors considered by it, without considering all factors and analyses, could
create a misleading or incomplete view of the processes underlying its opinion.
SBCWDR did not quantify the effect of each factor upon its opinion. SBCWDR made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond AVS',
Whitehall's and SBCWDR's control. Any assumed estimates contained in SBCWDR's
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. Estimates of the financial value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
actually may be sold. Because such estimates inherently are subject to
uncertainty, neither AVS, Whitehall, SBCWDR nor any other person assumes
responsibility for their accuracy. In rendering its opinion, SBCWDR expressed
no view as to the range of values at which the AVS Common Stock may trade
following the consummation of the Merger, nor did SBCWDR make any
recommendations to the AVS stockholders with respect to how such holders should
vote on the Merger.
In conducting the analyses identified herein, due to certain extraordinary
losses, SBCWDR concluded that certain of these analyses, when based upon 1997
historical information, did not produce meaningful results.
The following paragraphs summarize the material analyses performed by
SBCWDR in arriving at its opinion.
ACQUISITION SUMMARY. SBCWDR noted that with an Exchange Ratio of 0.5143
shares of AVS Common Stock per share of Whitehall Common Stock (or $22.44 per
share of Whitehall Common Stock) as of March 20, 1998 the Merger would provide
for a total implied equity value of $135.4 million. With the assumption of
$10.1 million in net debt, the Merger would provide for an implied value of
assets of $145.5 million. SBCWDR summarized certain acquisition multiples by
observing that the offer for equity as a multiple of net income was 27.0x based
upon AVS management's estimated 1998 income. SBCWDR also noted that the offer
for assets as a multiple of earnings before interest, depreciation, and
amortization ("EBITDA") was 17.1x based upon AVS management's estimated 1998
EBITDA, and 13.7x based upon AVS management's estimated 1998 EBITDA inclusive
of AVS management's estimated synergies. The offer for assets as a multiple of
earnings before interest and taxes ("EBIT") was 20.8x based upon AVS
management's estimated 1998 EBIT, and 16.0x based upon AVS management's
estimated 1998 EBIT inclusive of AVS management's estimated synergies.
PRO FORMA ANALYSIS. SBCWDR prepared pro forma analyses of the financial
impact on AVS of the Merger. A contribution analysis based on AVS management's
estimated fiscal 1998 financial performance showed that on a pro forma basis
for the Merger Whitehall would contribute 23% to the combined stockholders'
equity, 15% to the combined company's net assets, 19% to the combined company's
revenues, 17% to the combined company's EBITDA, 16% to the combined company's
EBIT, and 20% to the combined company's net income. A contribution analysis
based on AVS management's
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estimated fiscal 1999 financial performance showed that, on a pro forma basis,
for the Merger Whitehall would contribute 22% to the combined company's
stockholders' equity, 10% to the combined company's net assets, 21% to the
combined company's revenues, 17% to the combined company's EBITDA, 17% to the
combined company's EBIT, and 27% to the combined company's net income, and
would receive 24% of the share ownership. Using earnings and synergies
estimates for Whitehall and AVS prepared by AVS management, the analysis showed
that the proposed transaction would be slightly (1.0%) dilutive to AVS
stockholders in fiscal year 1998 and (12.5%) accretive in 1999.
HISTORICAL STOCK TRADING ANALYSIS. To provide contextual and comparative
market data, SBCWDR examined the history of the trading prices for the shares
of Whitehall Common Stock in relation to AVS and an index of AAR Corp., AVTEAM,
Inc., DeCrane Aircraft Holdings, Inc., Kellstrom Industries, Inc., and Triumph
Group, Inc. (the "Selected Companies") for the last eighteen months. SBCWDR
noted that the Whitehall Common Stock reached a low price of $15.94 per share
on April 15, 1997 and a high price of $23.25 on March 19, 1998 based on weekly
closing stock prices. SBCWDR noted that the AVS Common Stock reached a low
price of $19.25 on December 13, 1996 and a high price of $44.25 on March 18,
1998 based on weekly closing stock prices. SBCWDR examined the historical
exchange ratio of Whitehall to AVS shares of Common Stock and determined that
the Exchange Ratio of 0.5143 was the market Exchange Ratio on March 20, 1998
and was below the historical average over the preceding month of 0.55, below
the historical average over the preceding six months of 0.54, and below the
historical average since January 3, 1997 of 0.71.
GENERALLY COMPARABLE COMPANY FINANCIAL ANALYSIS. SBCWDR reviewed and
compared certain financial information and ratios for certain aviation services
companies consisting of the Selected Companies which in SBCWDR's judgment were
generally comparable to Whitehall for the purposes of this analysis. No company
in the Selected Companies is identical to Whitehall (including after the
Merger). Accordingly, any analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors affecting the companies being compared. SBCWDR calculated and compared
various financial multiples and ratios for Whitehall and each of the Selected
Companies based on the most recent publicly available information. Although
this analysis was performed for Whitehall, Whitehall's information and ratios
were generally not meaningful, due to Whitehall's recent losses, and did not
materially impact SBCWDR's opinion. SBCWDR reviewed and compared certain
financial information relating to AVS to corresponding financial information
and ratios for the Selected Companies. SBCWDR calculated and compared various
financial multiples and ratios for AVS and each of the Selected Companies based
on the most recent publicly available information. Among other things, the
analysis showed that AVS' EBITDA and EBIT margins for the twelve months ended
September 30, 1997 were below the average of the Selected Companies.
GENERALLY COMPARABLE COMPANY TRADING ANALYSIS. SBCWDR analyzed and
compared certain equity market multiples relating to Whitehall to corresponding
equity market multiples for the Selected Companies. SBCWDR calculated various
financial multiples for Whitehall and each of the Selected Companies based on
the most recent publicly available information. This analysis showed that based
on closing stock prices as of March 20, 1998, the Whitehall Common Stock traded
above the average of the Selected Companies. On an equity value basis,
Whitehall traded at 27.0x AVS management's estimated fiscal 1998 earnings per
share versus an average of 16.8x; and at 4.6x latest book value versus an
average of 3.3x. On an enterprise value basis (market capitalization plus total
debt less cash and equivalents), Whitehall traded at 2.4x LTM Revenues versus
an average of 2.2x.
Based upon the AVS closing stock price of $43.63 as of March 20, 1998 and
an Exchange Ratio of 0.5143x, the offer value for equity of $22.44 per share
was at the market price for Whitehall stock on March 20, 1998.
SBCWDR analyzed and compared certain equity market multiples relating to
AVS to corresponding equity market multiples for the Selected Companies. SBCWDR
calculated various financial multiples for AVS and each of the Selected
Companies based on the most recent publicly
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available information. This analysis showed that based on closing stock prices
as of March 20, 1998, the AVS Common Stock traded above the average of the
Selected Companies. On an equity value basis, AVS traded at 24.8x AVS
management's estimated fiscal 1997 earnings per share versus an average of
22.5x; at 21.0x AVS management's estimated fiscal 1998 earnings per share
versus an average of 16.8x; and at 4.6x latest stockholders' equity versus an
average of 3.3x. On an enterprise value basis, AVS traded at 2.3x LTM revenues
versus an average of 2.2x and at 16.1x LTM EBITDA versus an average of 13.1x.
GENERALLY COMPARABLE COMPANY ACQUISITIONS ANALYSIS. SBCWDR analyzed seven
other acquisition transactions in the aviation services sector over the past
five years including AlliedSignal Inc.'s acquisition of the Banner Aerospace
hardware group, General Electric Co.'s acquisition of Greenwich Air Services,
Inc., Greenwich Air Services, Inc.'s acquisition of UNC Incorporated, Kellstrom
Industries, Inc.'s acquisition of International Aircraft Support, L.P., UNC
Incorporated's acquisition of Garrett Aviation Services, Inc., Greenwich Air
Services, Inc.'s acquisition of Aviall, Inc., UNC Incorporated's acquisition of
Johnson Technology Division of the Freedom Forge Corporation (the "Selected
Transactions"). Such analysis, based on publicly available information for the
twelve months preceding the announcement of the transaction, indicated that for
the Selected Transactions the median of the offer for assets was 0.7x LTM
revenues versus a Whitehall multiple of 2.4x.
PREMIUM ANALYSIS. SBCWDR analyzed the premium paid per share of Whitehall
Common Stock over selected periods and compared it to the average historical
transaction premium of selected similarly sized transactions over the same time
periods. Based upon an offer for equity of $22.44 per share on March 20, 1998,
the premium to one day prior was 0.0%, to one week prior was -1.4%, and to one
month prior was 3.5%, compared to 21.2%, 26.5%, and 37.0% respectively for the
average of historical transactions. An offer for equity of $22.44 per share on
March 20, 1998 represents a 10.0% discount to Whitehall's 52 week high stock
price and a 42.5% premium to Whitehall's 52 week low stock price.
DISCOUNTED CASH FLOW ANALYSIS. SBCWDR performed discounted cash flow
analyses to determine Whitehall's present value per share of Whitehall Common
Stock utilizing AVS management's projections from 1998 through 2003. This
analysis was not expected to determine the net present value of Whitehall as an
ongoing entity. For purposes of the analysis, SBCWDR utilized discount rates
ranging from 10.5% to 12.5% and terminal value EBITDA multiples ranging from
7.0x to 9.0x. The analysis indicated a range of values for the Whitehall Common
Stock from $22.63 to $30.64.
SBCWDR is an internationally recognized investment banking firm which, as
a part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate, and other purposes. In the ordinary course of
its business, SBCWDR and its affiliates may actively trade or hold AVS Common
Stock for its own account and for the accounts of customers and may actively
trade or hold. Whitehall Common Stock for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to an engagement letter, dated March 18, 1998, between AVS and
SBCWDR, upon delivery of the fairness opinion AVS agreed to pay SBCWDR a fee
for services rendered in connection with the preparation of its fairness
opinion. AVS has also agreed to reimburse SBCWDR for the expenses reasonably
incurred by it in connection with its engagement (including reasonable counsel
fees) and to indemnify SBCWDR and its officers, directors, employees, agents,
and controlling persons against certain expenses, losses, claims, damages or
liabilities in connection with its services, including those arising under the
federal securities laws.
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THE MERGER AGREEMENT
The following is a brief summary of all of the material provisions of the
Merger Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. The description
of the Merger Agreement contained in the Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the
full text of the Merger Agreement.
EFFECTIVE TIME; EFFECT OF THE MERGER
If the Merger Agreement is approved and adopted by the requisite vote of
the stockholders of Whitehall, and all other conditions to the obligations of
the parties to consummate the Merger are satisfied or waived, the Merger will
become effective upon the filing of the Certificate of Merger or other
appropriate documents in accordance with the DGCL or at such time as is stated
in the Certificate of Merger. Such filing is expected to take place on the date
of the closing of the transactions contemplated by the Merger Agreement. The
Merger will have the effects set forth in Section 259 of the DGCL. As of the
Effective Time, Sub will be merged with and into Whitehall, with Whitehall
continuing as the Surviving Corporation. The separate corporate existence of
Sub will terminate upon consummation of the Merger. The Merger Agreement
provides that (i) the certificate of incorporation and the bylaws of Sub, as in
effect at the Effective Time, will be the certificate of incorporation and the
bylaws of the Surviving Corporation until thereafter amended pursuant to
applicable law and the certificate of incorporation of the Surviving
Corporation, and (ii) the directors and officers of Sub at the Effective Time
will be the directors and officers of the Surviving Corporation, and all such
directors and officers will hold office until their respective successors are
duly appointed or elected in accordance with applicable law.
CLOSING DATE
Consummation of the Merger and the other transactions contemplated by the
Merger Agreement (the "Closing") will take place on the date that the last of
the conditions set forth in the Merger Agreement are satisfied; or such other
date as agreed to by the parties. The date on which the Closing takes place is
referred to as the "Closing Date."
CERTIFICATE OF MERGER
Upon the satisfaction or waiver of all of the conditions to the Merger set
forth in the Merger Agreement, and provided that the Merger Agreement has not
been terminated, AVS and Whitehall will cause the Certificate of Merger to be
prepared, executed, delivered and filed with the Delaware Secretary of State,
upon which the Merger will become effective.
CONVERSION OF SHARES
Pursuant to the Merger Agreement, at the Effective Time, each share of
Whitehall Common Stock outstanding immediately prior to the Effective Time
(other than shares held by Whitehall in its treasury or owned by AVS or any
subsidiary of AVS immediately prior to the Effective Time, all of which will be
canceled) will be converted in the Merger into the right to receive, and will
be exchangeable for, 0.5143 of a share of AVS Common Stock. If any holder of
Whitehall Common Stock would be entitled to receive a number of shares of AVS
Common Stock that includes a fraction, then in lieu of a fractional share, such
holder will be entitled to receive cash in an amount determined by multiplying
such fraction by the Average Closing Price of a whole share of AVS Common
Stock. The "Average Closing Price" of a share of AVS Common Stock means the
average of the daily closing price of a share of AVS Common Stock as quoted on
the New York Stock Exchange for the period of ten consecutive trading days
ending on and including the last full trading day immediately preceding the
Closing Date.
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At the Effective Time it is estimated that former holders of Whitehall
Common Stock will hold approximately % of the aggregate number of shares
of AVS Common Stock. This ownership percentage is based upon the number of
shares of Whitehall Common Stock and AVS Common Stock outstanding on .
At the Effective Time each share of capital stock of Sub outstanding
immediately prior to the Effective Time shall be converted into one share of
the common stock of the Surviving Corporation.
If, subsequent to the date of the Merger Agreement but prior to the
Effective Time, the AVS Common Stock is recapitalized or reclassified or AVS
shall effect any stock split, reverse stock split, or stock dividend of AVS
Common Stock, then the Exchange Ratio and the Average Closing Price shall be
appropriately and equitably adjusted to the kind and amount of shares of stock
and other securities and property which the holders of such shares of AVS
Common Stock would have been entitled to receive had such shares been issued
and outstanding as of the record date for determining stockholders entitled to
participate in such corporate event.
EXCHANGE OF SHARES
Continental Stock Transfer & Trust Company will serve as exchange agent
(the "Exchange Agent"). Promptly after the Effective Date, but no later than
five (5) business days after the Effective Date, AVS will deposit or cause to
be deposited with the Exchange Agent, for exchange in accordance with the
Merger Agreement, (i) certificates representing shares of AVS Common Stock
issuable in exchange for certificates representing shares of Whitehall Common
Stock outstanding immediately prior to the Effective Time ("Certificates") and
(ii) a sufficient amount of cash to satisfy the cash payments to be made in
lieu of fractional shares by AVS to holders of Certificates.
Promptly after the Effective Time, the Exchange Agent will mail to each
record holder of Whitehall Common Stock a notice of effectiveness of the
Merger, a letter of transmittal (the "Letter of Transmittal") and instructions
for use in effecting the surrender of the Certificates for exchange and
payment. Delivery will be effected and risk of loss and title to the
Certificates will pass only upon proper delivery of the Certificates to the
Exchange Agent. Upon surrender to the Exchange Agent of a Certificate, together
with a duly executed Letter of Transmittal, the holder of such Certificate will
receive in exchange therefor a certificate representing that number of whole
shares of AVS Common Stock to which such holder is entitled and a check for any
cash that may be payable in lieu of a fractional share of AVS Common Stock. No
interest will be paid or accrued on the cash payable upon surrender of
Certificates.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
FOLLOWING THE EFFECTIVE DATE OF THE MERGER, WHITEHALL'S STOCKHOLDERS WILL BE
PROVIDED WITH A LETTER OF TRANSMITTAL AND INSTRUCTIONS RELATING TO THE EXCHANGE
OF THEIR STOCK CERTIFICATES.
From and after the Effective Time, until surrendered, each Certificate
(other than Certificates theretofore representing shares held by Whitehall in
its treasury or owned by AVS or any subsidiary of AVS immediately prior to the
Effective Time, all of which will be canceled), until so surrendered or
exchanged, will be deemed for all purposes, to evidence only the number of
whole shares of AVS Common Stock, and any cash payment in lieu of fractional
shares of AVS Common Stock, that the holder of such certificate is entitled to
receive. Unless and until any such Certificates shall be so surrendered, the
holder of such Certificates will not be entitled to receive payment of any
dividends or other distributions on such shares of AVS Common Stock payable to
the holders thereof after the Effective Time. Upon surrender of the
Certificates previously representing shares of Whitehall Common Stock, the
holder thereof will receive the amount of dividends or other distributions,
less any withholding taxes that may be required thereon, that shall have been
payable to holders of record of AVS Common Stock on or after the Effective Time
with respect to such shares of AVS Common Stock, without interest. Any
dividends payable to holders of record of AVS Common Stock as of any record
date prior to the Effective Time will not be payable to holders of certificates
previously representing Whitehall Common Stock.
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WHITEHALL OPTIONS
Under the Merger Agreement, all Whitehall Options outstanding at the
Effective Time shall remain outstanding following the Effective Time and shall
be assumed by AVS. Each Whitehall Option assumed by AVS shall be exercisable
upon the same terms and conditions as under the applicable Whitehall Stock
Option Plan and the applicable option agreement issued thereunder, except that
(x) the unexercised portion of each such Whitehall Option shall be exercisable
for that whole number of shares of AVS Common Stock (rounded down to the
nearest whole share) equal to number of shares of Whitehall Common Stock
subject to the unexercised portion of such Whitehall Option multiplied by the
Exchange Ratio; and (y) the option exercise price per share of AVS Common Stock
shall be an amount equal to the option exercise price per share of Whitehall
Common Stock subject to such Whitehall Option in effect at the Effective Time
divided by the Exchange Ratio (the option price per share, as so determined,
being rounded upward to the nearest full cent). No payment shall be made for
fractional interests.
In accordance with Whitehall's 1992 Incentive Stock Option Plan, each
Whitehall Option granted under such Plan, whether or not then exercisable, will
automatically become fully vested and immediately exercisable upon consummation
of the Merger. Whitehall Options granted under the 1992 Non-Employee Director
Stock Option Plan will not become fully vested and immediately exercisable upon
consummation of the Merger and will vest in accordance with their original
terms. See "The Merger--Interests of Certain Persons in the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
AVS and Sub relating to, among other things: (a) the due incorporation, valid
existence and good standing of AVS and its subsidiaries and the power to carry
on their respective businesses as presently conducted and certain similar
corporate matters; (b) the corporate power and authority of AVS and its
subsidiaries to execute and deliver the Merger Agreement and the other
documents executed or to be executed in connection therewith (such other
documents the "Ancillary Documents" and together with the Merger Agreement the
"Relevant Agreements") and to consummate the transactions contemplated by the
Relevant Agreements; (c) the execution and delivery and the validity and
enforceability against AVS and Sub of the Relevant Agreements, and the
non-contravention thereby of (i) the charter or bylaws of AVS or Sub, (ii) any
AVS stock option plans, (iii) any loan agreements, credit agreement or certain
other documents applicable to AVS or its subsidiaries, other than any such
contravention that would not have a material adverse effect on AVS, or (iv)
subject to certain required governmental filings and other matters, any
judgment, order, law or regulation applicable to AVS or Sub, other than any
such contravention that would not have a material adverse effect on AVS; (d)
AVS's compliance with the requirements of the Securities Act and the Exchange
Act, and the compliance of AVS's financial statements with applicable
accounting requirements of SEC rules and regulations; (e) the absence of any
material undisclosed liabilities or obligations of AVS or its subsidiaries; (f)
the absence of any brokers' or similar fees payable by AVS in connection with
the Merger; (g) the receipt by AVS of the SBCWDR Opinion; (h) the validity,
nonassessability and freedom from preemptive rights of the shares of AVS Common
Stock to be issued on connection with the Merger; (i) the capitalization of AVS
and Sub, (j) absence of any change with respect to AVS or its subsidiaries
since September 30, 1997 that would have a material adverse effect on AVS; (k)
the accuracy and completeness of certain information supplied by AVS or any of
its affiliates for inclusion in this Proxy Statement/Prospectus and other
governmental filings made in connection with the Merger; (l) the absence of any
undisclosed material litigation; (m) the filing by AVS and its subsidiaries of
all required tax returns, their compliance with all applicable tax laws and
agreements and the absence of certain tax-related liabilities; (n) the absence
of any undisclosed related-party transactions involving AVS or any of its
subsidiaries; (o) the absence of any pending claim entitling any director,
officer or employee of AVS or the AVS Subsidiaries to indemnification by AVS or
the AVS Subsidiaries.
The Merger Agreement also contains certain representations and warranties
of Whitehall relating to, among other things: (a) the due incorporation, valid
existence and good standing of Whitehall and
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each of its subsidiaries and the power to carry on their respective businesses
as presently conducted and certain similar corporate matters; (b) the
capitalization of Whitehall; (c) the ownership by Whitehall of each of its
subsidiaries and its interests in any entities other than its subsidiaries; (d)
the accuracy and completeness of the certificate of incorporation, bylaws and
other corporate records and constituent documents of Whitehall and its
subsidiaries; (e) the corporate power and authority of Whitehall to execute and
deliver the Relevant Agreements and to consummate the transactions contemplated
by the Relevant Agreements; (f) the execution and delivery and the validity and
enforceability against Whitehall of the Relevant Agreements, and the
non-contravention thereby of (i) the Whitehall Charter or Whitehall's bylaws,
(ii) any Whitehall stock option plans, (iii) any loan agreements, credit
agreements or certain other documents applicable to Whitehall or any of its
subsidiaries, other than any such contravention that would not have a material
adverse effect on Whitehall, or (iv) subject to certain required governmental
filings and other matters, any judgment, order, law or regulation applicable to
Whitehall or its subsidiaries, other than any such contravention that would not
have a material adverse effect on Whitehall; (g) the maintenance and compliance
with GAAP of Whitehall's books and records; (h) Whitehall's compliance with the
requirements of the Securities Act and the Exchange Act, and the compliance of
Whitehall's financial statements with applicable accounting requirements of SEC
rules and regulations; (i) the adequacy of Whitehall's property for the conduct
of its business; (j) the locations, conditions and compliance with legal
requirements of Whitehall's real estate; (k) the contracts, agreements and
arrangements to which Whitehall or its subsidiaries or any of their property
are subject; (l) the adequacy and completeness of Whitehall's insurance
policies; (m) the absence of any material undisclosed litigation; (o)
warranties made by Whitehall or its subsidiaries; (n) product liability claims
or potential claims against Whitehall or its subsidiaries; (o) the filing by
Whitehall and its subsidiaries of all required tax returns, their compliance
with all applicable tax laws and agreements and the absence of certain
tax-related liabilities; (p) certain employee, pension benefit plan and welfare
benefit plan matters; (q) the compliance with environmental laws and
regulations by Whitehall and its subsidiaries and the environmental condition
of Whitehall's and its subsidiaries' real property; (r) the conduct of the
business of Whitehall and its subsidiaries since September 30, 1997; (s) the
absence of any undisclosed related-party transactions involving Whitehall or
any of its subsidiaries; (t) the absence of undisclosed material changes in the
business Whitehall since September 30, 1997; (u) Whitehall's interest in the
AvAero Noise Reduction Joint Venture (the "AvAero Venture") and certain matters
related thereto; (v) the absence of any pending claim entitling any director,
officer or employee of Whitehall or its subsidiaries to indemnification by
Whitehall or any such subsidiaries; (w) the absence of any brokers' or similar
fees payable by Whitehall in connection with the Merger; (x) the receipt by
Whitehall of the Ladenburg Opinion; (y) the accuracy and completeness of
certain information supplied by Whitehall or any of its affiliates for
inclusion in this Proxy Statement/Prospectus and other governmental filings
made in connection with the Merger; (z) the absence of any material undisclosed
liabilities or obligations of Whitehall or its subsidiaries; and (aa) the
absence of any change with respect to Whitehall or its subsidiaries since
September 30, 1997 that would have a material adverse effect on Whitehall.
CERTAIN COVENANTS
INTERIM OPERATIONS OF WHITEHALL. Whitehall has agreed that during the
period from the date of the Merger Agreement to the Effective Time or the
earlier termination of the Merger Agreement, unless AVS otherwise consents and
subject to certain exceptions, Whitehall will, and will cause each of its
subsidiaries to, (a) conduct its operations according to its usual and ordinary
course, (b) use commercially reasonable efforts to preserve intact its business
organizations and good will, keep available the services of its officers and
employees and maintain its business relationships, (c) not amend its
certificate of incorporation or bylaws, (d) promptly notify AVS of any event
having a material adverse effect on Whitehall, any material litigation or
government complaint, investigation or hearing, or any material breach of any
representation or warranty in the Merger Agreement, (e) deliver to AVS any
filings made with the Commission, (f) not (i) issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization (other
than pursuant to the exercise of any Whitehall Options or other contractual
rights existing as of the date of the Merger Agreement), or (ii) grant any
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option, warrant, conversion right or other right not existing on the date of
the Merger Agreement to acquire shares of its capital stock; (g) not (i)
increase any compensation or enter into or amend any employment agreement with
any of its officers, directors or employees, except for normal increases
consistent with past practice, (ii) grant any severance or termination package
to any employee or consultant except as is consistent with past practice, (iii)
hire or terminate any employee having a salary in excess of $50,000, or (iv)
adopt any new employee benefit plan or amend any existing employee benefit
plan; (h) not (i) declare any dividend or make any other distribution or
payment with respect to any shares of its capital stock, or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or make any commitment for such action; (i) not enter into any agreement
or transaction outside the ordinary course of business; (j) not incur any
indebtedness for borrowed money (other than under Whitehall's existing credit
agreement) or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of others; (k)
not make any loans, advances or capital contributions to, or make investments
in, any other person in excess of $10,000; (l) make or commit to make any
capital expenditures in excess of $25,000 individually or $50,000 in the
aggregate; (m) not make any payment, directly or indirectly, for the benefit of
any affiliate or related party or enter into any transaction with any party
affiliated with or related to Whitehall or its subsidiaries (except for payment
of salary and other customary expense reimbursements made in the ordinary
course of business to related parties who are employees, directors or
consultants of Whitehall or its subsidiaries); (n) not voluntarily elect to
alter the manner of keeping its books, accounts or records, or change its
accounting practices; (o) not grant or make any mortgage or subject itself or
any of its material properties or assets to any lien, charge or encumbrance not
permitted under the Merger Agreement; and (p) maintain insurance on its
tangible assets and its business as currently in effect.
INTERIM OPERATIONS OF AVS. AVS has agreed that during the period from the
date of the Merger Agreement to the Effective Time or the earlier termination
of the Merger Agreement, unless Whitehall otherwise consents and subject to
certain exceptions, AVS will, and will cause each of its subsidiaries to, (a)
conduct its operations according to its usual and ordinary course; (b) deliver
to Whitehall any filings made with the Commission; (c) promptly notify
Whitehall of any event having a material adverse effect on AVS, any material
litigation or governmental complaint, investigation or hearing, or any material
breach of any representation or warranty in the Merger Agreement; (d) promptly
notify Whitehall of AVS entering into any agreement with respect to any
material transaction involving a merger, consolidation, joint venture, partial
or complete liquidation or dissolution, reorganization or recapitalization,
restructuring or a purchase sale, lease or other disposition of a material
portion of its assets or capital stock; (e) not take any action that would
result in a failure to maintain the trading of AVS Common Stock on the NYSE,
and (f) with respect to AVS only and not its subsidiaries, not (i) declare, set
aside or pay any dividend or make any other distribution or payment with
respect to any shares of its capital stock or other ownership interests, or
(ii) directly or indirectly redeem, purchase or otherwise acquire any shares of
its capital stock, or make any commitment for such action.
OTHER COVENANTS. AVS and Whitehall have agreed to take all action
necessary in accordance with applicable law and their certificates of
incorporation and bylaws to convene meetings of their respective stockholders
to consider and vote upon the approval and adoption of the Merger Agreement; to
promptly make their respective filings and any required submissions under the
HSR Act with respect to the Merger; to cooperate in making any required filings
and obtaining any required consents or authorizations from any governmental or
regulatory authority with respect to the Merger; and to use commercially
reasonable efforts to obtain any consents which the failure to obtain would, as
a result of the consummation of the Merger, constitute a default or grounds for
acceleration or termination of any contract, lease, agreement, or other
instrument applicable to AVS or Whitehall or any of their subsidiaries.
Whitehall has agreed to allow designated officers, attorneys, accountants
and other advisors and representatives of AVS reasonable access to all
properties, records and information related to the business and affairs of
Whitehall and to instruct its employees, counsel and financial advisors to
cooperate with AVS in its investigation of Whitehall. AVS has agreed to furnish
Whitehall, its counsel,
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financial advisors and other authorized representatives with such financial and
operating data and other information as such persons may reasonably request and
to instruct the officers, counsel and financial advisors of AVS to cooperate
with Whitehall in its investigation of the business of AVS and its
subsidiaries.
CERTAIN PERSONNEL MATTERS
AVS has agreed that it will continue Whitehall's existing employee benefit
plans for a period of up to three months following the Effective Date, and that
thereafter, to the extent such benefit plans are terminated, such employees who
remain employees of the Surviving Corporation, AVS or any of its subsidiaries
will be entitled to participate in AVS's employee benefit plans on the same
basis as AVS's employees in similar positions are eligible to participate in
such plans.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Merger Agreement provides that, unless otherwise required by law, the
certificate of incorporation and the bylaws of the Surviving Corporation shall
contain provisions with respect to the elimination of liability of directors
and the indemnification of directors, officers, employees and agents that are
no less favorable than those set forth in the certificate of incorporation and
bylaws of Whitehall, as in effect on the date of the Merger Agreement. From and
after the Effective Time, AVS and the Surviving Corporation shall jointly and
severally indemnify, defend and hold harmless each person who is, or has been
at any time, or who becomes prior to the Effective Time, an officer, director,
employee or agent of Whitehall or any of its subsidiaries (each an "Indemnified
Party") against all losses, reasonable expenses (including reasonable
attorneys' fees), claims, damages, liabilities or amounts that are paid in
settlement of, or otherwise in connection with, any threatened claim, action,
suit, proceeding or investigation (each a "Claim"), based in whole or in part
on, or arising in whole or in part out of, the fact that the Indemnified Party
is or was a director, officer, employee or agent of Whitehall or any of its
subsidiaries and pertaining to any matter existing or arising out of actions or
omissions at or prior to the Effective Time including, without limitation, any
Claim arising out of the Merger Agreement or any transactions contemplated
thereby, in each case to the fullest extent permitted under Delaware Law.
CONDITIONS TO THE MERGER
The respective obligations of AVS and Whitehall to consummate the Merger
are subject to the fulfillment of or, where permissible, waiver of the
following conditions:
(a) the Merger Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of all of the outstanding shares
of Whitehall Common Stock and AVS Common Stock;
(b) the waiting periods applicable to the Merger under the HSR Act shall
have expired or been terminated;
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger or
materially changes the term or conditions of the Merger Agreement shall have
been issued and remain in effect;
(d) the Registration Statement of which this Proxy Statement/Prospectus is
a part shall have been declared effective by the Commission and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued; no action, suit, proceeding or investigation by the Commission to
suspend the effectiveness thereof shall have been initiated and be continuing
and all necessary approvals under state securities laws relating to the
issuance or trading of AVS Common Stock to be issued to the stockholders of
Whitehall under the Merger Agreement shall have been received;
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(e) all material consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Merger Agreement shall have been obtained or made, except
for filings in connection with the Merger and any other documents required to
be filed after the Effective Time and except where the failure to obtain such
consent or approval is not reasonably likely to have a material adverse effect
on the Surviving Corporation or is not reasonably likely to prevent or
materially impair the ability of the parties to consummate the transactions
contemplated by the Merger Agreement;
(f) the AVS Common Stock to be issued to the Whitehall stockholders in
connection with the Merger shall have been authorized for trading on the NYSE,
subject only to official notice of issuance; and
(g) AVS and Whitehall shall have received a letter from Arthur Andersen,
dated the Closing Date, to the effect that the Merger will qualify as a pooling
of interest transaction under Opinion 16 of the Accounting Principles Board;
Except as may be waived by AVS, the obligations of AVS and Sub to
consummate the transactions contemplated by the Merger Agreement are subject to
the satisfaction of the following additional conditions:
(a) the representations and warranties of Whitehall contained in the
Merger Agreement and in all documents delivered in connection therewith shall
be true and correct as of the Closing Date, with limited exceptions, in all
material respects, and Whitehall shall have performed in all material respects,
all of its agreements contained in the Merger Agreement required to be
performed by Whitehall prior to or on the Closing Date and AVS shall have
received a certificate of the Chairman or President of Whitehall, dated as of
the Closing Date, certifying to such effect;
(b) Whitehall shall have delivered to AVS certified copies of the
resolutions of the Whitehall Board and stockholders approving and adopting the
Merger Agreement, the documents executed by Whitehall in connection therewith
and the transactions contemplated thereby;
(c) AVS shall have received from Baker & Botts, counsel to Whitehall, an
opinion to such matters as AVS or AVS's counsel shall reasonably request;
(d) the SBCWDR Opinion shall not have been withdrawn; provided, however,
that such withdrawal shall only permit AVS not to fulfill its obligation to
effect the Merger if the withdrawal of such opinion is a result of a material
adverse change in the financial condition, business, operations or prospects of
Whitehall and its subsidiaries, taken as a whole;
(e) from March 26, 1998 through the Effective Time, there shall not have
occurred any event that has had a material adverse effect on the financial
condition, business, operations or prospects of Whitehall and its subsidiaries
taken as a whole, provided that such an event will not be deemed to have
occurred solely as a result of fluctuations in the trading price of Whitehall
Common Stock or solely as a result of changes in the aviation industry which
generally impact on all companies in Whitehall's business (other than
specifically on Whitehall);
(f) Whitehall shall have received all necessary consents with respect to
any contract, lease, purchase order, sales order, license agreement, permit,
environmental permit and license which are required as a result of a change of
control of Whitehall except in those instances where failure to receive any
such consent would not have a material adverse effect on Whitehall;
(g) AVS shall have received, prior to the earlier of the date that the
Whitehall Proxy Statement is first mailed to Whitehall's stockholders and the
effective date of the Registration Statement, the opinion of Akerman,
Senterfitt & Eidson, P.A., counsel to AVS, to the effect that the Merger will
be treated for
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federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that Whitehall and AVS will each be a party to the
reorganization within the meaning of Section 368(b) of the Code; and
(h) Whitehall shall have executed and delivered such other documents and
taken such other actions as AVS shall reasonably request.
Except as may be waived by Whitehall, the obligation of Whitehall to
consummate the transactions contemplated by the Merger Agreement is subject to
the satisfaction of the following conditions, among others:
(a) the representations and warranties of AVS and Sub contained in the
Merger Agreement and in all documents delivered in connection therewith shall
be true and correct as of the Closing Date, with limited exceptions, in all
material respects, and AVS will have performed in all material respects all of
its agreements contained in the Merger Agreement required to be performed by
AVS prior to or on the Closing Date and Whitehall shall have received a
certificate of the President of AVS, dated the Closing Date, certifying to such
effect;
(b) AVS shall have delivered to Whitehall certified copies of the
resolutions of AVS's and Sub's Board of Directors and stockholders approving
and adopting the Merger Agreement, the documents executed by AVS in connection
therewith and the transactions contemplated thereby;
(c) from March 26, 1998 through the Effective Time, there shall not have
occurred any event that has had a material adverse effect on the financial
condition, business, operations or prospects of AVS and its subsidiaries, taken
as a whole; provided, that such an event shall not be deemed to have occurred
solely as a result of fluctuations in the trading price of AVS Common Stock or
solely as a result of changes in the aviation industry which generally impact
on all companies in AVS's business (other than specifically on AVS);
(d) the Ladenburg Opinion shall not have been withdrawn; provided,
however, that such withdrawal shall only permit Whitehall not to fulfill its
obligation to effect the Merger if the withdrawal of such opinion is a result
of a material adverse change in the financial condition, business, operation or
prospects of AVS and its subsidiaries, taken as a whole;
(e) Whitehall shall have received, prior to the earlier of the date
Whitehall Proxy Statement is first mailed to Whitehall's stockholders and the
effective date of the Registration Statement, the opinion of Baker & Botts,
counsel to Whitehall, dated the Closing Date, to the effect that the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that Whitehall and AVS will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code;
(f) Whitehall shall have received from Akerman, Senterfitt & Eidson, P.A.,
counsel for AVS, an opinion as to such matters as Whitehall or its counsel
shall reasonably request;
(g) AVS shall have entered into the Registration Rights Agreement with
Cambridge, Baker Nye, and the persons serving as directors and executive
officers of Whitehall immediately prior to the Effective Time in substantially
the form attached to the Merger Agreement; and
(h) AVS and Sub shall have executed and delivered such other documents and
taken such other action as Whitehall shall reasonably request.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger may
be abandoned at any time on or before its effect time by:
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(a) mutual consent of Whitehall and AVS;
(b) either the Whitehall Board or the Board of Directors of AVS if there
has been a breach by the other party of any of its material covenants or
agreements set forth in the Merger Agreement which breach has not, or cannot
be, cured within 30 days after written notice thereof;
(c) either the Whitehall Board or the Board of Directors of AVS if there
has been a breach by the other party of any representation or warranty
contained in the Merger Agreement which would have a material adverse effect on
such party;
(d) either the Whitehall Board or the Board of Directors of AVS if the
Merger has not occurred by September 30, 1998 (except that a party shall not be
entitled to so terminate if such party's failure to fulfill any obligation
under the Merger Agreement has been the cause of, or resulted in, the failure
of the Merger to occur on or before such date);
(e) either the Whitehall Board or the Board of Directors of AVS if the
required vote of the stockholders of Whitehall or AVS shall not have been
obtained provided, however, that neither party shall have the right to
terminate the Merger Agreement if the other party has caused (directly or
indirectly) or aided in the failure to obtain such approval; provided however
that Whitehall shall not be deemed to have caused or aided in the failure to
obtain such approval if the Whitehall Board withdraws its recommendation to
Whitehall's stockholders by accepting or recommending a Superior Proposal (as
defined below);
(f) either the Whitehall Board or the Board of Directors of AVS if a court
of competent jurisdiction or a governmental regulatory or administrative agency
or commission shall have issued a final and non-appealable order or ruling
permanently restraining, enjoining or otherwise prohibiting the Merger or
compelling AVS, Sub or the Surviving Corporation to dispose of or hold separate
all or a material portion of the respective businesses or assets of AVS or
Whitehall, or sell or license any material product of AVS or Whitehall; or
(g) the Board of Directors of AVS if the Whitehall Board recommends a
Superior Proposal to the stockholders of Whitehall.
NO SOLICITATION; TERMINATION FEE
Under the terms of the Merger Agreement, Whitehall is prohibited from
directly or indirectly, initiating or soliciting any inquiries, proposals or
offers from, engaging in any negotiations or discussions with or providing any
confidential information to, or entering into any agreement or understanding
with any person relating to, or with the intent to effect, any Alternative
Proposal. "Alternative Proposal" is defined under the Merger Agreement to mean
any proposal or offer (including, without limitation, any proposal or offer to
Whitehall's stockholders) with respect to a merger, acquisition, consolidation
or similar transaction involving, or any purchase of all or a significant
portion of the assets or any equity securities of, Whitehall or its
subsidiaries. The Whitehall Board may, however, to the extent required by their
fiduciary duties under applicable law, provide information to, or participate
in discussions with, any party that makes an unsolicited inquiry with respect
to Whitehall if the Whitehall Board reasonably believes that such party may
make an Alternative Proposal on terms that are superior from a financial point
of view to the terms of the Merger for Whitehall's stockholders. Whitehall has
agreed to immediately give written notice to AVS of Whitehall's receipt of any
Alternative Proposal or inquiry with respect to making an Alternative Proposal.
The Merger Agreement generally provides that the Whitehall Board shall not
approve, recommend or enter into any agreement with respect to any Alternative
Proposal; provided however, that if the Whitehall Board, after consultation
with and based upon the advice of independent legal counsel, determines in good
faith that it is necessary to do so in order to comply with its fiduciary
duties to stockholders under applicable law, the Whitehall Board may approve or
recommend or cause Whitehall
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to enter into a Superior Proposal but in each case only after providing prompt
written notice to AVS of its determination to do so. The Merger Agreement
defines a "Superior Proposal" to mean an Alternative Proposal on terms that the
Whitehall Board determines in its good faith judgment to be more favorable to
Whitehall stockholders than the Merger.
In the event the Merger Agreement is terminated by AVS as a result of
Whitehall's Board having recommended a Superior Proposal to Whitehall's
stockholders, and Whitehall enters into an agreement or an understanding with
respect to a Superior Proposal within one (1) year of the date of such
termination, then Whitehall shall immediately pay AVS a fee of $7.5 million
(the "Termination Fee"). Additionally, if the Merger Agreement is terminated by
Whitehall or AVS because of a breach by the other party of any representations
and warranty set forth in the Merger Agreement which has a material adverse
effect on the breaching party, or because of a material breach of any covenant
or agreement by the other party, the breaching party shall reimburse the
non-breaching party for all actual out-of-pocket costs and expenses incurred in
connection with the Merger Agreement and the consummation and negotiation of
the transactions contemplated by the Merger Agreement, including legal,
professional and service fees and expenses; provided however that the aggregate
reimbursement for all such costs and expenses shall not exceed $500,000. All
such amounts shall be paid by wire transfer of same day funds on the date of
termination of the Merger Agreement or on the date which Whitehall enters into
an agreement with respect to a Superior Proposal if terminated for such reason.
If the fees described above are not paid when due and in order to obtain such
payments either party obtains a final non-appealable judgment against the other
party, the breaching party shall pay the non-breaching party its costs and
expenses together with interest on the amount of the fee at a rate equal to 12%
per annum.
EXPENSES
Each of AVS and Whitehall will pay its own expenses (including, without
limitation, financial, legal and tax advice) incurred in connection with the
Merger Agreement and the transactions contemplated thereby except that (i) the
parties shall share equally all expenses incurred in connection with the
printing and mailing of this Proxy Statement/Prospectus to the Whitehall
stockholders and (ii) the costs of printing and mailing the AVS proxy statement
and the HSR filing fees in connection with the Merger shall be borne by AVS.
AMENDMENT AND WAIVER
AVS and Whitehall may amend the Merger Agreement, by action taken by their
respective boards of directors, either before or after approval by their
stockholders of the Merger Agreement, except that after any such stockholder
approval no amendment may be made which by law requires further approval by
such stockholders without obtaining such further approval. At any time prior to
the Effective Time, any party to the Merger Agreement, by action of its board
of directors, may, to the extent legally allowed, extend the time for the
performance of any of the obligations or other acts of the other parties, waive
any inaccuracies in the representations or warranties made to such party in the
Merger Agreement or any document delivered pursuant thereto, and waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Merger Agreement.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
Upon consummation of the Merger, stockholders of Whitehall will become
stockholders of AVS, and the rights of such stockholders will be governed by
the applicable laws of the State of Delaware, including the DGCL, and by AVS's
Certificate of Incorporation and Bylaws. The following is a summary of certain
provisions affecting, and differences between, the rights of holders of
Whitehall Common Stock and the rights of holders of AVS Common Stock. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the DGCL and the complete text of AVS's Certificate of
Incorporation and Bylaws, which are incorporated by reference in the
Registration Statement of which this Proxy Statement/Prospectus is a part.
AUTHORIZED CAPITAL STOCK
WHITEHALL. Whitehall's authorized capitalization consists of 20,000,000
shares of Whitehall Common Stock and 500,000 shares of preferred stock.
Whitehall has not issued any shares of preferred stock.
AVS. AVS's authorized capitalization consists of 30,000,000 shares of AVS
Common Stock and 1,000,000 shares of preferred stock. AVS has not issued any
shares of preferred stock.
BOARD OF DIRECTORS
WHITEHALL. Whitehall's Bylaws provide for a Board of Directors consisting
of not less than four nor more than fifteen members; with the exact number to
be determined by resolution of the Board of Directors or by a vote of the
stockholders at any meeting. Whitehall currently has seven directors.
AVS. The AVS Certificate of Incorporation provides that the number of
members of the AVS Board of Directors shall be fixed by resolution of the Board
of Directors. The AVS Certificate of Incorporation also provides that AVS's
Board of Directors be divided into three classes as nearly equal in number as
possible, with the members of each class elected to a three year term, except
that any directors elected by holders of one or more series of preferred stock
pursuant to the applicable certificate of designation shall not be divided into
classes. The AVS Board of Directors currently has six directors. Immediately
following the Effective Time, the AVS Board of Directors will be increased to
eight directors.
NOMINATION AND ELECTION OF DIRECTORS
WHITEHALL. The Whitehall Bylaws place no restrictions on the nomination of
candidates for election to the Whitehall Board of Directors. Whitehall
directors are elected by a plurality of the shares present or represented by
proxy at an annual meeting.
AVS. The AVS Bylaws provide that nominations of candidates for election
to the AVS Board may be made only by, or at the direction of, a majority of the
Board of Directors, or by any holder of record of any shares of capital stock
entitled to vote at the annual meeting in question who has complied with the
timing, informational and notice requirements set forth in the AVS Bylaws. AVS
directors are elected by a plurality of the votes cast at an annual meeting of
stockholders.
REMOVAL OF DIRECTORS
WHITEHALL. Under Whitehall's Bylaws any director may be removed with or
without cause at any special meeting of stockholders called for such purpose.
AVS. Under AVS's Certificate of Incorporation, subject to any rights of
any series of preferred stock, any director may be removed from office only
with cause (as defined in the AVS Certificate of Incorporation), and only by
the affirmative vote of at least two-thirds of the total votes which would be
eligible to be cast by stockholders in the election of such director.
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VACANCIES ON THE BOARD OF DIRECTORS
WHITEHALL. Whitehall's Bylaws provide that vacancies and newly created
directorships resulting from any increase in the number of directors may be
filled by a majority of directors then in office, though less than a quorum,
and that the directors so chosen shall hold office until the next annual
election of directors and until their successors are duly elected and
qualified.
AVS. The AVS Certificate of Incorporation and Bylaws provide that, subject
to the rights of any holders of preferred stock, vacancies and newly created
directorships in the AVS Board shall be filled solely by the affirmative vote
of a majority of the remaining directors then in office, though less than a
quorum, and that any director so chosen shall hold office for the remainder of
the full term of the class of directors to which such director is appointed and
until such director's successor is duly elected and qualified. Subject to the
rights of any holders of preferred stock, the AVS Board of Directors shall
determine the class or classes to which any increase or decrease in the number
of directors shall be apportioned; provided, that no decrease in the number of
directors shall shorten the term of any incumbent director.
ACTION BY WRITTEN CONSENT
WHITEHALL. Whitehall's Bylaws provide that any corporate action that is
required or permitted to be taken by a vote of stockholders may be taken
without a meeting with the written consent of all stockholders who would have
been entitled to vote upon such action at a meeting called for such purpose.
The Whitehall Certificate of Incorporation provides that the Whitehall Board of
Directors may sell, lease or exchange all of the property and assets of
Whitehall, including by merger with another corporation, if authorized to do so
by the written consent of the holders of a majority of Whitehall's voting stock
issued and outstanding.
AVS. The AVS Certificate of Incorporation provides that any action
required or permitted to be taken by AVS stockholders at an annual or special
meeting may not be taken without a meeting and specifically denies the power of
stockholders to consent in writing, without a meeting, to the taking of any
action.
MEETINGS OF STOCKHOLDERS
WHITEHALL. Under Whitehall's Bylaws, annual meetings of stockholders are
called by the Board of Directors, and special meetings of stockholders may be
called by the chairman of the board or the president of Whitehall, and shall be
called by the president or secretary at the written request of a majority of
the board of directors, or at the written request of stockholders owning at
least one-fourth in amount of the entire capital stock of Whitehall issued and
outstanding and entitled to vote. Business transacted at any special meeting
shall be limited to the purposes stated in the notice of such meeting.
AVS. The AVS Bylaws provide that, except as otherwise required by law, and
subject to the rights of any holders of preferred stock, special meetings of
stockholders may be called only by the Board of Directors. The AVS Bylaws
further provide that only those matters set forth in the notice of the special
meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, the Bylaws set forth certain advance
notice and informational requirements and time limitations on any director
nomination or any new business which a stockholder wishes to propose for
consideration at an annual meeting of stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION
WHITEHALL. The Whitehall Certificate of Incorporation provides that it may
be amended by Whitehall in the manner prescribed by statute. The DGCL provides
that a corporation may amend its Certificate of Incorporation by resolution
adopted by the board of directors and approved by the stockholders of the
corporation at an annual or special meeting called pursuant to notice that such
amendment is to be considered at such meeting.
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AVS. The AVS Certificate of Incorporation provides that AVS may amend its
Certificate of Incorporation in accordance with the DGCL by resolution adopted
by the Board of Directors and approved by the stockholders at a meeting called
for such purpose; provided, that the affirmative vote of 80% of the
stockholders eligible to vote, voting together as a single class, shall be
required to amend or repeal any provisions of the Certificate of Incorporation
relating to directors or to the amendment or repeal of the Certificate of
Incorporation.
AMENDMENT OF BYLAWS
WHITEHALL. Whitehall's Bylaws provide that the Bylaws may be amended by
the stockholders or by the board of directors at any regular meeting of the
stockholders or board of directors or at any special meeting of the
stockholders or the board of directors called for such purpose.
AVS. The AVS Certificate of Incorporation and Bylaws provide that the
Bylaws may be amended or repealed by the Board of Directors or by the
affirmative vote of at least two-thirds of the stockholders eligible to vote,
voting together as a single class, at any annual meeting of stockholders, or a
special meeting of stockholders called for such purpose; provided, that if the
Board of Directors recommends the approval of such an amendment or repeal it
shall only require the affirmative vote of a majority of the stockholders
eligible to vote, voting together as a single class.
TRANSACTIONS INVOLVING INTERESTED STOCKHOLDERS
WHITEHALL. Section 203 of the DGCL generally prohibits a Delaware
corporation from engaging in a business combination with an interested
stockholder for three years following the date that such person becomes an
interested stockholder, subject to certain exceptions contained therein. The
restrictions of DGCL Section 203 do not apply to corporations that have
elected, in the manner provided therein, not to be subject to such section. The
Whitehall Certificate of Incorporation does not contain any provision "opting
out" of the application of DGCL Section 203 and Whitehall has not taken any of
the actions necessary for it to "opt out" of such provision. Accordingly, the
restrictions of DGCL Section 203 are applicable to transactions between
Whitehall and any of its interested stockholders.
AVS. Under the AVS Certificate of Incorporation AVS has expressly "opted
out" of the application of DGCL Section 203, and, as a result, the restrictions
of DGCL Section 203 do not apply to transactions between AVS and any of its
interested stockholders.
INDEMNIFICATION
WHITEHALL. The Whitehall Certificate of Incorporation contains a provision
which limits a director's liability to the fullest extent permitted by the
DGCL. The Whitehall Bylaws provide that officers, directors and employees shall
be indemnified by Whitehall to the fullest extent permitted by applicable law.
AVS. The AVS Certificate of Incorporation contains a provision which
limits a director's liability to the fullest extent permitted by the DGCL. The
AVS Bylaws provide that officers and directors shall be, and that, at the
discretion of the AVS Board of Directors, non-officer employees may be,
indemnified to the fullest extent permitted by the DGCL. The AVS Bylaws provide
further that, if a proceeding giving rise to a claim for indemnification is
compromised or settled prior to final adjudication, so as to impose any
liability or obligation upon an officer, director or non-officer employee, no
indemnification shall be provided to such officer, director or non-officer
employee with respect to a matter if there is a determination that with respect
to such matter such person did not act in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of AVS,
and, with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The determination contemplated by the
preceding sentence shall be made by a majority vote of those AVS directors who
are not involved in such proceeding (the "Disinterested Directors"), by the
stockholders; or if directed by a majority of Disinterested Directors, by
independent
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legal counsel in a written opinion. However, if more than half of the directors
are not Disinterested Directors, the determination shall be made by a majority
vote of a committee of one or more Disinterested Director(s) chosen by the
Disinterested Director(s) at a regular or special meeting; by the stockholders;
or by independent legal counsel chosen by the Board of Directors in a written
opinion.
ISSUANCE OF RIGHTS
The AVS Certificate of Incorporation authorizes the AVS Board of Directors
to create and issue rights (the "Rights") entitling the holders thereof to
purchase from AVS shares of capital stock or other securities, at such times
and upon such terms as may be determined by the AVS Board of Directors. The
authority of the AVS Board of Directors with respect to the Rights includes,
but is not limited to, the determination of the initial purchase price per
share of the capital stock or other securities of AVS to be purchased upon
exercise of the Rights, provisions relating to the times at which and the
circumstances under which the Rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other securities of
AVS, antidilutive provisions which adjust the number or exercise price of the
Rights or amount or nature of the securities or other property receivable upon
exercise of the Rights, provisions which deny the holder of a specified
percentage of the outstanding securities of AVS the right to exercise the
Rights and/or cause the Rights held by such holder to become void, provisions
which permit AVS to redeem the Rights and the appointment of a rights agent
with respect to the Rights.
The Certificate of Incorporation of Whitehall does not contain any
specific provision authorizing the issuance of Rights (as defined above);
however, it does provide for the issuance of "blank check" preferred stock, the
issuance of which could make it more difficult to replace incumbent directors
or to accomplish transactions opposed by the incumbent Board of Directors.
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DESCRIPTION OF AVS CAPITAL STOCK
AVS's authorized capital consists of 30,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock"). None of the preferred stock is
outstanding.
AVS COMMON STOCK
Each holder of AVS Common Stock is entitled to one vote for each share
held of record on all matters presented to stockholders, including the election
of directors. In the event of a liquidation, dissolution or winding up of AVS,
the holders of AVS Common Stock are entitled to share equally and ratably in
the assets of AVS, if any, remaining after paying all debts and liabilities of
AVS and the liquidation preferences of any outstanding Preferred Stock. AVS
Common Stock has no preemptive rights or cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of AVS Common Stock are entitled to receive dividends if, as and
when declared by the Board of Directors out of funds legally available
therefore, subject to the dividend and liquidation rights of any Preferred
Stock that may be issued and outstanding and subject to any dividend
restrictions in AVS's credit facilities. No dividend or other distribution
(including redemptions and repurchases of shares of capital stock) may be made,
if after giving effect to such distribution, AVS would not be able to pay its
debts as they become due in the usual course of business, or if AVS's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed at the time of a liquidation to satisfy the preferential rights
of any holders of Preferred Stock.
AVS PREFERRED STOCK
The Board of Directors of AVS is authorized, without further stockholder
action, to divide any or all shares of the authorized Preferred Stock into
series and fix and determine the designations, preferences and relative rights
and qualifications, limitations or restrictions thereon of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. As of the date of this Proxy
Statement/Prospectus, the Board of Directors of AVS has not authorized any
series of Preferred Stock, and there are no plans, agreements or understandings
for the authorization or issuance of any shares of Preferred Stock. The
issuance of Preferred Stock with voting rights or conversion rights may
adversely affect the voting power of AVS Common Stock, including the loss of
voting control to others. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of AVS.
ADDITIONAL SECURITIES REGISTERED IN THE REGISTRATION STATEMENT
This Registration Statement also registers the issuance by AVS of shares
of AVS Common Stock to the holders of Whitehall Options. In connection with the
Merger, each of such options will become an option to purchase a number of
whole shares of AVS Common Stock (rounded to the nearest whole share) equal to
the number of shares of Whitehall Common Stock into which such Whitehall Option
is exercisable immediately prior to the Effective Time multiplied by the
Exchange Ratio at an option exercise price determined by dividing the exercise
price of such option or warrant immediately prior to the Effective Time by the
Exchange Ratio (the option price per share, as so determined, being rounded
upward to the nearest full cent). As of the date of this Proxy
Statement/Prospectus, Whitehall had outstanding Whitehall Options to purchase a
total of 500,000 shares of Whitehall Common Stock under the 1992 Plans. As a
result of the Merger, the outstanding Whitehall Options will allow the holders
to purchase an aggregate of 257,150 shares of AVS Common Stock.
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AVS'S BUSINESS
GENERAL
AVS is a leading provider of fully integrated aviation inventory services
and a recognized worldwide leader in the redistribution of aircraft spare
parts. AVS 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 AVS 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 AVS include
purchasing services, repair management, warehouse management, aircraft
disassembly services, and consignment and leasing of inventories of aircraft
parts and engines. AVS 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
facilities.
AVS 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. AVS 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.
AVS'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. AVS 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. AVS 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 AVS offers to
its customers. AVS 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, AVS has
acquired six businesses which leverage AVS'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, AVS
acquired the aircraft bearings division of Dixie Bearings, Inc., a leading
provider of aircraft bearings, and related products to commercial airlines,
cargo carriers and overhaul service facilities, and AvEng Trading Partners,
Inc., a redistributor of aircraft engine parts. During 1997, AVS acquired
Aerocell Structures, Inc., an FAA-certified maintenance, overhaul and repair
facility, Kratz-Wilde Machine Company, a manufacturer of specialty machined
metal parts for jet engines, and Apex Manufacturing, Inc., a precision
manufacturer of specialty machined metal parts including shafts, fuel shrouds,
housings and couplings for aerospace actuating systems. In March 1998, AVS
acquired Caribe Aviation, Inc. and its subsidiary, Aircraft Interior Design,
Inc. Caribe is an FAA-licensed repair station specializing in the maintenance,
repair and overhaul of hydraulic, pneumatic, electrical and electromagnetic
aircraft
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components and Aircraft manufactures plastic cabin interior replacement parts
under FAA-PMA approval and refurbishes aircraft interior components. See "AVS's
Management Discussion--Overview" and "--Results of 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, AVS 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. AVS believes that all of these factors will increase the
demand for aircraft spare parts from the redistribution market.
Since AVS's customers consist of airlines, maintenance and repair
facilities that service airlines and other aircraft spare parts redistributors,
as well as original equipment manufacturers, AVS'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 AVS's business, financial condition or results of operations.
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),
AVS 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 AVS 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 AVS
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 AVS'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. AVS believes that major airlines and other owners of
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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 AVS, 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 AVS to offer for sale a significant parts inventory at
minimal capital cost to AVS. 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
AVS 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. AVS 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 AVS to be a vendor of choice to its customers in a highly
fragmented industry. AVS has over 1,000 customers, including commercial
passenger airlines, air cargo carriers and maintenance and repair facilities.
LARGE INVENTORY BASE. AVS 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. AVS'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, AVS 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. AVS's proprietary management
information systems comprise an integral component of AVS'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. AVS'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 AVS to be aware of and to capitalize on the changing
trends in the marketplace. AVS utilizes electronic data scanning and document
image storage technology for rapid and accurate retrieval of inventory
traceability documents. AVS is continuing to invest in technology in order to
allow AVS to maintain its strength in this area.
WORLDWIDE MARKETING PRESENCE. AVS conducts business in more than 100
countries and utilizes sales representatives in 23 countries. This
international presence allows AVS to meet the demands of its global customer
base and provides for a timely supply of parts and services. During the years
ended December 31, 1996 and 1997, 41.6% and 28.9%, respectively, of AVS's
revenues were derived from sales to international customers and 58.4% and
71.1%, respectively, were derived from sales to domestic customers.
SIGNIFICANT FINANCIAL AND OTHER RESOURCES. As a result of AVS's strong
capital position, AVS 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. AVS's market presence,
industry experience, sophisticated MIS systems and capital strength enable AVS
to quickly analyze and complete purchases, giving AVS a competitive advantage
in the market.
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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. AVS's inventory consists in large part of rotable and repairable
parts which are regularly required by its customers. AVS 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 stock of airlines,
repair facilities or other redistributors. An overhauled part has been
completely disassembled, inspected, repaired, reassembled and tested by a
licensed repair facility. An aircraft spare part is classified serviceable if
it is repaired by a licensed repair facility rather than completely
disassembled as in an overhaul. A part may also be classified serviceable if it
is removed by the operator from an aircraft or engine while operating under an
approved maintenance program and is functional and meets any manufacturer or
time and cycle restrictions applicable to the part. A factory new, new surplus,
overhauled or 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.
AVS'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 AVS may not meet applicable standards or
standards may change in the future, causing parts which are already contained
in AVS's inventory to be scrapped or modified. Aircraft manufacturers may also
develop new parts to be used in lieu of parts already contained in AVS's
inventory. In all such cases, to the extent that AVS has such parts in its
inventory, their value may be reduced.
OPERATIONS
AVS's core business is the buying and selling of aircraft spare parts. AVS
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. AVS believes that providing its customers
with a diversified platform of services will allow AVS to significantly expand
its business in the future.
INVENTORY SALES
The daily operations of AVS encompass inventory sales, brokering and
exchanging aircraft spare parts. AVS 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. AVS 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, AVS maintains continual on-line direct access with them. AVS also
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maintains direct Electronic Data Interchanges ("EDI") with significant
customers. These programs provide for the electronic exchange of pricing and
availability from AVS 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
AVS's proprietary database.
AVS 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. AVS sells new, overhauled and serviceable replacement parts from
its inventory. Additionally, AVS will purchase parts on behalf of its customers
against specific orders. AVS also offers a customer exchange program for
rotables. In an exchange transaction, AVS exchanges a new surplus, overhauled
or serviceable component taken from stock with a customer's as-removed unit
which has failed. AVS 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.
AVS'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 from country to country, although regulatory
requirements in other countries generally coincide with FAA requirements. Parts
must be traceable to sources deemed acceptable by such agencies. See
"Government Regulation and Traceability" below. Parts owned or acquired by AVS
may not meet applicable standards or standards may change in the future,
causing parts which are already contained in AVS's inventory to be scrapped or
modified. Aircraft manufacturers may also develop new parts to be used in lieu
of parts already contained in AVS's inventory. In all such cases, to the extent
that AVS has such parts in its inventory, their value may be reduced.
INVENTORY MANAGEMENT SERVICES
AVS 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, AVS believes it can provide an inventory management
program geared to a customer's particular requirements.
CONSIGNMENT. By consigning inventories to a redistributor such as AVS,
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 AVS to offer for sale significant parts
inventory at minimal capital cost to AVS. AVS 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. AVS provides services whereby
it purchases spare parts for several smaller and start-up airlines. These
arrangements allow AVS's customers to take advantage of AVS's greater
purchasing power. AVS also provides repair management services to certain of
its customers, whereby AVS receives a fee for managing a customer's spare parts
repair requirements. AVS 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, AVS procures significant repair services for
its own account, and maintains comprehensive databases on repair and
replacement part costs, allowing it to capitalize on favorable pricing for
repair services available only to large users of repair services. This permits
AVS to offer these services on a cost-effective basis to its customers.
LEASING. AVS (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
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stand-up airlines have chosen to lease aircraft spare parts in order to
preserve capital while maintaining adequate spare parts support. AVS 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 December 31, 1996 and 1997, AVS had $18.0 million
and $22.8 million, respectively, of inventories on long-term lease.
AIRCRAFT DISASSEMBLY. AVS 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.
AVS 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. AVS 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 AVS's warehouse
facility. AVS 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 AVS foresees the manufacture and repair of aircraft parts as a
profit center with significant growth opportunity, and as an integral component
of AVS's expansion strategy.
During the last half of 1997 and the first quarter of 1998, AVS completed
four acquisitions furthering 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. Descriptions of the companies acquired are 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 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 AVS
with precision manufacturing capabilities which AVS 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-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.
SALES AND MARKETING; CUSTOMERS
AVS utilizes inside salespersons, regional field salespersons, independent
contract representatives and overseas sales offices in its sales and marketing
efforts. AVS's outside sales force is responsible for
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obtaining new customers and maintaining relationships with existing customers.
The majority of AVS's day-to-day sales are accomplished through AVS's inside
sales force.
AVS 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. AVS's South Florida location, with easy access to
Miami International Airport and Fort Lauderdale International Airport, assists
AVS in providing reliable and timely delivery of purchased products.
AVS has over 1,000 customers, which include commercial passenger airlines,
air cargo carriers, maintenance and repair facilities and other aircraft parts
redistribution companies. AVS's top ten customers accounted for approximately
23%, 26% and 29% of operating revenues, respectively, for the three years ended
December 31, 1995, 1996 and 1997. No single customer accounted for more than
10% of operating revenues for the year ended December 31, 1997.
MANAGEMENT INFORMATION SYSTEMS
AVS has developed a proprietary management information system which is an
important component of its business and a significant factor in AVS's leading
position in the redistribution market. AVS's management information system
collects and reports data regarding inventory turnover and traceability,
pricing, market availability, customer demographics and other important data
used by AVS. AVS currently maintains marketing data on and is able to estimate
the value of more than 3.7 million line items. AVS also maintains databases on
recommended upgrades or replacements, including airworthiness directives.
Access to such information gives AVS the best possible opportunity to avoid
purchases of aircraft spare parts which might be deemed unusable. In addition,
the data maintained by AVS allows it to provide its customers with information
with respect to obsolescence and interchangeability of parts. AVS 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 AVS's customers in order for them to
comply with applicable regulatory guidelines. AVS believes that its continued
investment in the development of information systems is a key factor in
maintaining its competitive advantage.
AVS 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 AVS's needs for the foreseeable future. In that
regard, AVS is currently in the early stages of purchasing and implementing a
new management information system. See "AVS's Management's
Discussion--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. AVS'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
AVS's competitors have greater financial and other resources than AVS. There
can be no assurance that competitive pressures will not materially and
adversely affect AVS's business, financial condition or results of operations.
GOVERNMENT REGULATION AND TRACEABILITY
The aviation industry is highly regulated. While AVS'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, AVS must be
certified by
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the FAA and, in some cases, by OEMs in order to manufacture or repair aircraft
components. Although AVS 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 AVS's business, financial condition or results of operations.
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, AVS utilizes FAA and/or Joint
Aviation Authority certified repair stations (including AVS's FAA-licensed
repair facilities) to repair and certify parts to ensure worldwide
marketability. The operations of AVS may in the future be subject to new and
more stringent regulatory requirements. In that regard, AVS closely monitors
the FAA and industry trade groups in an attempt to understand how possible
future regulations might impact AVS.
An important factor in the aircraft spare parts redistribution market
relates to the documentation or traceability that is supplied with an aircraft
spare part. AVS requires all of its suppliers to provide adequate documentation
as dictated by the appropriate regulatory authority. AVS 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
AVS'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 AVS 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 AVS, 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 AVS.
AVS 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.
EMPLOYEES
As of December 31, 1997, AVS employed approximately 850 persons. None of
AVS's employees are covered by collective bargaining agreements. AVS believes
that its relations with its employees are good.
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PROPERTIES
AVS's executive offices are located in Miami, Florida. All of AVS's
properties are maintained on a regular basis and are adequate for AVS's present
requirements. AVS is actively considering the possibility of consolidating its
inventory into a single warehouse facility.
The following table identifies, as of April 29, 1998, the principal
properties utilized by AVS. See Notes 6 and 8 to Notes to AVS's Consolidated
Financial Statements.
<TABLE>
<CAPTION>
FACILITY DESCRIPTION APPROXIMATE LOCATIONS SQUARE FOOTAGE OWNED 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 Owned
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
</TABLE>
LEGAL PROCEEDINGS
AVS is not presently involved in any material legal proceedings. From time
to time AVS 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. AVS
believes that this exposure is adequately covered by its products liability
insurance.
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AVS'S MANAGEMENT
BOARD OF DIRECTORS
The following table sets forth the names and ages of the directors of AVS.
The Board of Directors of AVS is divided into three classes, as nearly equal in
size as possible, with staggered terms of three years. At the date of this
Proxy Statement/Prospectus, the current members of the Board of Directors of
AVS and the expiration of their terms as Directors were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES
- ------------------------------------ ----- --------------------------------------- -------------
<S> <C> <C> <C>
Dale S. Baker(1)(4) ................ 40 Chairman of the Board, President and 1999
Chief Executive Officer
Harold M. Woody(4) ................. 52 Director and Executive Vice President 1999
of AVS and President of Aviation Sales
Leasing Company
Robert Alpert(1)(2)(3)(4) .......... 48 Director 1998
Sam Humphreys(2)(3) ................ 37 Director 2000
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 AVS
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 AVS since
February 1992 and he became the President of Aviation Sales Leasing Company, a
subsidiary of AVS, 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 the Aviation Sales Company business unit Aviall Services Inc.
("ASC").
ROBERT ALPERT is a private investor. In addition to his investment in AVS,
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.
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.
Tim L. Watkins, who served as a director of AVS in 1997, resigned from
such position on April 23, 1998.
64
<PAGE>
EXECUTIVE OFFICERS
AVS Executive Officers hold their positions until the annual meeting of
the Board of Directors of AVS or until their respective successors are elected
and qualified. At the date of this Proxy Statement/ Prospectus, the following
persons constituted the Executive Officers of AVS:
<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 AVS 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 AVS, 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.
MICHAEL A. SASO has been the Senior Vice President, Purchasing of AVS
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 AVS 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 AVS 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 Airlines Services.
65
<PAGE>
AVS'S SELECTED CONSOLIDATED
FINANCIAL INFORMATION
The following table represents selected consolidated financial information
of AVS. The selected financial data set forth below should be read in
conjunction with the AVS consolidated financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus and with "AVS's
Management's Discussion" which contains a description of the factors which
materially affect the comparability from period to period of the information
presented herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues ............................... $23,429 $ 28,191 $ 113,803 $161,944 $ 256,899
Cost of sales .................................... 11,162 12,017 71,314 110,359 180,713
------- -------- --------- -------- ---------
Gross profit ..................................... 12,267 16,174 42,489 51,585 76,186
------- -------- --------- -------- ---------
Operating expenses
Operating ....................................... 3,121 2,900 8,989 9,320 14,286
Selling ......................................... 1,845 2,043 4,820 6,977 9,665
General and administrative ...................... 4,199 5,167 8,641 10,681 14,147
Depreciation and amortization ................... 217 415 1,466 2,323 3,094
------- -------- --------- -------- ---------
9,382 10,525 23,916 29,301 41,192
------- -------- --------- -------- ---------
Income from operations ........................... 2,885 5,649 18,573 22,284 34,994
Interest expense ................................. 6,041 4,458 8,287 5,350 7,432
------- -------- --------- -------- ---------
Income (loss) before taxes and extraordinary
item ........................................... (3,156) 1,191 10,286 16,934 27,562
Income tax (benefit) expense ..................... -- -- -- (426) 10,781
------- -------- --------- -------- ---------
Income (loss) before extraordinary item .......... (3,156) 1,191 10,286 17,360 16,781
Extraordinary item, net of income taxes .......... -- -- -- 1,862 --
------- -------- --------- -------- ---------
Net income (loss) ................................ ($ 3,156) $ 1,191 $ 10,286 $ 15,498 $ 16,781
======= ======== ========= ======== =========
Pro Forma Data:
Historical income (loss) before income taxes
and extraordinary item ........................ ($ 3,156) $ 1,191 $ 10,286 $ 16,934 $ 27,562
Pro forma (benefit) provision for income taxes (1,231) 465 4,012 6,604 10,781
------- -------- --------- -------- ---------
Pro forma income (loss) before
extraordinary item ............................ (1,925) 726 6,274 10,330 16,781
Extraordinary item, net of income taxes ......... -- -- -- 1,862 --
------- -------- --------- -------- ---------
Pro forma net income (loss) ..................... ($ 1,925) $ 726 $ 6,274 $ 8,468 $ 16,781
======= ======== ========= ======== =========
Pro forma diluted net income (loss)
per share (3) .................................. $ (0.33) $ 0.12 $ 1.00 $ 1.08 $ 1.77
======= ======== ========= ======== =========
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
-------------------------------------------------------------
1993 1994 1995 1996 1997
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Accounts receivable .......... $ 4,166 $16,980 $23,776 $ 37,087 $ 66,545
Inventories .................. 34,025 52,765 48,957 72,974 139,314
Working capital .............. 24,519 51,871 46,641 68,999 82,789
Total assets ................. 42,401 89,264 93,478 145,183 284,987
Total debt ................... 31,992 69,152 62,043 38,984 151,285
Stockholders' equity ......... 2,888 7,079 14,199 81,071 98,241
</TABLE>
- ----------------
(1) Dixie, which was acquired on August 9, 1996, and Kratz, which was acquired
on October 17, 1997, were accounted for under the purchase method of
accounting and accordingly, Dixie's and Kratz's results of operations have
been included in AVS's historical results of operations from the date of
acquisition. 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 AVS's historical financial
results for all periods presented subsequent to 1995, and Aerocell and
Apex are 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 and Apex, due to the immateriality of the restated amounts.
(2) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as AVS conducted its business as a partnership prior to June
26, 1996.
(3) Weighted average common and common equivalent shares used in calculating
diluted earnings per share are 5,859,542 for 1993; 5,923,103 for 1994;
6,259,542 for 1995; 7,819,837 for 1996 and 9,484,097 for 1997.
67
<PAGE>
AVS'S MANAGEMENT'S DISCUSSION
OVERVIEW
AVS'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. for an aggregate purchase price of
$46.8 million.
On July 2, 1996, AVS closed its 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, AVS 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 AVS 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
AVS in exchange for shares of common stock and an amount equal to the proceeds
to be received by AVS from the underwriters for 575,000 shares of common stock
sold in the offering.
AVS 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 AVS in connection with the formation of AVS and the balance was
used to repay senior and subordinated indebtedness. As a result of the
repayment of indebtedness with the proceeds of the IPO, AVS wrote-off
approximately $3.1 million in deferred financing costs relating to that debt.
Subsequent to the completion of the IPO, on August 9, 1996, AVS 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, AVS'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), AVS 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 AVS's common
stock. The acquisition was accounted for using the pooling of interests method
of accounting. As a result of the acquisition, AVS's operating revenues include
AvEng's total revenues for 1996, amounting to approximately $9.3 million.
During 1997, AVS 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 AVS's common
stock. As a result of the acquisition of Aerocell, AVS's operating revenues for
the year ended December 31, 1997 increased by approximately $19.3 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). AVS paid approximately $39.6 million, including acquisition costs
and net of cash acquired, to acquire the assets of Kratz and accounted for the
acquisition under the purchase method of accounting. As a result of the
acquisition of Kratz, AVS's operating revenues increased by approximately $6.5
million from the date of acquisition through December 31, 1997. The third
acquisition, which was completed in December 1997 and was accounted for in a
transaction accounted for as a pooling of interests, was the acquisition of
Apex, a precision aerospace manufacturer specializing in the machining of metal
parts,
68
<PAGE>
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 AVS's common stock. As a result of the acquisition of Apex,
AVS's operating results for the year ended December 31, 1997 increased by
approximately $7.3 million.
To date during 1998, AVS has completed one acquisition. On March 6, 1998,
AVS acquired Caribe and its wholly-owned subsidiary Aircraft. The acquisition
was a merger accounted for as a purchase. Caribe is an FAA-licensed repair
station. Aircraft manufactures plastic cabin interior replacement parts and
refurbishes aircraft interior components. The purchase price paid to acquire
Caribe and Aircraft was approximately $25.0 million consisting of the
following: (i) $5.0 million in cash; (ii) $5.0 million in the form of
promissory notes payable over two years; and (iii) $7.0 million in shares of
AVS's authorized but unissued common stock (182,143 shares). Additionally, as
part of the merger transaction, AVS repaid approximately $7.5 million of
Caribe's and Aircraft's indebtedness due to a financial institution. The
operations of Caribe and Aircraft will be included in AVS's consolidated
financial statements from the date of acquisition. Caribe and Aircraft had
consolidated fiscal 1997 revenues of approximately $27.0 million. The
pre-acquisition operations of Caribe are not material to the operations of AVS.
A key element of AVS'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 AVS's
existing business. AVS'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 AVS's
credit agreements. In addition, acquisitions involve risks that could adversely
affect AVS'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 AVS will be able to consummate
acquisitions on satisfactory terms.
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 AVS's inventory. Revenues and gross profit can be
impacted by the timing of bulk inventory purchases. In general, bulk inventory
purchases allow AVS 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.
AVS'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 AVS's inventory. A large portion of AVS's operating expenses are relatively
fixed. Since AVS 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 AVS's business, financial condition and results of
operations.
69
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following table sets forth certain information relating to AVS's
operations for the periods indicated:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
$ % $ %
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues ........................................ $161,944 100.0% $256,899 100.0%
Cost of sales ............................................. 110,359 68.1% 180,713 70.3%
-------- ----- -------- -----
51,585 31.9% 76,186 29.7%
-------- ----- -------- -----
Operating Expenses
Operating ................................................ 9,320 5.8% 14,286 5.6%
Selling .................................................. 6,977 4.3% 9,665 3.8%
General and administrative ............................... 10,681 6.6% 14,147 5.5%
Depreciation and amortization ............................ 2,323 1.4% 3,094 1.2%
-------- ----- -------- -----
29,301 18.1% 41,192 16.1%
-------- ----- -------- -----
Income from operations .................................... 22,284 13.8% 34,994 13.6%
Interest expense, net ..................................... 5,350 3.3% 7,432 2.9%
-------- ----- -------- -----
Income before income taxes and extraordinary item ......... 16,934 10.5% 27,562 10.7%
Income tax expense (benefit) .............................. (426) ( 0.2%) 10,781 4.2%
-------- ----- -------- -----
Income before extraordinary item .......................... 17,360 10.7% 16,781 6.5%
Extraordinary item, net of income taxes ................... 1,862 1.1% -- --
-------- ----- -------- -----
Net income ................................................ $ 15,498 9.6% $ 16,781 6.5%
======== ===== ======== =====
</TABLE>
AVS's operating revenues increased by approximately $95.0 million, or
58.6%, from 1996 to 1997. Of this amount, approximately $33.1 million was
derived from the operations associated with Aerocell, Kratz and Apex, all of
which were acquired during 1997. Operating revenues also increased due to the
inclusion during 1997 of a full year of Dixie's sales (Dixie was acquired on
August 9, 1996), increased revenues from leasing activities, increased customer
penetration, increased sales due to AVS's investment in and availability of
increased amounts of inventory and the continued expansion of inventory
management services being offered to and utilized by AVS's customers. During
this period, domestic sales increased 90.2% from $94.6 million to $179.9
million and international sales increased 14.4%, from $67.3 million to $77.0
million.
AVS's gross profit increased 47.7%, from $51.6 million in 1996 to $76.2
million in 1997. Gross margin declined from 31.9% in 1996 to 29.7% in 1997. The
decline in gross profit margin was expected as the mix of inventories sold
during 1997 continued to reflect a declining contribution from bulk inventories
acquired prior to 1995 and an increase in revenues from AVS's lower margin
bearings distribution business acquired in August 1996.
AVS's operating expenses for 1997, in absolute dollars, increased $11.9
million, or 40.6%, compared to 1996. Approximately $4.4 million of the increase
is attributable to the operating expenses of Aerocell, Kratz and Apex, with the
balance attributable to higher sales levels resulting in higher selling and
operating expenses and increased reserves, offset in part by a $2.6 million
gain on a legal settlement with a former employee and stockholder. Primarily
due to economies of scale and improved operating efficiencies, operating
expenses as a percentage of revenue decreased from 18.1% in 1996 to 16.0% in
1997. See Note 7 to Notes to AVS's Consolidated Financial Statements.
Interest expense and amortization of deferred financing costs increased
$2.1 million, or 38.9% from 1996 to 1997 primarily due to the increase in
borrowings necessary to fund AVS's growth.
As a result of the above factors, income before income taxes and
extraordinary item increased $10.6 million, or 62.8%, from 1996 to 1997.
70
<PAGE>
Income taxes for 1996 were offset by one-time deferred tax benefits of
approximately $4.9 million associated with the organization of AVS. See Notes 1
and 11 to Notes to AVS's Consolidated Financial Statements. No such tax benefit
was realized in 1997.
In connection with the IPO, AVS repaid certain debt. As a result, during
1996 AVS wrote-off approximately $3.1 million in deferred financing costs
relating to that debt, which resulted in an extraordinary item, net of taxes,
of approximately $1.9 million. See Note 5 to Notes to AVS's Consolidated
Financial Statements.
71
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following table sets forth certain information relating to AVS'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>
AVS'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 AVS's customer base and increased sales to existing customers.
During this period, domestic sales increased 39.1% from $68.0 million to $94.6
million and international sales increased 47.3%, from $45.7 million to $67.3
million.
AVS's gross profit increased 21.4%, from $42.5 million in 1995 to $51.6
million in 1996. The increase in gross profit is primarily attributable to the
increase in sales. Gross margins decreased from 37.3% in 1995 to 31.9% in 1996
due to a change in the mix of inventories sold. Due to the acquisition of ASC
in December 1994, AVS'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.
AVS'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 AVS'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 AVS'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 AVS. See Notes 1
and 11 to Notes to AVS's Consolidated Financial Statements.
72
<PAGE>
Based on all of the above factors, AVS's 1996 net income was $17.4
million, or $2.22 per share, an increase of $7.1 million, or 68.8 %, compared
to 1995 income before extraordinary item of $10.3 million.
In connection with the IPO, AVS repaid certain debt. As a result, during
1996 AVS wrote-off approximately $3.1 million in deferred financing costs
relating to that debt, which resulted in an extraordinary item, net of taxes,
of approximately $1.9 million. See Note 5 to AVS's Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $14.0 million for the year ended December
31, 1995. Cash used in operations was $8.0 million and $53.7 million for the
years ended December 31,1996 and 1997, respectively. Cash used in investing
activities for the years ended December 31, 1995, 1996 and 1997 was $4.7
million, $17.8 million and $49.9 million, respectively. Cash provided by
financing activities was $26.8 million and $107.9 million for the years ended
December 31, 1996 and 1997, respectively. Cash used in financing activities for
the year ended December 31,1995 was $10.5 million.
AVS and its subsidiaries have entered into the Credit Facility with
certain financial institutions. At present, the Credit Facility consists of a
$91.4 million revolving loan and letter of credit 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 AVS. The letter of credit portion of the Revolving Credit
Facility is subject to a $15.0 million sublimit, 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 AVS, (a) prime plus a
margin, or (b) LIBOR plus a margin, where the margin determination is made
based upon AVS'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 AVS 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 AVS's assets are pledged as collateral for
amounts borrowed. The Revolving Credit Facility will terminate on July 31,
2002. At December 31, 1997, AVS was in compliance with all covenants of the
Credit Facility. At March 20, 1998, $13.1 million was outstanding under the
Credit Facility.
On February 17, 1998, AVS sold $165 million in senior subordinated notes
(the "Notes") due in 2008 with a coupon rate of 8.125% at a price of 99.395%.
Proceeds were used to repay amounts outstanding under the Credit Facility
(including amounts due under a $58.6 million term loan facility) and to fund
the cash requirements relating to the acquisition of Caribe.
The Notes mature on February 15, 2008. Interest is payable on February 15
and August 15 of each year, commencing August 15, 1998. The Notes are general
unsecured obligations of AVS, subordinated in right of payment to all existing
and future senior debt of AVS, including indebtedness outstanding under the
Credit Facility and under facilities which may replace the Credit Facility in
the future. In addition, the Notes are effectively subordinated to all secured
obligations to the extent of the assets securing such obligations, including
the Credit Facility. The indenture pursuant to which the Notes have been issued
(the "Indenture") permits AVS 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 AVS which do not guarantee the Notes.
The Notes are unconditionally guaranteed, on a senior subordinated basis,
by substantially all of AVS's existing subsidiaries and each subsidiary that
will be organized in the future by AVS, unless such
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subsidiary is designated as an unrestricted subsidiary (the "Subsidiary
Guarantors"). Subsidiary Guarantees are joint and several, general unsecured
obligations of Subsidiary Guarantors. Subsidiary Guarantees are subordinated in
right of payment to all existing and future Senior Debt of Subsidiary
Guarantors, including the Credit Facility, and are also effectively
subordinated to all secured obligations of Subsidiary Guarantors to the extent
of the assets securing such obligations, including the Credit Facility.
Furthermore, the Indenture permits Subsidiary Guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations.
The Notes are redeemable, at the option of AVS, in whole or in part, at
any time after February 15, 2003, at the following redemption prices, plus
accrued and unpaid interest and liquidated damages, if any, to the redemption
date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%; and (iv)
2006 and thereafter--100%. In addition, on or prior to February 15, 2001, AVS
may redeem up to 35% of the aggregate principal amount of the Notes at a
redemption price of 108.125% 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 AVS; provided,
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption.
Upon the occurrence of a change of control, AVS will be required to make
an offer to repurchase all or any part of 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 AVS 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.
The Indenture contains certain covenants that, among other things, will
limit the ability of AVS 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.
Pursuant to a registration rights agreement, AVS has agreed to (a) file a
registration statement on or prior to April 3, 1998 with respect to an offer to
exchange the Notes for a new issue of debt securities of AVS registered under
the Securities Act of 1933, as amended, with terms substantially identical to
those of the Notes (the "Exchange Offer") which registration statement was
filed on March 26, 1998 and (b) use their best efforts to cause the
registration statement to be declared effective by the Securities and Exchange
Commission on or prior to June 17, 1998. AVS has also agreed to file a shelf
registration statement relating to the resale of the Notes under certain
circumstances. If AVS fails to satisfy these registration obligations, it will
be required to pay liquidated damages to holders of Notes under certain
circumstances.
On August 5, 1997, a subsidiary of AVS, Aviation Sales SPS I, Inc.,
entered into a term loan agreement in a principal amount of $7.2 million which
was guaranteed by AVS, 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%. AVS 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,
AVS was in compliance with all covenants of this term loan.
In connection with its acquisition of Kratz-Wilde Machine Company
AVS/Kratz-Wilde Machine Company, a subsidiary of AVS, delivered a non-interest
bearing promissory note in the original principal amount of $2.2 million, which
was guaranteed by AVS, to the seller. At December 31, 1997, AVS was in
compliance with the terms of this promissory note.
In connection with its acquisition of Caribe, on March 6, 1998, Aviation
Sales Manufacturing & Repair Company, a subsidiary of AVS, delivered a
promissory note in the original principal amount of
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$5.0 million, which was guaranteed by AVS, to the seller. The note is payable
over a two year period with interest at the rate of 8% per annum.
During the years ended December 31, 1995, 1996 and 1997, AVS incurred
capital expenditures of approximately $0.9 million, $1.1 million and $4.4
million, respectively, primarily to make enhancements to AVS's management
information systems, telecommunications systems and other capital equipment and
improvements. AVS's current management information statement is not Year 2000
compliant. AVS is currently implementing a new management information system,
which among other things, will allow AVS 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 AVS'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, AVS intends to continue to pursue
acquisitions of bulk inventories of aircraft spare parts and complementary
businesses. Additionally, AVS is actively considering 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. AVS may also in the future issue
additional debt and/or equity securities in connection with financing one or
more of its activities. AVS believes that cash flow from operations and
borrowing availability under the Credit Facility will be sufficient to satisfy
AVS's anticipated working capital requirements over the next twelve months.
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AVS'S SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of April 29, 1998, certain
information regarding the AVS Common Stock, owned of record or beneficially by
(i) each person who owns beneficially more than 5% of the outstanding AVS
Common Stock; (ii) each of the AVS directors and named executive officers; and
(iii) all directors and executive officers of AVS as a group. Unless otherwise
specified, the address for each beneficial owner is c/o Aviation Sales 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)(3) ................................................. 2,362,000 24.6%
JFSS(4) ............................................................. 750,500 7.8%
Tomen Corporation(5) ................................................ 630,500 6.6%
FMR Corp.(6) ........................................................ 608,000 6.3%
Dale S. Baker(3)(7)(8) .............................................. 342,667 3.4%
Harold M. Woody(3)(7)(8) ............................................ 224,667 2.3%
Kazutami Okui(3)(9) ................................................. 15,000 *
Sam Humphreys(3) .................................................... 15,000 *
Michael A. Saso(8) .................................................. 84,667 *
James D. Innella(7)(10) ............................................. 92,999 *
Joseph E. Civiletto(7)(11) .......................................... 49,667 *
All directors and executive officers as a group (9 persons) ......... 3,203,334 32.8%
</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 primarily owned of record by two corporate entities controlled
by Mr. Alpert.
(3) 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.
(4) Shares are owned of record by a corporate entity controlled by JFSS.
(5) Shares are owned of record by two corporate entities controlled by Tomen
Corporation.
(6) As of December 31, 1997, based upon a Schedule 13G filed with the
Securities and Exchange Commission on February 9, 1998. The address shown
in the Schedule 13G is 82 Devonshire Street, Boston, Massachusetts.
(7) Shares shown as beneficially owned, except for 3,000 shares and currently
exercisable options, are pledged to secure payment of the certain
promissory notes representing the purchase price paid for their interest
in the Company.
(8) Includes five-year options to purchase 6,667 shares at an option exercise
price of $25.25 per share.
(9) Mr. Okui disclaims beneficial ownership of the shares owned by Tomen
Corporation.
(10) 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
13,333 shares at an option exercise price of $25.25 per share.
(11) 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
6,667 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
$37.62 per share. Excludes five-year option to purchase 10,000 shares at
an option exercise price of $37.62, which options have not vested.
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WHITEHALL'S BUSINESS
GENERAL
Whitehall is an independent provider of maintenance and modification
services for commercial, military and freighter aircraft. Whitehall focuses
primarily on two categories of commercial customers: established traditional
commercial carriers that view outsourcing as a way to reduce operating expenses
and increase their competitiveness and new entrant, low-cost air carriers that
rely on outsourcing for scheduled heavy maintenance. Whitehall operates two FAA
and JAA certified repair stations that specialize in heavy maintenance and
modification of Boeing 707, 727, 737, McDonnell Douglas DC-8, DC-9, DC-10 and
Lockheed L-100, L-188 and C-130 aircraft. Whitehall offers its customers a
comprehensive range of aviation services, including scheduled "A,""B,""C" and
"D" level inspections, block overhauls and repairs, corrosion prevention and
control programs and exterior stripping and painting. Modification services
provided by Whitehall include interior reconfiguration, cargo conversions and
avionics installations. Through a joint venture, Whitehall also designs, and
markets hushkits designed to reduce the noise created by Boeing 737-100 and
737-200 series aircraft to levels which comply with FAA-mandated Stage 3 noise
reduction standards.
RECENT DEVELOPMENTS
In July 1997, Whitehall purchased from Zantop International Airlines, Inc.
("Zantop") certain assets (the "Acquired Assets") used in connection with the
operation of Zantop's third party aircraft maintenance business located in
Macon, Georgia. Among the Acquired Assets were all of the Zantop's leasehold
interests in the properties located at its Macon facility (the "Leased
Facilities"). The purchase price for the Acquired Assets was $1.5 million in
cash plus the assumption of certain liabilities, including approximately $4.3
million in future lease obligations relating to the Leased Facilities.
In April 1997, the United States Air Force ("USAF") awarded Whitehall a
five-year contract (the "C-130 Contract") to perform Programmed Depot
Maintenance on its fleet of C-130 cargo aircraft stationed in the continental
United States. In June 1997, the C-130 Contract was canceled at the convenience
of the U.S. government because the USAF elected to perform this work with
government personnel at two of its remaining USAF bases rather than outsourcing
it to private contractors. The C-130 Contract provides for reimbursement by the
USAF of costs incurred by Whitehall during its term. Whitehall has made a claim
for reimbursement and is currently negotiating a settlement with the USAF for
the claimed amount.
In March 1997, Whitehall sold its electronics business to a private
investor group (the "Crystek Buyer") for approximately $2.7 million. The
transaction was structured as a sale by Whitehall of all of the outstanding
capital stock of Crystek Crystals Corporation, Whitehall's electronics division
operating subsidiary ("Crystek"). Whitehall received approximately $1.9 million
in cash and two promissory notes aggregating $864,000. The promissory notes are
due in installments from 1998 through 2001 and bear interest at a rate of 10%
per annum. Under the terms of the agreement relating to the sale of Crystek
(the "Crystek Agreement"), Whitehall agreed to remediate certain environmental
conditions on the real property owned by Crystek (the "Crystek Property") and,
if such environmental conditions are not satisfactorily remediated by December
31, 1998, the Crystek Buyer has the right to require Whitehall to repurchase
the Crystek Property on the terms and subject to the conditions set forth in
the Crystek Agreement. In the event of such a sale, the Crystek Buyer will have
the right to lease the Crystek Property from Whitehall.
In November 1996, Whitehall sold its ocean systems business to a
newly-formed company, Hydroscience Technologies, Inc. ("HTI"), in exchange for
818,182 shares of preferred stock of HTI (the "HTI Preferred Stock") and the
limited assumption by HTI of potential warranty liabilities associated with
such business. The aggregate amount of HTI Preferred Stock received by
Whitehall was equal to the book value of the assets transferred by it to HTI.
The HTI Preferred Stock carries a liquidation preference of $5.50 per share. At
Whitehall's election, the HTI Preferred Stock is convertible into 45%
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of the common stock of HTI. Whitehall has concluded that the value of its
investment in the HTI Preferred Stock has declined permanently. The entire
amount was written off in September 1997.
NARRATIVE DESCRIPTION OF THE BUSINESS
INDUSTRY OUTLOOK
GENERAL. Whitehall believes that the total market for commercial airframe
heavy maintenance and modification services in North America is approximately
$2.3 billion annually. Approximately 65% of these services are currently being
performed by airlines themselves, with the remaining demand being outsourced to
independent providers such as Whitehall. As the commercial airline industry
continues to operate under intense competition and federal budgetary
constraints force reductions in military spending, management believes that
both the private and military sectors will increasingly view outsourcing as a
logical and effective way to reduce operating costs. Factors which management
believes indicate the strength of the demand for its services include (i) the
projected growth of worldwide air traffic, (ii) the proliferation of start-up
airlines which typically depend on outside facilities for maintenance, (iii)
the desire of established airlines to reduce costs by divesting themselves of
large segments of their maintenance operations and shifting these
responsibilities to third-party providers who are often able to provide these
services more quickly and less expensively, (iv) the growth of the worldwide
air cargo industry which Whitehall believes will foster the demand for
passenger-to-freighter modification services, and (v) the current policy of the
United States military to promote outsourcing to the private sector many of the
services that were traditionally provided internally.
COMMERCIAL MAINTENANCE MARKET. The growth of the worldwide commercial
aircraft maintenance market is greatly affected by worldwide air travel.
According to the Boeing Report, world air travel is expected to grow at a
compound annual rate of 5.5% for the next ten years. During that same period,
the worldwide fleet of commercial airplanes is expected to increase by
approximately 48%. Further, deregulation of the aviation industry in the United
States and the European Economic Community, increased demand for low-fare air
travel and relatively low barriers to entry have led to the emergence of
several start-up airlines. Approximately 92% of the aircraft operators
worldwide have fleets of less than 30 aircraft. For these carriers, in-house
maintenance capabilities are not generally considered to be economically
viable. In addition, a number of established airlines have begun to view
maintenance outsourcing as a way to increase productivity of their assets,
reduce operating costs and better focus their resources on their core
competencies of transporting passengers and freight.
COMMERCIAL MODIFICATION MARKET. Whitehall expects the airframe
modification business to experience growth over the next several years,
primarily due to the rapid expansion of the global air freight industry and the
phase in of federal noise control legislation requiring airlines to either
modify or remove from their U.S. fleet certain aircraft models by the end of
1999. As the worldwide freight transport market continues to grow, so does the
demand for dedicated cargo aircraft. According to the Boeing Report, air cargo
traffic is projected to increase at a compound annual rate of 6.6% through 2016
and an additional 420 dedicated freighter aircraft are expected to be added to
the world fleet during that period. Because few cargo carriers are willing to
commit the capital to purchase newly built cargo aircraft, it is expected that
the majority of the dedicated freighter aircraft coming into circulation in the
next several years will be passenger aircraft which have been modified and
converted for cargo duty.
The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phaseout
of Stage 2 aircraft (defined as aircraft that comply with the Stage 2 noise
levels prescribed in Part 36 of the Federal Aviation Regulations) by December
31, 1999, subject to certain exceptions. The FAA regulations which implement
the ANCA require carriers to modify or reduce the number of Stage 2 aircraft
operated by 75% by the end of 1998 and 100% by the end of 1999. Alternatively,
a carrier could satisfy these compliance requirements by phasing in aircraft
meeting the stricter Stage 3 requirements (set forth in Part 36 of the Federal
Aviation Regulations) so that its fleet has at least 75% Stage 3 aircraft by
the end of 1998 and 100% of Stage 3 aircraft by the end of 1999. Certain types
of Stage 2 aircraft can be
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modified to meet Stage 3 requirements by installing a hushkit to the aircraft's
engine. AvAero Noise Reduction Joint Venture ("AvAero"), a joint venture in
which Whitehall holds a 40% interest, designs and markets FAA-certified
hushkits for Boeing 737-100 and 737-200 series aircraft. AvAero's other
venturers are Avro Corp., which holds a 40% interest, and WDW Aviation
Management, Inc., which holds a 20% interest.
MILITARY MAINTENANCE AND MODIFICATION MARKET. The U.S. military has also
turned to outsourcing in an effort to reduce costs in a shrinking budgetary
environment. Currently, U.S. military and government civilian personnel perform
approximately 72% and 64% of the aircraft maintenance for the USAF and United
States Navy ("Navy"), respectively. Several factors suggest that a greater
percentage of this work may be outsourced in the future. Budget constraints
have lead to a reduction in the number of military and government civilian
personnel in each branch of the U.S. military. The Navy is considering closing
three of its six naval aviation depots, however the number of its aircraft to
be maintained is expected to be reduced by only 25%. The USAF has moved to
"privatize in place" rather than close down its Kelly and McClellen bases.
Private contractors have submitted proposals to perform the work on site at
these bases and to employ many of the former government workers. The reduction
in the government's internal capacity to provide military aircraft maintenance
and modification services has not been accompanied by a corresponding reduction
in demand for these services. The current U.S. policy favoring the rapid
deployment of forces as opposed to maintaining numerous overseas military bases
relies heavily on the ability to quickly airlift personnel and equipment to
areas requiring military or humanitarian intervention. Accordingly, the need
for maintenance, modification and life extension programs for a substantial
portion of the U.S. military air fleet is expected to continue. Under the
so-called "60-40 law,"the military was limited in the amount of depot level
aircraft maintenance work it was permitted to transfer to the private sector to
40% of its overall depot level maintenance requirements. On November 18, 1997,
the National Defense Authorization Act for Fiscal 1998 increased this amount to
50%. Although the recent change in law and current trend towards outsourcing by
the U.S. military should result in greater opportunities for independent
maintenance providers such as Whitehall, there can be no assurance that
Whitehall will be successful in obtaining any future U.S. military contracts.
PRINCIPAL PRODUCTS AND SERVICES
COMMERCIAL MAINTENANCE SERVICES. The principal services performed by
Whitehall are scheduled "A,""B,""C" and "D" level maintenance checks. Each
involves a different degree of inspection and the services performed at each
level vary depending upon the individual aircraft operator's FAA-certified
maintenance program. The "A" and "B" level checks involve the fewest required
procedures and often can be completed within a few days. The "C" and "D" level
checks are more comprehensive and usually take several weeks to complete,
depending upon the scope of the work to be performed.
The "C" level check is an intermediate level service inspection that
typically includes a thorough cleaning of the aircraft's exterior, testing and
lubrication of its operational systems, filter servicing and limited cleaning
and servicing of the interior. Trained mechanics perform a visual inspection of
the external structure and internal structure through access panels. The "D"
level check includes all of the work accomplished in the "C" level check but
places a more detailed emphasis on the integrity of the systems and structural
functions. In the "D" level check, the aircraft is disassembled to the point
where the entire structure can be inspected and evaluated. Once the evaluation
and repairs are completed, the aircraft and its systems are reassembled to the
detailed tolerances demanded in each system's specifications. Depending upon
the type of aircraft and the FAA-certified maintenance program being followed,
intervals between "C" level checks can range from 1,000 to 5,000 flight hours
and intervals between "D" level checks can range from 10,000 to 25,000 flight
hours.
Structural inspections performed during "C" level and "D" level checks
provide Whitehall personnel with detailed information about the condition of
the aircraft and the need to perform additional work or repairs not provided
for in the original workscope. Project coordinators and customer support
personnel work closely with the aircraft's customer service representative in
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evaluating the scope of any additional work required and in the preparation of
a detailed cost estimate for the labor and materials required to complete the
job. Upon receipt of the customer representative's approval of the estimate,
Whitehall releases the requisitions and work orders into the work flow for the
aircraft.
Other maintenance services offered to commercial customers include
Supplemental Structure Inspections ("SSI's") and Corrosion Prevention and
Control Programs ("CPCP's"). SSI's are structural inspections which focus on
known problem areas and are required by most aircraft manufacturers. CPCP's are
also an outgrowth of manufacturer-required Aging Aircraft Programs and involve
the inspection and treatment of areas with known corrosion problems. These
additional inspections often supplement the "C" and "D" level check tasks.
COMMERCIAL MODIFICATION SERVICES. Each aircraft certified by the FAA is
constructed under a "Type Certificate."Anything which is done subsequently to
modify the aircraft from its original specifications requires the review,
flight-testing and approval of the FAA which is evidenced by the issuance of a
Supplemental Type Certificate ("STC") for that particular modification. Typical
modification services performed by Whitehall include refurbishing and
reconfiguring passenger seating, installing passenger amenities such as
telephones and video screens and converting traditional passenger cabins into
amenity filled "VIP" quarters.
The process of converting a passenger plane to freighter configuration
entails completely stripping the interior; strengthening the load-bearing
capacity of the flooring; installing the bulkhead or cargo net; cutting into
the fuselage for the installation of a large cargo door; reinforcing the
surrounding structures for the new door; replacing windows with metal plugs;
and fabricating and installing the cargo door itself. The aircraft interior may
also need to be lined to protect cabin walls from pallet damage and the air
conditioning system may have to be modified. Conversion contracts also
typically require "C" or "D" level maintenance checks as these converted
aircraft have often been out of service for some time and maintenance is
required for the aircraft to comply with current FAA standards.
Whitehall owns a 40% interest in AvAero, a joint venture that designs and
markets hushkits for Boeing 737- 100 and 737-200 series aircraft. The AvAero
hushkit weighs approximately 500 pounds at its heaviest configuration and fits
a wide range of engine models and aircraft weights. Major airlines have cited
its design simplicity, ease of installation, performance and absence of
operational restrictions as major factors in selecting the AvAero hushkit over
competing models. In January 1997, AvAero was selected by Southwest Airlines
("Southwest") to provide hushkits for up to 34 of Southwest's Boeing 737
aircraft. The agreement with Southwest provides for the delivery of 20 hushkits
beginning in June 1997 and an option to purchase an additional 14 hushkits.
Additional modification services performed by Whitehall include cockpit
reconfiguration and the integration of Traffic Control and Avoidance Systems
("TCAS"), windshear detection systems and navigational aids.
MILITARY MAINTENANCE AND MODIFICATION SERVICES. Whitehall provides
aircraft maintenance and modification services to the U.S. military and the
military branches of certain foreign governments. Whitehall specializes in
providing Programmed Depot Maintenance ("PDM") on large transport planes used
to move troops, supplies and equipment, such as the C-130 "Hercules." The PDM
program involves a nose to tail inspection and repair program. It begins with
the defueling of the aircraft and the stripping of its exterior paint. Trained
mechanics then perform a section-by-section structural examination of the
entire aircraft which can result in modifications to the airframe. Avionics are
inspected and repaired, replaced or modified as needed. Corrosion prevention
and control measures and various system overhauls or upgrades may also be
performed. At the completion of the overhaul, the aircraft is repainted.
On April 15, 1997, Whitehall was awarded the C-130 Contract by the USAF.
It provided for the furnishing of PDM on the USAF's C-130 aircraft stationed in
the continental United States. In June
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1997, the C-130 Contract was canceled at the convenience of the U.S. government
because the USAF elected to perform this work with government personnel at two
of its remaining USAF bases rather than outsourcing it to private contractors.
The C-130 Contract provides for reimbursement by the USAF of costs incurred by
Whitehall during its term. Whitehall has made a claim for reimbursement and is
currently negotiating a settlement with the USAF for the claimed amount.
Whitehall is currently performing C-130 PDM work for the government of
Mexico and continues to bid for similar work for aircraft owned and operated by
certain other foreign governments.
PRICING
Whitehall's services are offered to commercial customers on a contract
basis. Customers are generally offered either time and material based
arrangements or flat rate fixed price arrangements. Under the time and
materials fee arrangement, customers receive a detailed price estimate and
condition report from Whitehall after a thorough inspection of the aircraft.
Following the approval by the customer of the estimate, Whitehall issues work
orders and requisitions for the customer's aircraft. Customer support personnel
closely monitor the progress of the aircraft and negotiate with the customer
any additional pricing, scheduling and logistical issues which arise during the
course of servicing. Most of the aircraft serviced by Whitehall are priced on a
time and material based arrangement.
Under the flat rate fixed pricing contracts, Whitehall establishes a set
price prior to undertaking a maintenance or modification project based upon
estimates made either before or after inspection of the aircraft. Whitehall's
flat rate fixed price estimates made prior to inspection of an aircraft are
based upon standard labor and materials requirements and typically include
provisions for adjustments based upon condition of the aircraft.
The U.S. military contracts for which Whitehall competes are awarded on a
competitive bid basis. The contracts are typically firm agreements to provide
specified aviation services at a fixed rate. They typically have terms of one
year subject to annual renewals at the option of the contracting agency.
MANAGEMENT INFORMATION SYSTEM
Whitehall has developed an advanced integrated management information
system which allows management and customers to track the progress of every
aircraft being serviced on a real time basis. Bar coded work task cards are
tracked electronically and help coordinate the work of each assigned mechanic
and quality control inspector. The system can be accessed from any one of more
than 200 display stations located throughout Whitehall's Lake City and Macon
facilities. Project Coordinators can immediately access such detailed
information as the number of work-hours generated for any given project, a list
of all parts used or ordered and the identity of and tasks performed by each
mechanic and quality control inspector who has worked on an aircraft. This
information enables management to optimize the daily deployment of personnel,
materials and equipment among the various projects in service and to provide
customers with quick and accurate information about the status of their
aircraft.
COMPETITION
The market for aircraft maintenance and modification services is highly
competitive and fragmented. In addition to several other independent
maintenance operators, Whitehall faces significant competition from major
commercial airlines that own and operate their own aircraft maintenance service
centers. In addition, the aircraft divisions of certain large OEMs have
announced their intention to enter this market. Such OEMs and airlines have
substantially greater financial resources than Whitehall. Whitehall does not
have data available to determine its exact relative market position. Whitehall
believes that the most important bases for competition in its industry are
dependability of performance, prompt turnaround time, price and flexibility.
Whitehall considers its competitive strengths to be the flexibility and
experience of its labor force, its efficient facilities and its reputation
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for quality and on-time delivery. Whitehall's principal competitors for its
commercial work include Tramco, Inc., Dee Howard Company, Mobile Aerospace,
Inc., Triad International Maintenance Corporation and Pemco World Air Services,
Inc. Its principal competitors for military contracts include Boeing Military
Aircraft, Lockheed-Martin Aeromod and Raytheon-E Systems.
CUSTOMERS
Whitehall's commercial services are offered to the airline industry at
large, and in particular, to owners and operators of aircraft who do not have
maintenance facilities of their own or whose facilities are unable to
accommodate an increasing workload. These customers have historically included
many start-up passenger airlines and air cargo companies. Whitehall's customers
also include large, established air carriers who have turned to outsourcing
portions of their maintenance operations in an effort to increase their
profitability. During 1997, AirTran Holdings, Inc. (formerly, Valujet, Inc.)
accounted for approximately 23% of Whitehall's consolidated net sales, and the
top three customers of Whitehall (including AirTran) accounted for
approximately 49% of such sales. During 1996, three customers accounted for
approximately 26%, 15%, and 14% of Whitehall's consolidated net sales. During
1995, two customers accounted for 30% and 21% of Whitehall's consolidated net
sales. None of Whitehall's customers are contractually obligated to provide
Whitehall with any minimum number of aircraft for servicing in the future.
There can be no assurance that Whitehall's larger historical customers will
continue to utilize Whitehall's services to the same extent as they have in the
past. Whitehall's commercial customers include Continental Airlines, American
Trans Air, AirTran, Ryan International/Emery Worldwide, Burlington Air Freight,
and US Airways. Whitehall has also performed services under government
contracts for the USAF, the U.S. Coast Guard and the Mexican Air Force. The
U.S. government accounted for approximately 5% and 2% of Whitehall's 1997 and
1995 consolidated net sales, respectively. Whitehall made no sales to the U.S.
government in 1996.
REGULATION AND CERTIFICATION
The maintenance, modification and operation of aircraft are strictly
regulated by the FAA and foreign aviation authorities which oversee such
matters as aircraft certification, inspection, maintenance, certification of
personnel and record keeping. FAA regulations are designed to insure that all
aircraft and aviation equipment are continuously maintained in proper condition
to ensure safe operation of the aircraft. Similar rules apply in most foreign
countries. All aircraft must be maintained under a continuous monitoring
program and must periodically undergo thorough inspection and maintenance. The
inspection, maintenance and repair procedures for the various types of aircraft
are prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. Whitehall operates
FAA-certified repair stations in Lake City, Florida and Macon, Georgia and has
been granted licenses from the FAA and several foreign regulatory counterparts,
including the JAA, to perform maintenance, repair and overhaul services on most
narrow-bodied aircraft and wide-bodied aircraft. Whitehall also employs a
dedicated staff of FAA-certified structural, electrical, avionics and Airframe
and Powerplant technicians.
In addition to domestic and foreign governmental regulations, OEMs,
commercial airlines and other customers require that Whitehall satisfy certain
requirements relating to the quality of its services. The Coordinated Agency
for Supplier Evaluation ("CASE"), a consortium of United States air carriers,
reviews the operations of Whitehall on a regular basis for quality and
efficiency. Whitehall has completed several audits conducted by the FAA and
CASE and has continually met or exceeded the requirements imposed by its
customers and by OEMs.
Whitehall's operations are also subject to a variety of worker and
community safety laws. The Occupational Safety and Health Act of 1970 ("OSHA")
mandates general requirements for safe workplaces for all employees. Specific
safety standards have been promulgated for workplaces engaged in the treatment,
disposal or storage of hazardous waste. Whitehall believes that its operations
are in material compliance with OSHA's health and safety requirements.
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<PAGE>
ENVIRONMENTAL MATTERS
Whitehall's operations, like those of other companies engaged in similar
businesses, are subject to federal, state and local environmental laws and
regulation by government agencies, including the United States Environmental
Protection Agency ("EPA") and the Florida Department of Environmental
Protection ("FDEP"). Among other matters, these regulatory authorities impose
requirements that regulate the emission, discharge, generation, management,
transportation and disposition of hazardous materials, pollutants and
contaminants, govern public and private response actions to hazardous or
regulated substances which may be or have been released to the environment, and
require Whitehall to obtain and maintain licenses and permits in connection
with its operations. This extensive regulatory framework imposes significant
compliance burdens and risks on Whitehall.
Whitehall periodically reviews its reserves for potential environmental
liabilities. Such review includes an evaluation of currently available facts
with respect to each individual site and consideration of factors such as
existing technology, current laws and regulations and Whitehall's prior
experience in remediation of contaminated sites. As assessments and remediation
efforts progress at individual sites, Whitehall's environmental reserves and
remediation plans are reviewed and adjusted to reflect the additional legal and
technical information as it becomes available.
Whitehall is taking remedial action pursuant to EPA regulations at the
Lake City, Florida facility. Environmental testing continues to be performed at
this site and Whitehall is monitoring the results of such tests to assess the
impact and magnitude of Whitehall's required remediation efforts. Based upon
the most recent cost estimates provided by Whitehall's environmental
consultants, Whitehall believes that the total remaining remediation and
compliance costs at this facility will be approximately $2.4 million. There
are, however, other areas on the property at Lake City that could also require
remediation, although Whitehall does not believe it is responsible for such
areas. In the event remediation efforts are required in such areas, Whitehall
may be required to share in the costs of such remediation in order to continue
its operations at Lake City. Whitehall is unable to estimate the potential
amount of such costs at this time.
In connection with the sale of Crystek, Whitehall was required to perform,
at its own expense, an environmental site assessment on the Crystek Property.
Whitehall is also required to remedy all recognized environmental conditions
identified in the assessment to bring the Crystek Property into compliance with
all applicable Federal, State and local environmental laws. If the facility is
not brought into compliance with such environmental laws by December 31, 1998,
the Crystek Buyer shall have the option of requiring Whitehall to repurchase
the Crystek Property. Whitehall has engaged independent environmental
consultants to review the potential environmental liabilities on the Crystek
Property. Such investigation and testing resulted in the identification of
likely environmental remedial actions. Based upon the cost estimates provided
by the consultants, Whitehall believes that the total remediation and
compliance costs for the Crystek Property will be approximately $1.0 million.
Actual costs required to be incurred by Whitehall in the future for
environmental compliance and remediation may vary from Whitehall's current
estimates of such costs, primarily because of the inherent uncertainties in
evaluating environmental exposures. These uncertainties include the extent of
remediation based on testing and evaluation not yet completed, the varying
costs and effectiveness of remediation methods and potential changes in
environmental laws, regulations or the interpretations thereof. No assurance
can be given that actual amounts ultimately required to be expended by
Whitehall for environmental compliance and remediation in the future will not
be material.
MATERIALS
Whitehall purchases components, parts and equipment from various
suppliers. Whitehall is not dependent upon any single supplier or group of
suppliers for any of the material it uses in its business and has encountered
no difficulties in purchasing sufficient quantities in the open market.
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<PAGE>
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
Whitehall holds no material patents, franchises or concessions.
EMPLOYEES
As of December 31, 1997, Whitehall had approximately 1,152 full-time
employees. None of Whitehall's employees are covered by a collective bargaining
agreement. Whitehall believes that its relations with its employees are
generally good.
PROPERTIES
The following are the locations and general character of the principal
plants and other materially important physical properties of Whitehall and its
subsidiaries:
<TABLE>
<CAPTION>
APPROXIMATE
INDUSTRY SEGMENT SQUARE FEET OWNED OR
AND LOCATION TOTAL ACRES OF FLOOR SPACE DESCRIPTION LEASED
- ---------------------- ------------- ---------------- -------------------------------- --------------------
<S> <C> <C> <C> <C>
Corporate Offices 5.2 80,000 Executive Offices of Whitehall Owned
Dallas, Texas
Aircraft Maintenance 120.0 650,000 Offices and aircraft, Lease expiring 2022
Lake City, Florida rebuilding and modification
facilities of Aero
Corporation
Aircraft Maintenance 7.4 140,000 Offices and aircraft Lease expiring 2018
Macon, Georgia rebuilding and modification
facilities of Aero Corp.
Macon, Inc.
</TABLE>
Whitehall leases approximately 70,000 sq. ft. of the Dallas, Texas facility to
HTI.
Whitehall's aircraft depot located at the Lake City Municipal Airport in
Lake City, Florida spans 120 acres and includes seven maintenance hangars, two
runways, over 1.3 million square feet of ramp space, an FAA-certified control
tower and a fuel farm. The seven clear span steel hangars provide over 650,000
square feet of covered space and can comfortably house up to 18 narrow-bodied
aircraft. There is also covered nose dock space which allows for the sheltered
maintenance of up to four additional aircraft. Six hangars are used for heavy
maintenance and modification and one hangar is dedicated for aircraft striping
and painting. Each hangar has its own technical library, customer
representative offices, tool rooms, storage rooms and a production control
center where all of the paperwork associated with a project's workscope is
maintained. Each of the hangars are in close proximity to one another and to
Whitehall's administrative offices and hydraulic and sheetmetal shops. The Lake
City facility is operated by Whitehall under a lease from the City of Lake City
which expires in 2022. Since 1992, Whitehall has invested more than $9.2
million to renovate and improve the Lake City facility to the point where it is
now capable of accommodating nearly all narrow-bodied and wide-bodied aircraft
in current production.
Whitehall's Macon facility consists of five buildings on the east ramp of
the Macon Municipal Airport in Macon, Georgia. With over 140,000 square feet
under roof, the Macon facility can house three DC-8 and three DC-9 aircraft in
its hangar bays. One of its three hangar bays can also accommodate a DC-10 or
A-300 size aircraft.
Whitehall believes that its plants and other physical properties are
adequate for its intended operations.
LEGAL PROCEEDINGS
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against Whitehall, each
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<PAGE>
of its directors (other than Mr. Webster) and Cambridge Capital, alleging,
among other things, that ( i ) the defendants' actions, both individually and
in concert, constituted willful interference with Mr. Webster's employment
relationship with Whitehall and was the direct cause of Mr. Webster's
termination as its President and Chairman of the Board, and (ii) the
defendants' actions forced Mr. Webster into retirement without providing Mr.
Webster with retirement benefits which Mr. Webster was purportedly promised. On
August 17, 1994, the defendants were granted a partial summary judgment. On
October 24, 1994, Mr. Webster filed a third amended petition and alleged the
following causes of action: tortuous interference with contractual relations
against Cambridge Capital Fund, L.P., and directors George F. Baker and John J.
McAtee; intentional infliction of emotional distress and breach of oral
contracts. The third amended petition sought compensatory and punitive damages
in excess of $35 million.
On January 12, 1995, the Court entered an abatement on one of the breach
of oral contract claims against Whitehall and entered a summary judgment in the
defendants' favor on all remaining claims alleged by Mr. Webster. On February
26, 1996, the Court granted a summary judgment in favor of the defendants on
Mr. Webster's remaining claims and entered a take nothing final judgment which
dismissed all of Mr. Webster's claims with prejudice to refiling. On March 26,
1996, Mr. Webster appealed the final judgment to the Dallas, Texas Court of
Appeals. On April 10, 1998, the Texas Court of Appeals affirmed the trial
court's summary judgment ruling in favor of the defendants on each of Mr.
Webster's claims.
Whitehall is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of
Whitehall.
85
<PAGE>
WHITEHALL'S SELECTED CONSOLIDATED
FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
data for Whitehall and subsidiaries for each of the years in the five-year
period ended December 31, 1997. The data set forth in this table is qualified
in its entirety by, and should be read in conjunction with, the consolidated
financial statements and the notes thereto of Whitehall contained elsewhere in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales ................................... 30,910 32,098 56,229 70,170 65,791
Cost of sales ............................... 26,455 27,586 48,385 59,809 64,197
Gross profit ................................ 4,455 4,512 7,844 10,361 1,594
Income (loss) before taxes .................. (3,190) (1,224) 3,838 6,523 (15,547)
Net income (loss) ........................... (1,868) (1,224) 2,949 4,317 (11,937)
Net income (loss) per share* ................
Basic ..................................... (0.34) (0.23) 0.54 0.79 (2.16)
Diluted ................................... (0.34) (0.23) 0.52 0.75 (2.16)
Weighted average shares outstanding*
Basic ..................................... 5,562,348 5,397,230 5,426,384 5,481,476 5,518,402
Diluted ................................... 5,562,348 5,397,230 5,642,304 5,735,118 5,518,402
Cash flow from (used in) operations ......... (2,001) 1,990 (1,802) (4,084) (4,545)
Capital expenditures ........................ 2,313 467 1,668 4,438 3,739
YEAR-END POSITION:
Total assets ................................ 32,863 32,213 41,182 44,936 48,599
Working capital ............................. 20,813 17,739 21,398 19,223 7,741
Current ratio ............................... 5.7 4.5 3.0 3.0 1.4
Property, plant and equipment--net .......... 7,099 6,384 6,869 9,654 17,567
Common shareholders' equity ................. 28,239 26,989 30,099 34,825 23,039
Per share outstanding* ...................... 5.22 4.99 5.54 6.33 4.17
YEAR-END STATISTICS:
Common shares outstanding* .................. 5,412,000 5,412,600 5,439,800 5,505,400 5,530,000
Number of shareholders ...................... 793 740 661 640 618
Number of employees ......................... 528 512 682 752 1,152
Plant area (thousand sq. ft.) ............... 846 767 750 680 870
</TABLE>
- ----------------
* Adjusted to reflect the 2 for 1 stock split declared January 29, 1997.
86
<PAGE>
WHITEHALL'S MANAGEMENT'S DISCUSSION
OPERATING RESULTS
Consolidated sales totaled $65,791,000 for 1997, a decrease of 6% from
sales of $70,170,000 in 1996. Consolidated sales in 1996 include approximately
$1.9 million of sales in the Ocean Systems segment, which was sold in November
1996. Sales in the Electronics segment decreased by $2,212,000 to $672,000 in
1997. In March of 1997, Whitehall sold the Electronics segment for $2.7
million, see Item 1B and Note L of the Notes to Consolidated Financial
Statements. Aircraft Maintenance segment sales decreased by $221,000 to
$65,119,000 in 1997, primarily as a result of hangar space that was reserved in
anticipation of the United States Air Force C-130 maintenance contract awarded
in April 1997, which was subsequently canceled at the convenience of the
government in June 1997. The C-130 contract provides for reimbursement by the
United States Air Force of costs incurred during its operation, and Whitehall
has recorded a claim against the government for these costs. This reduction in
anticipated revenue was partially offset by the acquisition of the Macon,
Georgia facility, which accounted for approximately $12 million of the
segment's sales. Sales are also affected by arrivals of planes later than their
scheduled time.
Consolidated sales totaled $70,170,000 for 1996, an increase of 25% over
sales of $56,229,000 in 1995. Aircraft Maintenance segment sales increased by
$22,699,000 to $65,340,000 in 1996, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment decreased by $8,002,000 to $1,946,000 in 1996.
Revenues in the Ocean Systems segment decreased primarily as a result of
contract completions with no follow-on contract awards. In November 1996,
Whitehall sold substantially all of the assets of the Ocean Systems segment,
see Item 1B and Note D. Sales in the Electronics segment decreased by $756,000
to $2,884,000 in 1996.
Consolidated sales totaled $56,229,000 for 1995, an increase of 75% over
sales of $32,098,000 in 1994. Aircraft Maintenance segment sales increased by
$17,238,000 to $42,641,000 in 1995, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment increased by $6,126,000 to $9,948,000 in 1995.
Revenues in the Ocean Systems segment increased primarily as a result of new
product sales in the commercial geophysical market. Sales in the Electronics
segment increased by $767,000 to $3,640,000 in 1995.
Whitehall recorded an operating loss of $9,996,000 in 1997 compared to an
operating profit of $5,705,000 in 1996. The Aircraft Maintenance segment
reported an operating loss of $9,764,000 in 1997 compared to an operating
profit of $7,026,000 in 1996 primarily due to the increase in environmental
reserves (see "Environmental Matters" above), an increase in the provision for
obsolete inventory, and an increase in the allowance for doubtful accounts. The
allowance was increased because of disputes with large customers (the ultimate
outcome of which can not be determined at this time) and certain customers in
weak financial condition, including two customers that went into bankruptcy.
The Electronics segment reported an operating loss of $6,000 in 1997 compared
to an operating profit of $557,000 in 1996. The Electronics segment was sold in
March 1997. Corporate office general and administrative expenses decreased to
$337,000 in 1997 compared to $968,000 in 1996. This decline was the result of
lower insurance and legal expense reserves, as well as a reduction in corporate
staff and staff expenses.
Whitehall recorded an operating profit of $5,705,000 in 1996 compared to
an operating profit of $2,875,000 in 1995. The Aircraft Maintenance segment
reported an operating profit of $7,026,000 in 1996 compared to an operating
profit of $3,430,000 in 1995. The improved profitability in the Aircraft
Maintenance segment resulted primarily from the increase in sales. Whitehall
increased its sales to its three largest customers in 1996 over those same
customers in 1995, mainly because those customers had increased the size of
their fleets. The Ocean Systems segment reported an operating loss of $789,000
in 1996 compared to an operating profit of $419,000 in 1995. The decline in
sales was the primary reason for the 1996 operating loss in the Ocean Systems
segment. The Electronics segment reported an operating profit of $557,000 in
1996 compared to an operating profit of $796,000 in 1995. The decline in
87
<PAGE>
sales was the primary reason for the lower 1996 operating profit in the
Electronics segment. Corporate office general and administrative expenses
decreased to $968,000 in 1996 compared to $2,128,000 in 1995 primarily as a
result of reductions in legal and insurance expenses.
Other expense, net in 1997 includes the $4,500,000 writedown of
Whitehall's investment in Hydroscience Technologies, Inc. (HTI) preferred stock
(See Item 1B). Other income in 1996 includes interest earned of $307,000 and
investment income of $440,000. Other income in 1995 includes gains on sales of
fixed assets of $650,000 and interest earned of $671,000. Other income in 1994
includes gains on sales of fixed assets of $512,000 and interest earned of
$791,000.
Whitehall recorded an income tax benefit of $3,610,000 in 1997. Whitehall
recorded net income tax expense of $2,206,000 for 1996 and $889,000 in 1995.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of
Whitehall's computer programs that have date-sensitive software may recognize a
date using '00' as the year 1900 rather than the year 2000. If Whitehall's
systems are unable to recognize or properly treat the year 2000, critical
financial and operational information may be processed incorrectly. Whitehall
has not yet assessed the year 2000 compliance expense and related potential
effect on Whitehall's earnings.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, cash used in operating activities totaled $4,545,000 as
compared to $4,084,000 in 1996 and $1,802,000 in 1995. Whitehall made capital
expenditures during 1997 of approximately $3,739,000 compared to $4,438,000,
and $1,668,000 in 1996 and 1995. The majority of the capital expenditures in
all years were made to renovate the Aero facility in Lake City, Florida. All
planned major expansions have been completed as of December 31, 1997. Including
in 1997 capital expenditures was the construction of a building and the
purchase of other items for the C-130 contract and the completion of the
refinishing of various hanger floors. However, Whitehall will make capital and
other expenditures during 1998 as conditions warrant.
Cash and cash equivalents decreased from approximately $2,656,000 at
December 31, 1996, to $1,251,000 at December 31, 1997. During 1997, Whitehall
borrowed an additional $7,163,000 on its line of credit primarily to fund
working capital, the acquisition of the Macon, Georgia facility, and capital
expenditures of $3,739,000. At December 31, 1997, there was approximately
$2,287,000 available under the line of credit.
Whitehall believes that, despite the losses generated in 1997 mainly
attributable to the increase in the accounts receivable reserve, the increase
in the environmental reserve, and the writedown of its investment in the HTI
Preferred Stock, its cash balances and line of credit facility are sufficient
to meet its short and long-term capital requirements. Whitehall intends to
continue to pursue opportunities for the acquisition of aircraft maintenance
facilities, and any future acquisitions may require additional capital. In
order to provide additional funds for Whitehall's growth strategies and for
operations over the long-term, Whitehall may incur, from time to time,
additional short and long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and terms of
such securities may depend upon market and other conditions. There can be no
assurances that such potential financing will be available on terms acceptable
to Whitehall.
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<PAGE>
WHITEHALL'S SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of the Record Date (unless
otherwise indicated), regarding the beneficial ownership of Whitehall Common
Stock by (i) those persons known to Whitehall to be the beneficial owners of
more than 5% of the outstanding shares of Whitehall Common Stock and the
address of such persons, (ii) each of Whitehall's directors, (iii) Whitehall's
Chief Executive Officer and each of the most highly compensated executive
officers of Whitehall whose total annual salary and bonus for the year ended
December 31, 1997 exceeded $100,000, and (iv) all directors and executive
officers as a group. All persons listed below have sole voting and investment
power with respect to their shares unless otherwise indicated. Shares issuable
upon exercise of all outstanding Whitehall Options are deemed to be outstanding
for the purpose of computing ownership percentages.
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND NATURE OF
NAME BENEFICIAL OWNERSHIP % OF CLASS
- ------------------------------------------------- ---------------------- -----------
<S> <C> <C>
George F. Baker ................................. 2,009,400(1) 34.2%
Bruce C. Conway ................................. 20,000(2) *
Arthur H. Hutton ................................ 10,000(3) *
John J. McAtee, Jr. ............................. 11,000(3) *
Jack S. Parker .................................. 14,000(3) *
Lewis S. White .................................. 3,000(4) *
John H. Wilson .................................. 105,000(5) 1.8%
All current directors and executive officers as a
group (9 persons) ............................. 2,172,400(6) 37.0%
Cambridge Capital Fund, L.P. 1,314,400 22.4%
767 Fifth Avenue
New York, NY 10153 ..............................
Baker Nye, L.P. 579,000 10.0%
767 Fifth Avenue
New York, NY 10153 ..............................
Lee D. Webster 530,004(7) 9.0%
4931 Thunder Road
Dallas, TX 75244 ................................
Dimensional Fund Advisors, Inc. 341,600(8) 5.8%
1299 Ocean Avenue
Santa Monica, CA 90401 ..........................
Kennedy Capital Management 328,150(9) 5.6%
10829 Olive Blvd.
St. Louis, MO 63141 .............................
</TABLE>
- ----------------
* Represents less than 1% of the outstanding shares of Whitehall Common
Stock.
(1) Mr. Baker owns no Whitehall Common Stock directly. However, as a managing
general partner of Cambridge Capital Fund, L.P., and as a managing general
partner of Baker Nye, L.P., he may be deemed to own beneficially (and the
number of shares in the table includes) the 1,314,400 shares of Whitehall
Common Stock owned by Cambridge Capital Fund, L.P. and the 579,000 shares
of Whitehall Common Stock owned by Baker Nye, L.P. Mr. Baker is also
deemed to own beneficially (and the number of shares in the table
includes) 116,000 shares of Whitehall Common Stock attributable to options
exercisable within 60 days.
(2) Includes 20,000 shares of Whitehall Common Stock attributable to options
exercisable within 60 days.
(3) Includes 10,000 shares of Whitehall Common Stock attributable to options
exercisable within 60 days.
(4) Includes 3,000 shares of Whitehall Common Stock attributable to options
exercisable within 60 days.
(5) Includes 104,000 shares of Whitehall Common Stock attributable to options
exercisable within 60 days.
(6) Includes 347,200 shares of Whitehall Common Stock attributable to options
exercisable within 60 days. Also includes 1,893,400 shares of Whitehall
Common Stock as to which the powers to vote and dispose are shared with
related parties or family members.
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<PAGE>
(7) The number of shares is based solely upon information provided by Mr.
Webster to Whitehall in February 1997. Includes 136,876 shares reported by
Mr. Webster to be owned by trusts for the benefit of his children, for
which he serves as sole trustee and with respect to which he disclaims
beneficial ownership.
(8) The number in the table is based solely on a Schedule 13G filed by
Dimensional Fund Advisors, Inc., a registered investment advisor
("Dimensional") regarding Dimensional's beneficial ownership of Whitehall
Common Stock at December 31, 1997.
(9) The number of shares in the table is based solely upon a Schedule 13G,
dated February 10, 1998, filed by Kennedy Capital Management, Inc.
LEGAL MATTERS
The validity of the issuance of the AVS Common Stock being offered hereby
will be passed upon for AVS by Akerman, Senterfitt & Eidson, P.A., Miami,
Florida. The federal income tax consequences in connection with the Merger will
be passed upon for AVS by Akerman, Senterfitt & Eidson, P.A., Miami, Florida.
Certain attorneys employed by Akerman, Senterfitt & Eidson, P.A. beneficially
own shares of AVS Common Stock as of the date of this Proxy
Statement/Prospectus. The federal income tax consequences of the Merger will be
passed upon for Whitehall by Baker & Botts L.L.P., New York, New York.
EXPERTS
AVS's consolidated financial statements included herein, to the extent and
for the periods indicated in their report, have been audited by Arthur Andersen
LLP, independent certified public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
Whitehall's consolidated financial statements included herein, to the
extent and for the periods indicated in their report, have been audited by
Arthur Andersen LLP, independent certified public accountants, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
Kratz's financial statements included herein, to the extent and for the
periods indicated in their report, have been audited by Clark, Schaefer,
Hackett & Co., independent certified public accountants, and are incorporated
by reference herein in reliance upon the authority of said firm as experts in
giving said report.
STOCKHOLDERS' PROPOSALS
If the Merger is approved by the stockholders of Whitehall and
consummated, Whitehall will not hold an Annual Meeting of Stockholders in 1998.
If the Merger is not approved by the stockholders of Whitehall or otherwise not
consummated, Whitehall intends to hold an Annual Meeting of Stockholders in
October 1998. Any proposals of stockholders of Whitehall intended to be
presented at the Annual Meeting of Stockholders of Whitehall must be submitted
by the close of business after the tenth day on which notice of the meeting is
made. Such proposals are required to be addressed to the Secretary of Whitehall
at 2659 Nova Drive, Dallas, Texas 75229, and must also meet the other
requirements of the rules of the Commission relating to stockholders'
proposals.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVS'S CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants .................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 ............................. F-3
Consolidated Statements of Income for the three years ended December 31, 1997 ......... F-5
Consolidated Statements of Partners' Capital and Stockholders' Equity
for the three years ended December 31, 1997 ......................................... F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 1997 ..... F-7
Notes to AVS's Consolidated Financial Statements ...................................... F-8
WHITEHALL'S CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants .................................... F-27
Consolidated Balance Sheets at December 31, 1996 and 1997 ............................. F-28
Consolidated Statements of Operations for the three years ended December 31, 1997 ..... F-30
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-31
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-32
Notes to Whitehall's Consolidated Financial Statements ................................ F-33
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet .................................. P-2
Unaudited Pro Forma Condensed Combined Statements of Operations ....................... P-3
Notes to Unaudited Pro Forma Condensed Combined Financial Statements .................. P-6
</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, 1997
and 1996, and the related consolidated statements of income, partners' capital
and stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements and the schedule
referred to below 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 2, 1998
(except with respect to the matters discussed
in Note 14 as to which the date is March 26, 1998).
F-2
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 1,262,149 $ 4,985,751
Accounts receivable, net of allowance for doubtful accounts of
$3,779,580 and $3,474,532 in 1996 and 1997, respectively......... 37,086,899 66,545,155
Inventories ....................................................... 72,974,397 139,313,722
Prepaid expenses .................................................. 4,067,332 3,111,728
Deferred income taxes ............................................. 1,972,410 2,004,148
------------ ------------
Total current assets ............................................ 117,363,187 215,960,504
------------ ------------
EQUIPMENT ON LEASE, net of accumulated amortization of
$2,601,069 and $3,626,522 in 1996 and 1997, respectively.......... 17,950,783 22,758,149
------------ ------------
FIXED ASSETS:
Property and equipment ............................................ 4,333,070 25,502,943
Less--Accumulated depreciation .................................... (2,027,197) (5,008,668)
------------ ------------
Total fixed assets .............................................. 2,305,873 20,494,275
------------ ------------
AMOUNTS DUE FROM RELATED PARTIES ................................... 2,914,615 2,891,343
------------ ------------
OTHER ASSETS:
Goodwill .......................................................... -- 17,712,145
Deposits and other ................................................ 369,191 1,009,369
Deferred income taxes ............................................. 3,406,331 1,485,380
Deferred financing costs, net ..................................... 872,568 2,675,684
------------ ------------
Total other assets .............................................. 4,648,090 22,882,578
------------ ------------
Total assets .................................................... $145,182,548 $284,986,849
============ ============
(CONTINUED)
</TABLE>
F-3
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $ 15,736,288 $ 18,136,462
Accrued expenses ................................................. 8,501,372 16,362,777
Notes payable, current maturities--
Senior .......................................................... 7,428,571 12,258,391
Revolver ........................................................ 16,697,985 86,413,959
------------ ------------
Total current liabilities ...................................... 48,364,216 133,171,589
------------ ------------
LONG-TERM LIABILITIES:
Deferred income .................................................. 890,065 962,063
Notes payable--
Senior .......................................................... 14,857,143 50,412,550
Other ........................................................... -- 2,200,000
------------ ------------
Total long-term liabilities .................................... 15,747,208 53,574,613
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none
outstanding .................................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized,
9,422,042 and 9,399,932 shares outstanding in 1996 and 1997,
respectively ................................................... 9,422 9,400
Additional paid-in capital ....................................... 71,304,446 70,660,457
Retained earnings ................................................ 9,757,256 27,570,790
------------ ------------
Total stockholders' equity ..................................... 81,071,124 98,240,647
------------ ------------
Total liabilities and stockholders' equity ..................... $145,182,548 $284,986,849
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
----------------- --------------- -----------------
<S> <C> <C> <C>
OPERATING REVENUES:
Sales of aircraft parts, net ....................... $ 108,434,709 $151,407,093 $ 243,819,616
Rentals from leases and other ...................... 5,368,174 10,536,776 13,079,138
------------- ------------ -------------
113,802,883 161,943,869 256,898,754
COST OF SALES ....................................... 71,314,263 110,358,502 180,712,495
------------- ------------ -------------
42,488,620 51,585,367 76,186,259
------------- ------------ -------------
OPERATING EXPENSES:
Operating .......................................... 8,988,894 9,319,981 14,286,220
Selling ............................................ 4,820,081 6,977,518 9,665,535
General and administrative ......................... 8,640,423 10,681,242 14,146,700
Depreciation and amortization ...................... 1,465,915 2,322,791 3,093,599
------------- ------------ -------------
23,915,313 29,301,532 41,192,054
------------- ------------ -------------
INCOME FROM OPERATIONS .............................. 18,573,307 22,283,835 34,994,205
INTEREST EXPENSE AND AMORTIZATION OF
DEFERRED FINANCING COSTS .......................... 8,287,584 5,350,020 7,431,916
------------- ------------ -------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ................................ 10,285,723 16,933,815 27,562,289
INCOME TAX (BENEFIT) EXPENSE ........................ -- (426,033) 10,781,519
------------- ------------ -------------
INCOME BEFORE EXTRAORDINARY ITEM .................... 10,285,723 17,359,848 16,780,770
EXTRAORDINARY ITEM, NET OF INCOME
TAXES ............................................. -- 1,862,140 --
------------- ------------ -------------
NET INCOME .......................................... $ 10,285,723 $ 15,497,708 $ 16,780,770
============= ============ =============
BASIC EARNINGS PER SHARE:
Income before extraordinary item ................... $ 2.22 $ 1.78
Extraordinary item, net of income taxes ............ 0.24 --
------------ -------------
Net income ......................................... $ 1.98 $ 1.78
============ =============
DILUTED EARNINGS PER SHARE:
Income before extraordinary item ................... $ 2.22 $ 1.77
Extraordinary item, net of income taxes ............ 0.24 --
------------ -------------
Net income ......................................... $ 1.98 $ 1.77
============ =============
PRO FORMA DILUTED AND BASIC EARNINGS
PER SHARE
Pro forma income before extraordinary item ......... $ 1.00 $ 1.32
Extraordinary item, net of income taxes ............ -- 0.24
------------- ------------
Pro forma net income ............................... $ 1.00 $ 1.08
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL COMMON STOCK
PARTNERS' -----------------------
CAPITAL SHARES AMOUNT
---------------- ------------ ----------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1994 ................... $ 7,078,698 859,542 $ 859
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 1,259,542 1,259
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 ................... -- 9,422,042 9,422
Impact of immaterial poolings (Note 2) ........... -- -- --
Net income ....................................... -- -- --
Stock options exercised .......................... -- 34,890 35
Gain on litigation settlement with former
employee (Note 7) ............................... -- (75,000) (75)
Issuance of common stock to employees
(Note 6) ........................................ -- 18,000 18
-------------- --------- ------
BALANCE AS OF DECEMBER 31, 1997 ................... $ -- 9,399,932 $9,400
============== ========= ======
<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, 1994 ................... $ (859) $ -- $ -- $ 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 ................... (859) 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 ................... 71,304,446 9,757,256 81,071,124 81,071,124
Impact of immaterial poolings (Note 2) ........... 582,764 1,032,764 1,615,528 1,615,528
Net income ....................................... -- 16,780,770 16,780,770 16,780,770
Stock options exercised .......................... 720,940 -- 720,975 720,975
Gain on litigation settlement with former
employee (Note 7) ............................... (2,624,925) -- (2,625,000) (2,625,000)
Issuance of common stock to employees
(Note 6) ........................................ 677,232 -- 677,250 677,250
------------ ----------- ------------ --------------
BALANCE AS OF DECEMBER 31, 1997 ................... $ 70,660,457 $27,570,790 $ 98,240,647 $ 98,240,647
============ =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
----------------
1995
----------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .............................................................................. $ 10,285,723
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization .......................................................... 2,132,522
Gain on sale of equipment on lease, net of proceeds .................................... --
Provision for doubtful accounts ........................................................ 360,000
Deferred income taxes .................................................................. --
Extraordinary item, net of income taxes ................................................ --
Issuance of common stock to employees .................................................. --
Gain on litigation settlement with former employee ..................................... --
Increase in accounts receivable, net ................................................... (7,204,803)
(Increase) decrease in inventories ..................................................... 4,330,960
(Increase) decrease in prepaid expenses ................................................ (95)
(Increase) decrease in deposits and other .............................................. (662,426)
Increase in accounts payable ........................................................... 4,270,902
Increase in accrued expenses ........................................................... 365,864
Increase in deferred income ............................................................ 103,575
--------------
Net cash provided by (used in) operating activities .................................. 13,982,222
--------------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired ......................................... (1,060,538)
Purchases of equipment .................................................................. (897,544)
Purchases of spare parts on lease ....................................................... (2,722,054)
Payments to/from related parties ........................................................ (60,059)
--------------
Net cash used in investing activities ................................................ (4,740,195)
--------------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of senior debt ................................................................ (5,000,000)
Net issuance (repayment) of senior revolving facility ................................... (2,109,400)
Distributions to partners--ASC partnership .............................................. (3,306,854)
Payment of initial public offering proceeds to original credit facility and subordinated --
debt
Payments to J/T Aviation Partners ....................................................... --
Borrowings under new credit facility .................................................... --
Payments under new credit facility ...................................................... --
Issuance of senior debt under acquisition facility ...................................... --
Payments of senior debt under acquisition facility ...................................... --
Proceeds from note to prior owners of Kratz-Wilde ....................................... --
Proceeds from equipment loan ............................................................ --
Payments on equipment loan .............................................................. --
Proceeds from initial public offering ................................................... --
Stock options exercised ................................................................. --
Payment of deferred financing costs ..................................................... (54,745)
--------------
Net cash provided by (used in) financing activities .................................. (10,470,999)
--------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... (1,228,972)
--------------
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 1,482,279
--------------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 253,307
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ........................................................................... $ 7,717,005
==============
Income taxes paid ....................................................................... $ --
==============
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .............................................................................. $ 15,497,708 $ 16,780,770
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization .......................................................... 2,938,974 4,276,863
Gain on sale of equipment on lease, net of proceeds .................................... -- 3,796,929
Provision for doubtful accounts ........................................................ 1,954,000 3,081,063
Deferred income taxes .................................................................. (5,378,741) 1,331,943
Extraordinary item, net of income taxes ................................................ 1,862,140 --
Issuance of common stock to employees .................................................. -- 677,250
Gain on litigation settlement with former employee ..................................... -- (2,625,000)
Increase in accounts receivable, net ................................................... (12,366,644) (25,528,342)
(Increase) decrease in inventories ..................................................... (18,017,715) (57,836,421)
(Increase) decrease in prepaid expenses ................................................ (4,010,369) 975,076
(Increase) decrease in deposits and other .............................................. 503,273 (21,106)
Increase in accounts payable ........................................................... 5,238,370 571,706
Increase in accrued expenses ........................................................... 3,786,258 5,629,642
Increase in deferred income ............................................................ 12,750 71,998
-------------- --------------
Net cash provided by (used in) operating activities .................................. (7,979,996) (48,817,629)
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired ......................................... (8,953,820) (39,946,846)
Purchases of equipment .................................................................. (1,111,368) (4,394,433)
Purchases of spare parts on lease ....................................................... (7,829,797) (10,528,415)
Payments to/from related parties ........................................................ 116,583 23,272
-------------- --------------
Net cash used in investing activities ................................................ (17,778,402) (54,846,422)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of senior debt ................................................................ (5,000,000) --
Net issuance (repayment) of senior revolving facility ................................... 15,763,592 --
Distributions to partners--ASC partnership .............................................. (3,041,936) --
Payment of initial public offering proceeds to original credit facility and subordinated (52,806,400) --
debt
Payments to J/T Aviation Partners ....................................................... (10,160,250) --
Borrowings under new credit facility .................................................... 16,697,985 66,270,149
Payments under new credit facility ...................................................... (2,857,143) (4,642,857)
Issuance of senior debt under acquisition facility ...................................... 6,000,000 40,000,000
Payments of senior debt under acquisition facility ...................................... (857,143) (2,000,000)
Proceeds from note to prior owners of Kratz-Wilde ....................................... -- 2,200,000
Proceeds from equipment loan ............................................................ -- 7,200,000
Payments on equipment loan .............................................................. -- (171,916)
Proceeds from initial public offering ................................................... 64,576,607 --
Stock options exercised ................................................................. -- 720,975
Payment of deferred financing costs ..................................................... (1,548,072) (2,188,698)
-------------- --------------
Net cash provided by (used in) financing activities .................................. 26,767,240 107,387,653
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... 1,008,842 3,723,602
-------------- --------------
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 253,307 1,262,149
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 1,262,149 $ 4,985,751
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ........................................................................... $ 4,884,720 $ 5,978,262
============== ==============
Income taxes paid ....................................................................... $ 3,002,431 $ 6,518,025
============== ==============
</TABLE>
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.
The Company was formed on June 26, 1996, when: (i) all but one of the
parties holding interests in the Partnership contributed their interests in the
Partnership to the Company in exchange for 2,924,000 shares of the Company's
common stock, and (ii) 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 1,501,000 shares of the Company's
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. 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)
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, 1996 and 1997, 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. Reserves for returns as
of December 31, 1996 and 1997 were $1,227,598 and $1,740,813, respectively. The
Company also warehouses and sells inventories on behalf of others under
consignment arrangements. The Company records commission revenues on the sale
of consignment inventories upon shipment of the product. The Company exchanges
rotable parts in need of service or overhaul for new, overhauled or serviceable
parts in its inventory for a fee. Fees on exchanges are recorded in revenue at
the time the product is shipped. The Company performs inventory repair
management and warehouse management services to customers on a contractual
basis. These service fees are recorded in revenue over the course of the
contract as the services are rendered. Gain on sale of equipment on lease is
included in rentals from leases and other.
INVENTORIES
Inventories, which consist primarily of aviation parts, are stated at the
lower of cost or market on primarily a specific identification basis. 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 and are expensed as the parts associated with the
re-certification are sold. The Company enters into consignment arrangements for
bulk quantities of inventory items. Costs to disassemble and warehouse bulk
items are capitalized and expensed as the consigned items are sold. As a result
of the acquisitions of Aerocell and Kratz in 1997, the Company maintains raw
materials and work in progress inventories in support of those manufacturing
and overhaul facilities. At December 31, 1996 and 1997, inventories consisted
of the following:
<TABLE>
<CAPTION>
1996 1997
-------------- ----------------
<S> <C> <C>
Finished goods ........... $72,974,397 $ 131,582,005
Work in process .......... -- 2,114,408
Raw materials ............ -- 5,617,309
----------- -------------
$72,974,397 $ 139,313,722
=========== =============
</TABLE>
EQUIPMENT ON LEASE
The Company, primarily through Aviation Sales Leasing Company, leases
engines and spare parts 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
equipment on lease is amortized, principally on a straight-line basis, to the
estimated remaining net realizable value over the lease term or the economic
life of the equipment.
F-9
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PROPERTY AND EQUIPMENT
At December 31, 1996 and 1997, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Land ................................. $ -- $ 396,810
Buildings ............................ -- 3,890,493
Machinery and equipment .............. 475,666 14,452,515
Furniture and fixtures ............... 3,857,404 6,763,125
------------ ------------
4,333,070 25,502,943
Accumulated depreciation .......... (2,027,197) (5,008,668)
------------ ------------
$ 2,305,873 $ 20,494,275
============ ============
</TABLE>
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 less estimated salvage values
over their estimated useful lives. Estimated useful lives range from 3 to 15
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, 1995, 1996 and 1997.
Depreciation expense amounted to $510,455, $746,626 and $1,777,559 for the
years ended December 31, 1995, 1996 and 1997, respectively.
INTANGIBLE ASSETS
The costs associated with obtaining financing 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, 1995, 1996 and 1997 was
$666,607, $616,183 and $385,582, respectively. During the first quarter of
1998, the Company completed the offering and sale of $165 million in senior
subordinated notes, using a portion of the proceeds to retire existing debt. In
connection with these transactions, the Company will write off the deferred
financing costs related to the term loan agreements eliminated with the
proceeds. See Note 14.
The excess of the purchase price over the fair values of the net assets
acquired from Kratz-Wilde Machine Company, Inc. in 1997 was approximately $17.9
million. This amount has been recorded as goodwill, which is being amortized on
a straight-line basis over 20 years. Amortization expense for the year ended
December 31, 1997 was $189,602.
F-10
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
------------- ---------------
<S> <C> <C>
Deferred financing costs:
Original basis ................... $1,055,184 $ 3,243,882
Accumulated amortization ......... (182,616) (568,198)
---------- -----------
$ 872,568 $ 2,675,684
========== ===========
Goodwill
Original basis ................... $ -- $17,901,747
Accumulated amortization ......... -- (189,602)
---------- -----------
$ -- $17,712,145
========== ===========
</TABLE>
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
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, 1997, the Company has two stock-based compensation plans,
which are more fully described in Note 12. 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 adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") on January 1, 1996.
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 11.
F-11
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Under SFAS 109, deferred tax assets or liabilities are computed based upon
the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability from
period to period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Future changes in such valuation
allowance would be included in the provision for deferred income taxes in the
period of change.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short maturity of the
instruments and the provision for what management believes to be adequate
reserves for potential losses. Management believes the fair value of long-term
debt approximates the carrying amount of long-term debt in the accompanying
consolidated balance sheets as substantially all of the Company's long-term
debt reprices to market based on variable interest rate terms.
YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. The
Company is currently in the early stages of purchasing and implementing a new
management information system which management believes will mitigate the Year
2000 issues currently inherent in the Company's existing systems. However, the
Company cannot measure the impact that the Year 2000 issue will have on its
vendors, suppliers, customers and other parties with which it conducts
business. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 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. Earnings per share have been restated to
comply with SFAS 128 for all periods presented. See Note 10.
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.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued by the Financial Accounting
Standards Board in June 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components in a
F-12
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
full set of financial statements. The objective of SFAS 130 is to report a
measure (comprehensive income) of all changes in equity of an enterprise that
result from transactions and other economic events in a period other than
transactions with owners. Management believes the adoption of SFAS 130 will not
have a material impact on the Company's consolidated financial statements, and
upon adoption, will disclose comprehensive income in the consolidated statement
of stockholders' equity.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued by
the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company will adopt SFAS 131
effective December 31, 1998.
NOTE 2--BUSINESS COMBINATIONS
ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING:
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 $9.0 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.
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, including acquisition costs
and net cash acquired, of approximately $39.6 million in cash and notes and the
assumption of certain liabilities of Kratz-Wilde in the approximate amount of
$2.2 million. Kratz-Wilde specializes in the manufacture of 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 and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The operations of Kratz-Wilde since the acquisition have been
included in the accompanying consolidated financial statements from the date of
acquisition. As a result of the Kratz-Wilde acquisition, the Company's
operating revenues increased approximately $6.5 million from the date of the
acquisition through December 31, 1997. In connection with the acquisition, the
Company borrowed $40.0 million of senior notes payable to financial
institutions, with the remainder of the acquisition price payable to the prior
owners over a two year period. See Note 5.
F-13
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--BUSINESS COMBINATIONS--(CONTINUED)
The Company's unaudited pro forma consolidated results of operations
assuming the Kratz-Wilde acquisition had occurred on January 1, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997
---------------- -----------
(IN $ MILLIONS EXCEPT EARNINGS
PER SHARE)
<S> <C> <C>
Revenue ...................................................... $ 186.5 $ 286.6
Income before extraordinary item ............................. 8.0 (a) 19.3
Diluted earnings per share before extraordinary item ......... $ 1.03 $ 2.03
</TABLE>
- ----------------
(a) Includes an adjustment to record pro forma income tax expense as if the
Company had been a C corporation since January 1, 1996.
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated this business as of January 1, 1996.
ACQUISITIONS ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD OF ACCOUNTING:
Shares issued to consummate acquisitions accounted for under the pooling
of interests method of accounting are reflected as outstanding for all periods
presented in the accompanying financial statements.
On December 10, 1996, the Company acquired AvEng Trading Partners, Inc.
("AvEng"), a company that was formed in 1995, 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 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 was accounted for using the pooling of interests
method of accounting, the accompanying consolidated financial statements prior
to December 31, 1996 have not been restated to give retroactive effect for the
acquisition due to the immateriality of the restated amounts.
On December 31, 1997, the Company acquired Apex Manufacturing, Inc.
("Apex") for consideration of 238,572 shares of the Company's common stock.
Although the acquisition was accounted for using the pooling of interests
method of accounting, the accompanying consolidated financial statements prior
to December 31, 1996 have not been restated to give retroactive effect for the
acquisition due to the immateriality of the restated amounts.
F-14
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--BUSINESS COMBINATIONS--(CONTINUED)
Details of the results of operations of the Company and the pooled
entities for the periods before the pooling of interest combinations were
consummated are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(IN $ MILLIONS)
<S> <C> <C>
Revenue:
The Company ............................................... $ 152.6 $ 230.3
AvEng ..................................................... 9.3 --
Aerocell and Apex ......................................... -- 26.6
-------- --------
$ 161.9 $ 256.9
======== ========
Income from continuing operations before extraordinary item:
The Company ............................................... $ 16.6 $ 13.7
AvEng ..................................................... 0.8 --
Aerocell and Apex ......................................... -- 3.1
-------- --------
$ 17.4 $ 16.8
======== ========
</TABLE>
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting (including historical
accounts of immaterial acquisitions accounted for under the pooling of
interests method of accounting) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
------------- -------------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents ................................ $ -- $ -- $ 2,970,714
Accounts receivable ...................................... -- 2,898,460 7,010,977
Inventories .............................................. (522,439) 6,000,000 8,502,904
Prepaid expenses ......................................... -- -- 19,472
Deposits and other ....................................... -- -- 619,072
Fixed assets ............................................. -- 100,000 15,571,528
Goodwill ................................................. -- -- 17,901,747
Accounts payable ......................................... 1,582,977 (44,640) (1,828,468)
Accrued expenses ......................................... -- -- (2,231,763)
Deferred income taxes .................................... -- -- (557,270)
Notes payable ............................................ -- -- (3,445,825)
Common stock issued and paid in capital received ......... -- -- (1,615,528)
---------- ---------- ------------
1,060,538 8,953,820 42,917,560
Less cash acquired ....................................... -- -- (2,970,714)
---------- ---------- ------------
Cash used in acquisitions, net of cash acquired .......... $1,060,538 $8,953,820 $ 39,946,846
========== ========== ============
</TABLE>
F-15
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995, 1996 or 1997.
NOTE 4--EQUIPMENT ON LEASE
In the normal course of business, the Company leases engines and spare
parts to third parties pursuant to noncancelable operating leases ranging from
one to ten years. The cost and accumulated amortization of equipment on lease
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Equipment on lease, at cost ......... $ 20,551,852 $ 26,384,671
Accumulated amortization ............ (2,601,069) (3,626,522)
------------ ------------
$ 17,950,783 $ 22,758,149
============ ============
</TABLE>
At December 31, 1996 and 1997, $8,464,366 and $5,417,271, respectively, of
equipment on lease was maintained in the Far East.
Deposits of $890,065 and $962,063, respectively, received from the leases
are recorded as deferred income in the accompanying December 31, 1996 and 1997
consolidated balance sheets and will be applied in connection with final
settlement of these leases.
Amortization expense amounted to $955,460, $1,576,165 and $1,924,120 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum lease receivables under the leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ---------------------------
<S> <C>
1998 ................ $ 3,989,647
1999 ................ 3,205,884
2000 ................ 2,888,948
2001 ................ 1,707,384
2002 ................ 1,398,474
Thereafter .......... 3,744,000
-----------
$16,934,337
===========
</TABLE>
F-16
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE
At December 31, 1996 and 1997, notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Amended Term Loan ................................... $ 17,142,857 $ 17,642,857
Amended Revolving Credit Facility:
Revolving loan ..................................... 16,697,985 86,413,959
Acquisition loan facility .......................... 5,142,857 38,000,000
Term loan--leased assets ............................ -- 7,028,084
Note payable to prior owners of Kratz-Wilde ......... -- 2,200,000
Less--Current maturities ............................ (24,126,556) (98,672,350)
------------- -------------
Net long-term notes payable ......................... $ 14,857,143 $ 52,612,550
============= =============
</TABLE>
Future maturities of notes payable at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDING DECEMBER 31,
-------------------------
1998 ................. $ 98,672,350
1999 ................. 13,346,159
2000 ................. 13,522,188
2001 ................. 12,414,538
2002 ................. 13,329,665
------------
$151,284,900
============
</TABLE>
Prior to July 2, 1996, the Company financed its working capital needs
primarily through, (a) a series of term loans (with $55 million in principal
outstanding at December 31, 1995) payable periodically through November 30,
2000, and (b) a $20 million revolving credit facility expiring November 30,
1999.
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 consisted of (a) a term loan facility in an original
principal amount of $20.0 million and (b) a $50.0 million revolving loan,
letter of credit and acquisition loan facility. In connection with the
repayment and restructuring of the previous bank lending agreement, the Company
wrote-off $3,052,688 of deferred financing costs (resulting in an extraordinary
item, net of income taxes of $1,862,140).
On August 22, 1997, the Company amended its Amended Credit Facility
pursuant to the terms of a Second Amended and Restated Credit Agreement, which
was, itself, amended on October 17, 1997.
On October 17, 1997, the Company amended the Second Amended Credit
Agreement pursuant to the terms of a Third Amended and Restated Credit
Agreement (the "Third Amended Credit Agreement"). 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
F-17
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE--(CONTINUED)
$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 December 31, 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
December 31, 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. On December 31,
1997, the outstanding balances under the Third Amended Term Loan and Third
Amended Revolving Credit Facility were $55.6 million (including $38.0 million
borrowed under the acquisition subfacility) and $86.4 million, respectively.
The Company entered into a subordinated loan agreement (the "Subordinated
Debt") on December 2, 1994, whereby the Partnership borrowed $7.0 million from
the partners which was payable in a single lump sum on the earlier of June 2,
2001, or six months after amounts borrowed pursuant to the credit facility have
been paid in full. Upon the earlier to occur of June 2, 2001 or the repayment
of the Subordinated Debt in full, the Company was required to pay to the
partners an additional facility fee of $350,000, provided that, if the
Subordinated Debt was prepaid in full prior to June 2, 1996, the Company would
be released from its obligation to pay such facility fee. On July 2, 1996, the
Company repaid the Subordinated Debt in full and the facility fee with a
portion of the proceeds of the initial public offering. The Subordinated Debt
bore interest at prime plus 5 percent.
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 a 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.
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. This
credit facility has since been amended, as described above.
F-18
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE--(CONTINUED)
In connection with the October 17, 1997 acquisition of Kratz-Wilde (See
Note 2), the company entered into an agreement with the prior owners to pay
$2.2 million of the acquisition price over a two year period. Payments of
$1,250,000 are due on January 1, 1999 and January 1, 2000. Interest on this
note has been imputed at 8%.
NOTE 6--RELATED-PARTY TRANSACTIONS
The Company leases its corporate headquarters and warehouse in Miami,
Florida (the "Miami Property") and a warehouse in Pearland, Texas (the
"Pearland Property") from related parties. The lease on the Miami Property
calls for annual payments in the amount of $892,990 expiring on December 2,
2014. The Company is required to make annual payments under the Pearland
Property lease in the amount of $114,468. This lease expires December 2, 2000.
The Company believes the terms of these leases are no less favorable than could
be obtained from an unaffiliated third party. As described more thoroughly in
Note 14, the Company purchased the Pearland Property on March 13, 1998 for
approximately $1.8 million.
In connection with the purchase of the Miami Property by the related
party, the Company made an unsecured $2,465,519 loan to the related party,
which bears interest at 8% per annum, with principal and interest due in a
single payment on December 2, 2004. The outstanding balance is included in
amounts due from related parties in the accompanying balance sheets. The
Company believes the terms of this loan are no less favorable than could be
obtained from an unaffiliated third party.
At December 31, 1997, as payment of bonuses, six officers of the Company
were each granted 3,000 shares of the Company's common stock. The fair value of
these shares on the date of issuance, $677,250, has been included in general
and administrative expenses in the accompanying 1997 statement of operations.
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.
The Company has certain employment agreements with officers and employees
dated December 1994, which extend from three to five years and are renewable in
one-year periods thereafter. The employment agreements provide that such
officers and employees may earn bonuses, based upon a sliding percentage scale
of their base salaries, provided the Company achieves certain financial
operating results, as defined. Further, each of the employment agreements
provides that in the event of (a) a change in control of the Company including
the vesting of decision-making authority in one of the Company's current
officers; (b) the sale of all or substantially all of the assets of the Company
to a third party for which the executive officer does not continue in
employment; or (c) the merger or consolidation of the Company with an entity
for which the executive officer does not continue in employment, the employment
agreement shall be terminable by the executive officer upon 90 days' notice and
one year's base salary shall be payable to the executive officer as a
termination fee.
At January 1, 1995, five officers and employees of the Company were
granted options (the "Options") by the partners to purchase an aggregate of
13.5% of the outstanding limited partnership
F-19
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
On November 26, 1997, the Company settled an outstanding legal claim
against a former employee and shareholder of the Company. As part of this
settlement, the employee agreed to leave the Company and transfer 75,000 shares
of the Company's common stock back to the Company, which shares the Company
immediately retired. The fair value of the shares at the date of the
settlement, approximately $2.6 million, has been reflected as a reduction of
general and administrative expense in the accompanying 1997 statement of
operations.
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 if minimum
sales targets are not met. 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, $309,000 and $296,000 to the Plan in 1995, 1996 and
1997, 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, 1995, 1996 and 1997,
rent expense under these leases amounted to $1,554,677, $1,813,113 and
$2,300,585, respectively. Minimum rental commitments under operating leases are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, TO RELATED PARTIES TO THIRD PARTIES
- --------------------------- -------------------- -----------------
<S> <C> <C>
1998 ................ $ 1,007,458 $1,466,654
1999 ................ 1,007,458 760,537
2000 ................ 997,919 461,099
2001 ................ 892,990 377,960
2002 ................ 892,990 293,522
Thereafter .......... 10,715,884 290,688
----------- ----------
$15,514,699 $3,650,460
=========== ==========
</TABLE>
F-20
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--DOMESTIC AND EXPORT SALES INFORMATION
Substantially all of the Company's operating profits and identifiable
assets are sourced from or located in the United States. Information about the
Company's domestic and export sales for the three years ended December 31, 1997
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
NET REVENUES BY GEOGRAPHICAL AREAS
United States ................... $ 68,052 $ 94,591 $179,876
Export Sales:
Europe ......................... 28,666 40,308 43,318
Far East ....................... 7,525 13,907 13,852
Latin America .................. 9,560 13,138 19,853
-------- -------- --------
$113,803 $161,944 $256,899
======== ======== ========
</TABLE>
NOTE 10--EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share" during 1997. SFAS 128 establishes standards
for computing and presenting basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding during the year. Diluted earnings per share is based
on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
of options. In computing diluted earnings per share, the Company has utilized
the treasury stock method. All prior period earnings per share data have been
restated to conform with SFAS 128.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating
basic earnings per share ............................... 6,259,542 7,811,229 9,423,195
Effect of dilutive options .............................. -- 8,608 60,902
--------- --------- ---------
Weighted average common and common equivalent shares
used in calculating diluted earnings per share ......... 6,259,542 7,819,837 9,484,097
========= ========= =========
</TABLE>
For business combinations accounted for as pooling of interests, earnings
per share computations are based on the aggregate of the weighted-average
outstanding shares of the constituent businesses, adjusted to equivalent shares
of the surviving business for all periods presented.
PRO FORMA EARNINGS PER SHARE
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 year ended December 31, 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 the years ended December 31, 1995 and 1996:
F-21
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EARNINGS PER SHARE--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Historical income before income taxes
and extraordinary item ............................ $10,285,723 $16,933,815
Pro forma provision for income taxes ............... 4,011,432 6,604,188
----------- -----------
Pro forma income before extraordinary item ......... 6,274,291 10,329,627
Extraordinary item, net of income taxes ............ -- 1,862,140
----------- -----------
Pro forma net income ............................... $ 6,274,291 $ 8,467,487
=========== ===========
</TABLE>
Pro forma basic earnings per share have been computed by dividing pro
forma net income by the weighted average number of common shares outstanding.
Pro forma diluted earnings per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise of options. 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.
NOTE 11--INCOME TAXES
The income tax (benefit) expense for the years ended December 31, 1996 and
1997 consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Current
Federal ..................................... $ 3,279,832 $ 8,480,389
State ....................................... 482,328 969,187
------------ -----------
3,762,160 9,449,576
------------ -----------
Deferred
Federal ..................................... (4,689,159) 1,195,333
State ....................................... (689,582) 136,610
------------ -----------
(5,378,741) 1,331,943
------------ -----------
Total income tax (benefit) expense ......... (1,616,581) 10,781,519
Less: benefit for income taxes relating to
extraordinary item ...................... (1,190,548) --
------------ -----------
Income tax (benefit) expense relating to
continuing operations ................... $ (426,033) $10,781,519
============ ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets as of December 31, 1996 and 1997 are as
follows:
F-22
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets, net:
Allowance for doubtful accounts ......... $1,103,384 $ 534,106
Inventories ............................. 1,144,941 1,783,222
Property and equipment .................. 3,735,079 2,215,910
Spare parts on lease .................... (198,626) (692,936)
Other ................................... 11,706 66,969
---------- ----------
5,796,484 3,907,271
Less: valuation allowance .............. (417,743) (417,743)
---------- ----------
Net deferred tax assets ................ $5,378,741 $3,489,528
========== ==========
</TABLE>
The reconciliation of the federal statutory rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
Federal income tax at the statutory rate ........................... 35.0% 35.0%
Increases (reductions) in tax rate resulting from:
Partnership income not subject to taxation ........................ (12.2) 0.0
Step-up in tax basis resulting from transfer of J/T's interest (see
Note 1) ......................................................... (21.0) 0.0
Transfer of net assets of the Partnership to the Company (see
Note 1) ......................................................... ( 7.1) 0.0
State income taxes, net of federal tax benefit .................... 4.6 4.1
Other ............................................................. ( 1.8) 0.0
----- ----
Effective income tax rate .......................................... ( 2.5)% 39.1%
===== ====
</TABLE>
NOTE 12--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. 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.
F-23
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PLANS--(CONTINUED)
A summary of activity in the Company's stock option plans through December
31, 1997 is as follows:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
-------------- -----------------
<S> <C> <C>
Outstanding at January 1, 1996 .................. -- --
Granted ........................................ 197,600 $ 19.00
-------
Outstanding at December 31, 1996 ................ 197,600 $ 19.00
Granted(a) ..................................... 208,800 $ 25.08
Exercised ...................................... (34,890) $ 20.65
Cancelled ...................................... (13,614) $ 20.84
-------
Outstanding at December 31, 1997 ................ 357,896 $ 22.32
=======
Options exercisable:
At December 31, 1996 ........................... 122,200 $ 19.00
At December 31, 1997 ........................... 224,384 $ 21.45
Available to grant at December 31, 1997 ......... 442,104
</TABLE>
- ----------------
(a) 1997 grant prices ranged from $24.07 per share to $25.86 per share.
The following table summarizes information about outstanding and
exercisable stock options at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
- -------------------------- --------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 19.00 162,325 8.5 $ 19.00 131,833 $ 19.00
$24.07 - $25.86 195,571 9.5 $ 25.07 92,551 $ 24.93
------- -------
357,896 9.0 $ 22.32 224,384 $ 21.45
======= =======
</TABLE>
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.
F-24
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PLANS--(CONTINUED)
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" whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income and earnings per share would have decreased
accordingly. Using the Black-Scholes option pricing model, the Company's pro
forma net income, pro forma earnings per share and pro forma weighted average
fair value of options granted, with related assumptions, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Pro forma net income ........................... $14,679,681 $15,286,498
Pro forma basic earnings per share ............. $ 1.88 $ 1.62
Pro forma diluted earnings per share ........... $ 1.88 $ 1.61
Risk free interest rates ....................... 6% 7%
Expected lives ................................. 7 years 7 years
Expected volatility ............................ 40% 40%
Weighted average grant date fair value ......... $ 9.80 $ 13.43
</TABLE>
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
Results have been restated for pooling transactions in the year of
acquisition. See Note 2.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ---------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1997:
Operating revenues ......................................... $ 54,853 $ 58,118 $ 67,104 $ 76,824
Income from operations ..................................... 6,087 8,475 9,207 11,225(a)
Net income ................................................. 3,048 4,251 4,484 4,998
Diluted income before extraordinary item per share ......... $ 0.32 $ 0.45 $ 0.47 $ 0.53
Diluted net income per share ............................... $ 0.32 $ 0.45 $ 0.47 $ 0.53
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 diluted income before extraordinary item
per share ................................................. $ 0.26 $ 0.30 $ 0.51 $ 0.24
Pro forma diluted net income per share ..................... $ 0.26 $ 0.30 $ 0.27 $ 0.24
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 diluted income before extraordinary item
per share ................................................. $ 0.38 $ 0.30 $ 0.18 $ 0.14
Pro forma diluted net income per share ..................... $ 0.38 $ 0.30 $ 0.18 $ 0.14
</TABLE>
- ----------------
(a) Includes gain on legal settlement with former employee and shareholder of
approximately $2.6 million.
F-25
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14-- SUBSEQUENT EVENTS
On March 9, 1998 the Company completed the acquisition of Caribe Aviation,
Inc. (Caribe) and Caribe's wholly owned subsidiary Aircraft Interior Design,
Inc. ("Aircraft"). The purchase price was approximately $25 million, consisting
of $5 million in cash, and $5 million in promissory notes payable over two
years; the issuance of 182,143 shares of the Company's authorized, but
unissued, common stock; and the repayment of approximately $7.5 million of
indebtedness owed by Caribe and Aircraft to a financial institution. The
acquisition will be accounted for using the purchase method of accounting and
accordingly, the purchase price will be allocated to the assets purchased and
the liabilities assumed based upon the fair market value at the date of
acquisition. The estimated excess of the purchase price over the fair values of
the net assets acquired is approximately $10.7 million. This amount will be
recorded as goodwill and will be amortized on a straight-line basis over 20
years. The operations of Caribe and Aircraft will be included in the Company's
consolidated financial statements from the date of acquisition. Caribe and
Aircraft had consolidated fiscal 1997 revenues of approximately $27 million.
The pre-acquisition operations of Caribe are not material to the operations of
the Company.
On February 17, 1998, the Company completed the offering and sale of $165
million in senior subordinated notes (the "Notes") due in 2008 with a coupon
rate of 8.125% at a price of 99.395%. Proceeds were used to repay debt and for
general corporate purposes, including acquisitions, working capital needs and
capital expenditures. In connection with this transaction, the Company will
write off the deferred financing costs related to term loan agreements
eliminated with the proceeds from the senior subordinated notes. The Notes are
unconditionally guaranteed, on a senior subordinated basis, by substantially
all of the Company's existing subsidiaries.
On March 13, 1998, the Company entered into an agreement to purchase its
Pearland, Texas warehouse facility from a related party (see Note 6). The total
purchase price of approximately $1.8 million was paid in cash and through the
reduction of amounts receivable from the related party at the date of the
transaction.
On March 26, 1998, the Company entered into a definitive agreement with
Whitehall Corporation, pursuant to which the two companies will merge. Under
the terms of the agreement, at the effective date of the merger, the
shareholders of Whitehall will receive 0.5143 shares of Aviation Sales common
stock for each share of Whitehall stock outstanding on such date. Based on the
approximately 6.0 million Whitehall shares outstanding, Aviation Sales will
issue approximately 3.1 million shares of Aviation Sales' common stock to
Whitehall's stockholders in the merger transaction. Based upon the closing
price of Aviation Sales' common stock on March 25, 1998, the value of the
transaction is approximately $142 million, which includes the assumption of
approximately $9.4 million of Whitehall's outstanding indebtedness. The
transaction, which will be accounted for as a pooling of interest, is expected
to close at the end of the second quarter of 1998. Whitehall had fiscal 1997
revenues of approximately $65.8 million.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Whitehall Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Whitehall
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the three years in the period ended December 31,
1997. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 Whitehall Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 25, 1998
F-27
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........... $ 1,251,000 $ 2,656,000
Accounts receivable, net ............ 16,234,000 18,461,000
Income taxes receivable ............. 2,590,000 458,000
Inventories ......................... 6,029,000 6,440,000
Prepaid expenses and other .......... 636,000 656,000
Current deferred income tax ......... 1,053,000 --
Notes receivable .................... 516,000 --
----------- -----------
TOTAL CURRENT ASSETS .............. 28,309,000 28,671,000
INVESTMENTS .......................... -- 4,611,000
PROPERTY, PLANT AND EQUIPMENT:
Land ................................ 910,000 399,000
Buildings ........................... 4,880,000 1,293,000
Machinery and equipment ............. 13,718,000 11,790,000
Leasehold improvements .............. 10,259,000 8,710,000
----------- -----------
29,767,000 22,192,000
Accumulated depreciation ............ 12,200,000 12,538,000
----------- -----------
17,567,000 9,654,000
NOTES RECEIVABLE ..................... 2,723,000 2,000,000
----------- -----------
TOTAL ASSETS ....................... $48,599,000 $44,936,000
=========== ===========
(CONTINUED)
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-28
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ......................... $ 6,618,000 $ 6,239,000
Bank line of credit .............................................. 9,713,000 2,550,000
Current portion of long term debt ................................ 283,000 280,000
Current portion of obligations under capital lease ............... 84,000 --
Accrued environmental costs ...................................... 3,954,000 379,000
------------- -------------
TOTAL CURRENT LIABILITIES ...................................... 20,652,000 9,448,000
LONG-TERM DEBT, net of current portion ............................ 263,000 546,000
OBLIGATIONS UNDER CAPITAL LEASES .................................. 4,174,000 --
OTHER NON-CURRENT LIABILITIES ..................................... 471,000 117,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5.00 par value: authorized 500,000 shares--none
issued ......................................................... -- --
Common stock, $.10 par value: authorized 20,000,000 shares, issued
7,691,312 and 7,666,712 at December 31, 1997 and 1996 .......... 770,000 767,000
Additional paid-in capital ....................................... 1,914,000 1,766,000
Retained earnings ................................................ 36,500,000 48,437,000
------------- -------------
39,184,000 50,970,000
Less--treasury stock (2,161,312 shares at December 31, 1997 and
1996), at cost ................................................. (16,145,000) (16,145,000)
------------- -------------
23,039,000 34,825,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 48,599,000 $ 44,936,000
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-29
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales:
Services ................................................ $ 65,119,000 $ 65,340,000 $ 42,641,000
Products ................................................ 672,000 4,830,000 13,588,000
------------- ------------ ------------
65,791,000 70,170,000 56,229,000
Cost of sales:
Services ................................................ 63,786,000 56,033,000 37,510,000
Products ................................................ 411,000 3,776,000 10,875,000
------------- ------------ ------------
64,197,000 59,809,000 48,385,000
GROSS PROFIT ............................................ 1,594,000 10,361,000 7,844,000
Selling, engineering and administrative expenses ......... 11,590,000 4,656,000 4,969,000
------------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS ........................... (9,996,000) 5,705,000 2,875,000
Other income (expense), net .............................. (5,551,000) 818,000 963,000
------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ....................... (15,547,000) 6,523,000 3,838,000
Provision for (benefit from) income taxes ................ (3,610,000) 2,206,000 889,000
------------- ------------ ------------
NET INCOME (LOSS) ....................................... $ (11,937,000) $ 4,317,000 $ 2,949,000
============= ============ ============
NET INCOME (LOSS) PER SHARE
Basic ................................................... $ (2.16) $ 0.79 $ 0.54
============= ============ ============
Diluted ................................................. $ (2.16) $ 0.75 $ 0.52
============= ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................................... 5,518,000 5,481,000 5,426,000
Diluted ................................................. 5,518,000 5,735,000 5,642,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .......... -- $-- 3,786,956 $379,000
Exercise of stock options .......... -- -- 13,600 1,000
Net income ......................... -- -- -- --
-- --- --------- --------
Balance, December 31, 1995 .......... -- -- 3,800,556 380,000
Exercise of stock options (adjusted
for stock split) .................. -- -- 65,600 7,000
2 for 1 stock split effected in the
form of a 100% stock dividend ..... -- -- 3,800,556 380,000
Net income ......................... -- -- -- --
-- --- --------- --------
Balance, December 31, 1996 .......... -- -- 7,666,712 767,000
Exercise of stock options .......... -- -- 24,600 3,000
Net loss ........................... -- -- -- --
-- --- --------- --------
Balance, December 31, 1997 .......... -- $-- 7,691,312 $770,000
== === ========= ========
<CAPTION>
ADDITIONAL TREASURY STOCK
PAID-IN RETAINED ---------------------------------
CAPITAL EARNINGS SHARES AMOUNT
------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .......... $1,200,000 $ 41,555,000 (1,080,656) $ (16,145,000)
Exercise of stock options .......... 160,000 -- -- --
Net income ......................... -- 2,949,000 -- --
---------- -------------- ---------- -------------
Balance, December 31, 1995 .......... 1,360,000 44,504,000 (1,080,656) (16,145,000)
Exercise of stock options (adjusted
for stock split) .................. 406,000 -- -- --
2 for 1 stock split effected in the
form of a 100% stock dividend ..... -- (384,000) (1,080,656) --
Net income ......................... -- 4,317,000 -- --
---------- -------------- ---------- -------------
Balance, December 31, 1996 .......... 1,766,000 48,437,000 (2,161,312) (16,145,000)
Exercise of stock options .......... 148,000 -- -- --
Net loss ........................... -- (11,937,000) -- --
---------- -------------- ---------- -------------
Balance, December 31, 1997 .......... $1,914,000 $ 36,500,000 (2,161,312) $ (16,145,000)
========== ============== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................... $ (11,937,000)
Adjustments to reconcile net income (loss) to cash used in operating activities--
Depreciation and amortization ..................................................... 1,342,000
Gain on sale of fixed assets ...................................................... --
Writeoff of preferred stock of Hydroscience Technologies, Inc. .................... 4,500,000
Investment (income) loss .......................................................... 111,000
Changes in operating assets and liabilities (excluding disposition and net of
acquisition)--
Accounts receivable, net ........................................................ 1,822,000
Income taxes receivable ......................................................... (2,132,000)
Federal income tax liability .................................................... --
Deferred income taxes ........................................................... (1,053,000)
Inventories ..................................................................... (686,000)
Prepaid expenses and other ...................................................... (13,000)
Accounts payable and accrued liabilities ........................................ 4,000
Environmental reserve ........................................................... 3,175,000
Other liabilities ............................................................... 322,000
-------------
Total adjustments .............................................................. 7,392,000
-------------
CASH USED IN OPERATING ACTIVITIES .............................................. (4,545,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in acquisition ........................................................... (1,500,000)
Capital expenditures ............................................................... (3,739,000)
Notes receivable ................................................................... (375,000)
Proceeds from sale of fixed assets ................................................. --
Proceeds from sale of segment ...................................................... 1,720,000
-------------
CASH USED IN INVESTING ACTIVITIES .............................................. (3,894,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit ..................................................... 7,163,000
Net change in long term debt ....................................................... (280,000)
Issuance of common stock from exercise of stock options ............................ 151,000
-------------
CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 7,034,000
-------------
Net decrease in cash and cash equivalents ........................................... (1,405,000)
Cash and cash equivalents at beginning of period .................................... 2,656,000
-------------
Cash and cash equivalents at end of period .......................................... $ 1,251,000
=============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Income taxes ....................................................................... $ 143,000
Interest ........................................................................... 677,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Promissory notes received for sale of Electronics segment .......................... $ 864,000
Disposition of Ocean Systems segment inventory and fixed assets in exchange
for Hydroscience Technologies, Inc. preferred stock:
Inventory ......................................................................... $ --
Fixed assets, net ................................................................. --
Investment in Hydroscience Technologies, Inc. preferred stock ..................... --
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................... $ 4,317,000 $ 2,949,000
Adjustments to reconcile net income (loss) to cash used in operating activities--
Depreciation and amortization ..................................................... 1,096,000 1,097,000
Gain on sale of fixed assets ...................................................... (11,000) (650,000)
Writeoff of preferred stock of Hydroscience Technologies, Inc. .................... -- --
Investment (income) loss .......................................................... (440,000) 329,000
Changes in operating assets and liabilities (excluding disposition and net of
acquisition)--
Accounts receivable, net ........................................................ (1,064,000) (10,409,000)
Income taxes receivable ......................................................... (458,000) --
Federal income tax liability .................................................... (1,186,000) 1,186,000
Deferred income taxes ........................................................... -- (390,000)
Inventories ..................................................................... (3,246,000) (833,000)
Prepaid expenses and other ...................................................... 70,000 (144,000)
Accounts payable and accrued liabilities ........................................ (2,619,000) 5,006,000
Environmental reserve ........................................................... (246,000) --
Other liabilities ............................................................... (297,000) 57,000
------------ --------------
Total adjustments .............................................................. (8,401,000) (4,751,000)
------------ --------------
CASH USED IN OPERATING ACTIVITIES .............................................. (4,084,000) (1,802,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in acquisition ........................................................... -- --
Capital expenditures ............................................................... (4,438,000) (1,668,000)
Notes receivable ................................................................... -- 500,000
Proceeds from sale of fixed assets ................................................. 11,000 735,000
Proceeds from sale of segment ...................................................... -- --
------------ --------------
CASH USED IN INVESTING ACTIVITIES .............................................. (4,427,000) (433,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit ..................................................... 2,550,000 --
Net change in long term debt ....................................................... 826,000 --
Issuance of common stock from exercise of stock options ............................ 409,000 161,000
------------ --------------
CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 3,785,000 161,000
------------ --------------
Net decrease in cash and cash equivalents ........................................... (4,726,000) (2,074,000)
Cash and cash equivalents at beginning of period .................................... 7,382,000 9,456,000
------------ --------------
Cash and cash equivalents at end of period .......................................... $ 2,656,000 $ 7,382,000
============ ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Income taxes ....................................................................... $ 3,720,000 $ --
Interest ........................................................................... 61,000 --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Promissory notes received for sale of Electronics segment .......................... $ -- $ --
Disposition of Ocean Systems segment inventory and fixed assets in exchange
for Hydroscience Technologies, Inc. preferred stock:
Inventory ......................................................................... $ 3,943,000 $ --
Fixed assets, net ................................................................. 557,000 --
Investment in Hydroscience Technologies, Inc. preferred stock ..................... (4,500,000) --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ACCOUNTING POLICIES AND PRACTICES
CONSOLIDATION: The consolidated financial statements of Whitehall
Corporation and subsidiaries (the "Company") include the accounts of all
subsidiaries after elimination of intercompany accounts and transactions.
USE OF ESTIMATES: Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amount 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.
RECLASSIFICATIONS: Certain reclassifications have been made to 1996 and
1995 amounts to conform with the 1997 presentation.
LONG-TERM CONTRACTS: Revenue on long-term contracts in 1996 and 1995 is
recognized using the percentage of completion or unit of delivery method. On
contracts where the percentage of completion method is applied, revenue is
accrued in the proportion that costs incurred bear to management's estimate of
total contract costs. Any known or anticipated losses are provided for
currently.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Company places its
temporary cash investments with creditworthy financial institutions and, thus,
limits the amount of credit exposure to any one entity. The Company's customer
base is comprised primarily of U.S. airlines and air transport companies.
CASH EQUIVALENTS: Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.
INVENTORIES: Inventories are carried at average cost, not in excess of
market.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost. Provisions for depreciation and amortization have been computed generally
using the straight-line method over the estimated useful lives of the assets.
LONG-LIVED ASSETS: The Company periodically reviews its long-lived assets
for impairment. If this review indicates that the carrying amount of an asset
may not be recovered through future operations or sale, the carrying value of
the asset will be reduced to its fair value. In 1997, the Company recorded an
impairment loss on its investment in preferred stock (see Note D).
RESEARCH AND DEVELOPMENT: Research and development costs are included in
selling, engineering and administrative expenses and amounted to approximately
$41,000 in 1996, and $45,000 in 1995. There were no research and development
costs incurred in 1997.
FEDERAL INCOME TAXES: The Company accounts for income taxes using an asset
and liability approach for financial accounting and income tax reporting.
Deferred tax liabilities and assets are recognized for the estimated future tax
effects attributable to temporary differences and carryforwards and are
adjusted whenever tax rates or other provisions of income tax statutes change.
The Company and all subsidiaries file a consolidated Federal income tax
return. Deferred federal income taxes have been provided for temporary
differences between tax and financial reporting resulting primarily from
depreciation provisions, allowances and expense accruals.
F-33
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--ACCOUNTING POLICIES AND PRACTICES--(CONTINUED)
EARNINGS (LOSS) PER SHARE: Effective January 1, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 simplifies the computation of earnings per share (EPS) by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS is calculated by dividing the income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the period. Options and other potentially dilutive securities are excluded from
the calculation of basis EPS. Diluted EPS includes options and other
potentially dilutive securities that are excluded from basic EPS to the extent
that these securities are not anti-dilutive. Options were not included in the
1997 computation of diluted EPS because they are anti-dilutive.
The following is a reconciliation between basic and diluted EPS for the
years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------- ----------------------------- ----------------------------
LOSS SHARES INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
----------------- --------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS .................. $ (11,937,000) 5,518,000 $4,317,000 5,481,000 $2,949,000 5,426,000
Effect of
dilutive options ......... -- -- -- 254,000 -- 216,000
------------- --------- ---------- --------- ---------- ---------
Diluted EPS ................ $ (11,937,000) 5,518,000 $4,317,000 5,735,000 $2,949,000 5,642,000
============= ========= ========== ========= ========== =========
</TABLE>
In accordance with SFAS No. 128, the earnings (loss) per share for all
prior periods have been restated.
JOINT VENTURE INVESTMENT: SEE NOTE D.
TREASURY SHARES: During 1991, the Board of Directors authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. An
additional authorization of 500,000 shares was made by the Board of Directors
in March 1993. As of December 31, 1997, a total of 1,257,800 shares have been
purchased under these authorizations. The Company did not acquire any treasury
stock during 1995, 1996 or 1997.
ENVIRONMENTAL COSTS: Environmental expenditures that relate to current
operations are expensed. Remediation costs that relate to existing conditions
caused by past operations are accrued when it is probable that these costs will
be incurred and can be reasonably estimated. Environmental costs are included
in selling, engineering and administrative expenses in the accompanying
consolidated statements of operations.
OTHER INCOME (EXPENSE): Other expense for 1997 includes the $4.5 million
writedown of the Company's investment in the preferred stock of Hydroscience
Technologies, Inc. Other income, net in 1996 and 1995 includes interest earned
of $307,000 and $671,000, respectively, and gains on sales of fixed assets of
$11,000 and $650,000, respectively.
EMPLOYEE BENEFITS: The Company offers no significant post-employment or
post-retirement benefits.
NEW ACCOUNTING PRONOUNCEMENTS: During 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 129, "Disclosure of Information About
Capital Structure," which establishes standards
F-34
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--ACCOUNTING POLICIES AND PRACTICES--(CONTINUED)
for disclosing certain information about an entity's capital structure. The
statement is effective for years ending after December 15, 1997, and its
adoption did not have any impact on the Company's financial statements.
During 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a company's
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. This Statement does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in
that financial statement. This statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
periods beginning after December 15, 1997.
During 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement is effective for financial
statements for periods beginning after December 15, 1997. As the Company is
operating in only one segment as of December 31, 1997, and plans to focus
solely on the aircraft maintenance industry, this statement is not expected to
have an impact on the Company's financial statements.
NOTE B--ACCOUNTS RECEIVABLE, NET
Accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Commercial accounts:
Accrued sales not billed .............................. $ 5,574,000 $ 6,578,000
Billed ................................................ 10,842,000 10,916,000
----------- -----------
16,416,000 17,494,000
Receivables from foreign governments ................... 14,000 206,000
Receivables from United States Government, net ......... 2,750,000 184,000
----------- -----------
2,764,000 390,000
Advances to joint venture (see Note D) ................. 901,000 1,095,000
Less--allowance for doubtful accounts .................. 3,847,000 518,000
----------- -----------
$16,234,000 $18,461,000
=========== ===========
</TABLE>
Accrued sales not billed will be billed on the basis of contract terms and
deliveries. All accrued amounts at December 31, 1997, are expected to be billed
and collected in 1998.
In April 1997, the Company was awarded the United States Air Force C-130
maintenance contract, which was subsequently canceled in June 1997 at the
convenience of the government, based on no fault
F-35
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--ACCOUNTS RECEIVABLE, NET--(CONTINUED)
or issue with the Company. The C-130 contract provides for reimbursement by the
United States Air Force of costs incurred during its operation, and the Company
has recorded a $2.8 million net receivable from the government for these costs,
which is the Company's best estimate of the amount it will collect for the
claim it has made. The Company is currently negotiating a termination
settlement with the government.
NOTE C--INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Finished goods .......... $ -- $1,175,000
Work in process ......... -- 5,000
Raw materials ........... 6,029,000 5,260,000
---------- ----------
$6,029,000 $6,440,000
========== ==========
</TABLE>
Costs included in inventories include raw materials and related labor and
overhead costs.
NOTE D--INVESTMENTS
In November 1996, the Company sold substantially all of the assets related
to its Ocean Systems segment to Hydroscience Technologies, Inc. ("HTI") in
exchange for 818,182 shares of HTI Preferred Stock, which carries a liquidation
preference of $5.50 per share. At the Company's election, the HTI Preferred
Stock is convertible after December 31, 1997, into 45% of HTI's Common Stock.
(See Note P for pro forma information related to this transaction.) Although
the purchaser of Ocean Systems provided additional capital and new management,
the continuing decline in defense spending and other concerns caused management
to reevaluate this preferred stock in 1997. Management has concluded that the
value of its investment has declined permanently. The entire amount was written
off in 1997.
During 1994, the Company obtained 40% ownership of a joint venture
involved in the development of aircraft-related technology for an initial
investment of $1,000. The Company accounts for its investment in the joint
venture under the equity method. In 1994, the Company obtained a promissory
note for an advance of $2,000,000 to the joint venture. The principal balance
of the promissory note accrues interest at a maximum rate of 5% per annum and
the principal balance with accrued interest is due January 5, 1999. The note is
secured by certain assets of the joint venture. During 1997 and 1996, the
Company advanced an additional $815,000 and $75,000 to the joint venture. These
advances are included in accounts receivable.
F-36
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--INVESTMENTS--(CONTINUED)
Summarized balance sheet information for the joint venture as of December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Current assets .................. $14,358,000 $6,578,000
Noncurrent assets ............... 2,782,000 3,818,000
Current liabilities ............. 12,489,000 5,176,000
Noncurrent liabilities .......... 2,000,000 2,000,000
</TABLE>
Summarized financial information for the joint venture for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales .................. $17,810,000 $11,520,000 $5,244,000
Gross profit ............... 3,578,000 4,104,000 1,501,000
Net income (loss) .......... (569,000) 1,044,000 (710,000)
</TABLE>
NOTE E--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accounts payable .......................... $5,617,000 $5,403,000
Salaries, wages and payroll taxes ......... 1,001,000 836,000
---------- ----------
$6,618,000 $6,239,000
========== ==========
</TABLE>
NOTE F--LONG-TERM DEBT
The Company entered into a long-term note and a credit facility during
1996 with a bank. The credit facility consists of a $12,000,000 line of credit
agreement and a $3,000,000 standby letter of credit agreement. Advances under
the line of credit agreement accrue interest at the prime interest rate (8.5%
at December 31, 1997). The Company also pays an annual commitment fee of 1/4 of
1 % on the unused portion of the line of credit. At December 31, 1997, the
unused and available portion of the line of credit was $2,287,000. The line of
credit expires on June 30, 1998. Management is confident that this line will be
renewed or comparable financing can be obtained at June 30, 1998, for at least
another one-year period.
The credit facility is unsecured and contains certain financial covenants
related to working capital, consolidated net income and consolidated tangible
net worth, among other restrictions. The Company was in violation of certain
covenants as of December 31, 1997; however, these covenants have been waived by
the bank.
F-37
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LONG-TERM DEBT--(CONTINUED)
The long-term note consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note payable with interest at 7.98%, payable in monthly
installments of $23,611 principal plus interest (7.98%) on the
outstanding balance to maturity in November 1999, at which
time the remaining principal balance is due, secured by
property valued at $850,000................................... $546,000 $826,000
Less: amounts payable within one year ......................... 283,000 280,000
-------- --------
$263,000 $546,000
======== ========
</TABLE>
This debt was incurred to finance the acquisition of certain fixed assets.
The total future debt principal payments are $283,000 in 1998, $263,000 in
1999, and zero thereafter.
A $1,700,000 standby letter of credit was issued, pursuant to the standby
letter of credit agreement, in order to comply with the annual financial
assurances required by the Florida Department of Environmental Protection and
related to the environmental remediation being performed at the Company's Lake
City, Florida facility (see Note O). The standby letter of credit agreement has
an annual commitment fee of 1% of the amount of the letter of credit.
NOTE G--SHAREHOLDERS' EQUITY
On January 29, 1997, the Board of Directors declared a 2 for 1 stock split
to be effected in the form of a 100% stock dividend to shareholders of record
at the close of business March 25, 1997. The dividend resulted in $384,000
being transferred from retained earnings to common stock. This amount
represents the par value of the new stock. All share and per share amounts have
been adjusted to recognize this dividend.
On March 17, 1997, the shareholders approved an amendment to the Company's
Restated Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 5,000,000 shares to 20,000,000 shares.
NOTE H--INCOME TAXES
Federal and state income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------- -------------------------- ------------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
---------------- ---------------- ------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Federal ......... $ (2,016,000) $ (1,053,000) $2,086,000 $-- $1,279,000 $(390,000)
State ........... (541,000) -- 120,000 -- -- --
------------ ------------ ---------- --- ---------- ---------
$ (2,557,000) $ (1,053,000) $2,206,000 $-- $1,279,000 $(390,000)
============ ============ ========== === ========== =========
</TABLE>
F-38
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--INCOME TAXES--(CONTINUED)
The provision (benefit) for income taxes differs from the amount computed
by applying the federal income tax rate to income before income taxes. The
following table summarizes the reasons for this difference:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
---------------- ------------- -------------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate ......... $ (5,286,000) $2,217,000 $1,315,000
State taxes (benefit) .................................... (541,000) 120,000 --
Alternative minimum tax .................................. -- -- (12,000)
Change in deferred tax allowance ......................... 2,425,000 (158,000) (515,000)
Other items--net ......................................... (208,000) 27,000 101,000
------------ ---------- ----------
$ (3,610,000) $2,206,000 $ 889,000
============ ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ------------
<S> <C> <C>
Deferred tax assets:
Short-term--
Expense accruals not deducted for tax purposes ......... $ 2,166,000 $ 520,000
------------ ----------
Total short-term ..................................... 2,166,000 520,000
Long-term--
Writedown of investment .............................. 1,800,000 --
Other ................................................ 68,000 37,000
------------ ----------
Total deferred tax assets ............................ 4,034,000 557,000
Less--Valuation allowance .............................. (2,609,000) (184,000)
------------ ----------
Net deferred tax asset ............................... 1,425,000 373,000
Deferred tax liabilities--
Short-term--
Costs deducted for tax purposes ....................... -- 24,000
Long-term--
Difference for depreciation of property,
plant, and equipment ................................ 372,000 349,000
------------ ----------
Total deferred tax liability ......................... 372,000 373,000
------------ ----------
Net deferred tax asset .................................. $ 1,053,000 $ --
============ ==========
</TABLE>
The Company has established a valuation allowance to offset the deferred
tax assets that have resulted from items that will only be deductible when such
items are actually incurred. The valuation allowance will be maintained until
it is more likely than not that these deferred tax assets will be realized.
F-39
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTION PLANS
In May 1992, the stockholders approved the Whitehall Corporation Incentive
Stock Option Plan ("Incentive Plan") and the Whitehall Corporation Non-Employee
Directors Stock Option Plan ("Directors Plan"). The Incentive Plan provides for
the grant of incentive stock options for up to 650,000 shares of Common Stock
to key employees. The Directors Plan provides for the grant of incentive stock
options for up to 130,000 shares of Common Stock to non-employee Directors of
the Company. Under the Plans, the exercise price for stock options will not be
less than the fair market value of the optioned stock at the date of grant.
Stock options expire ten years from the date of grant and generally vest over a
five-year period with one-fifth of the shares becoming exercisable on each of
the five anniversaries of the date of grant. As December 31, 1997, 1996, and
1995 there were 347,100, 218,600, and 196,200 options exercisable,
respectively. The option period under both Plans may not be more than ten years
from the date the option is granted.
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES
------------
<S> <C>
Options outstanding, December 31, 1994 .......... 444,000
Granted ($14.13 per share) ..................... 20,000
Canceled ....................................... --
Exercised ($5.63-$7.75 per share) .............. (27,200)
-------
Options outstanding, December 31, 1995 .......... 436,800
Granted ($17.75-$19.53 per share) .............. 130,000
Canceled ....................................... --
Exercised ($5.81-$7.75 per share) .............. (65,600)
-------
Options outstanding, December 31, 1996 .......... 501,200
Granted ($16.375 per share) .................... 40,000
Canceled ($7.75-$17.75 per share) .............. (16,600)
Exercised ($5.81-$7.75 per share) .............. (24,600)
-------
Options outstanding, December 31, 1997 .......... 500,000
=======
</TABLE>
F-40
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTION PLANS--(CONTINUED)
The Company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation cost
has been recognized for stock option awards. In 1996, the Company adopted SFAS
No. 123, which requires that options be priced using the fair value method, and
has elected the disclosure only alternative. The fair value of each stock
option grant is estimated on the date of grant using the Black-Scholes option
pricing model. Using the fair value method to determine compensation costs, the
Company's pro forma net income and net income per share would be:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Net income: As Reported .................... $(11,937,000) $4,317,000 $2,949,000
Pro Forma ................................ (11,940,000) 3,355,000 2,829,000
Net income per share: As Reported .......... $ (2.16) $ 0.75 $ 0.52
Pro Forma ................................ (2.16) 0.59 0.50
The following assumptions were used:
Risk free interest rate .................... 5.86% 7.03% 7.24%
Expected dividend yield .................... -- -- --
Expected life of options ................... 10 years 10 years 10 years
Expected volatility ........................ 37.44% 38.19% 38.33%
</TABLE>
The weighted average fair value of the stock options granted during 1997,
1996 and 1995 was $9.91, $11.22 and $9.11, respectively. The weighted average
exercise prices of the stock options outstanding and exercisable in 1997, 1996,
and 1995 are:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Outstanding at beginning of the year .......... $ 10.12 $ 6.80 $ 6.38
Granted ...................................... 16.38 18.30 14.13
Exercised .................................... 6.10 6.24 5.90
Canceled ..................................... 16.79 -- --
Outstanding at end of year .................... 10.26 10.12 6.80
Exercisable at end of year .................... $ 7.95 $ 6.67 $ 6.47
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
NOTE J--SAVINGS PLAN
The Company implemented a voluntary 401(k) savings plan for eligible
employees (as defined by the Plan document) effective September 1, 1992. The
Company contributed $50 per enrolling employee in 1995. The Company contributes
50% of employee contributions up to 1.5% of the employee's base salary. The
Company may make future matching contributions at its discretion. Company
contributions totaled approximately $86,000 in 1997, $40,000 in 1996, and
$25,000 in 1995. The Company's contributions vest over a six-year period.
F-41
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K--ACQUISITION
In July 1997, the Company acquired an aircraft maintenance company in
Macon, Georgia for approximately $6.7 million in cash and assumed liabilities.
This acquisition involved the purchase of inventories, equipment, and certain
intangible assets. This acquisition was accounted for using the purchase method
of accounting. Accordingly, operations of the acquired business are included in
the accompanying consolidated financial statements for the period subsequent to
the effective date of the acquisition. See Note P for pro forma information for
this acquisition as if it had occurred at the beginning of the fiscal year.
The preliminary estimated fair values assigned to assets acquired and
liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Assets acquired ............. $ 6,700,000
Liabilities assumed ......... (5,200,000)
------------
Cash purchase price ......... $ 1,500,000
============
</TABLE>
NOTE L--SALE OF ELECTRONICS SEGMENT
In March 1997, the Company entered into an agreement to sell its
Electronics segment to a group of private investors for approximately $2.7
million. The purchase consideration consists of approximately $1.9 million in
cash and $864,000 in promissory notes bearing interest at a rate of 10% per
annum. See Note P for pro forma information related to this transaction.
NOTE M--LEASES
In 1997, the Company assumed capital leases for land and buildings in the
acquisition of the aircraft maintenance facility in Macon, Georgia. Both leases
carry an interest rate of 8.25% and expire in 2018. There were no capital
leases in 1996. The following leased property included in the accompanying
balance sheets is under capital leases:
<TABLE>
<S> <C>
Land .............................................. $ 588,000
Buildings ......................................... 3,702,000
----------
Total leased property under capital lease ......... 4,290,000
Less: Accumulated depreciation .................... (89,000)
----------
$4,201,000
==========
</TABLE>
F-42
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE M--LEASES--(CONTINUED)
The aggregate future minimum rental commitments as of December 31, 1997,
for all noncancellable operating leases and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES TOTAL
---------------- ------------------ ---------------
<S> <C> <C> <C>
1998 ................................ $ 432,000 $ 58,000 $ 490,000
1999 ................................ 432,000 58,000 490,000
2000 ................................ 432,000 42,000 474,000
2001 ................................ 432,000 26,000 458,000
2002 and thereafter ................. 7,092,000 539,000 7,631,000
------------ -------- ------------
8,820,000 723,000 9,543,000
Amount related to interest .......... (4,562,000) -- (4,562,000)
------------ -------- ------------
Total lease obligation .............. $ 4,258,000 $723,000 $ 4,981,000
============ ======== ============
</TABLE>
Total rental expense amounted to approximately $281,000 in 1997, $305,000
in 1996, and $105,000 in 1995.
NOTE N--INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
The Company operated in two segments during 1997: Aircraft Maintenance and
Electronics. The Aircraft Maintenance segment rebuilds, modifies and maintains
turboprop and jet aircraft. The Electronics segment manufactures and
distributes quartz crystals and oscillators.
Operating profit represents total revenue less operating expenses,
excluding general corporate expenses and interest expense. Identifiable assets
are those assets used in each segment. Corporate assets are principally cash,
prepaid items and capital assets.
F-43
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--INDUSTRY SEGMENTS AND MAJOR CUSTOMERS--(CONTINUED)
Information about the Company's operations in the different segments is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Aircraft Maintenance .......................... $ 65,119 $65,340 $ 42,641
Electronics ................................... 672 2,884 3,640
Ocean Systems ................................. -- 1,946 9,948
-------- ------- --------
$ 65,791 $70,170 $ 56,229
======== ======= ========
Operating profit and income (loss) before taxes:
Aircraft Maintenance .......................... $ (9,764) $ 7,026 $ 3,430
Electronics ................................... (6) 557 796
Ocean Systems ................................. -- (789) 419
---------- ------- --------
(9,770) 6,794 4,645
Corporate:
Writedown of investment ....................... (4,500) -- --
Interest income ............................... 112 307 671
Investment income (loss) ...................... (111) 440 --
Gain (loss) on sale of assets ................. (314) 11 650
General and administrative expenses ........... (337) (968) (2,128)
Interest expense .............................. (627) (61) --
---------- ------- --------
Income (loss) before taxes$ ................... $(15,547) $ 6,523 $ 3,838
========== ======= ========
Identifiable assets:
Aircraft Maintenance .......................... $ 38,803 $32,507 $ 24,078
Electronics ................................... -- 2,216 2,627
Ocean Systems ................................. -- -- 6,518
Corporate ..................................... 9,796 10,213 7,959
---------- ------- --------
$ 48,599 $44,936 $ 41,182
========== ======= ========
Depreciation and amortization:
Aircraft Maintenance .......................... $ 1,179 $ 776 $ 813
Electronics ................................... -- 50 27
Ocean Systems ................................. -- 193 219
Corporate ..................................... 163 77 38
---------- ------- --------
$ 1,342 $ 1,096 $ 1,097
========== ======= ========
Capital expenditures:
Aircraft Maintenance .......................... $ 3,679 $ 3,395 $ 1,441
Electronics ................................... -- 100 46
Ocean Systems ................................. -- 5 181
Corporate ..................................... 60 938 --
---------- ------- --------
$ 3,739 $ 4,438 $ 1,668
========== ======= ========
</TABLE>
F-44
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--INDUSTRY SEGMENTS AND MAJOR CUSTOMERS--(CONTINUED)
The Company has three customers in the Aircraft Maintenance segment that
account for 23%, 16%, and 10% of 1997 consolidated net sales. The Company has
three customers in the Aircraft Maintenance segment that account for 26%, 15%,
and 14% of 1996 consolidated net sales. The Company has two customers in the
Aircraft Maintenance segment that accounted for 30% and 21% of 1995
consolidated net sales. The United States government accounted for
approximately 5% of consolidated net sales in 1997, and 2% of consolidated net
sales in 1995. The Company made no sales to the United States government in
1996.
NOTE O--COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company's operations, like those of other companies engaged in similar
businesses, are subject to extensive and evolving federal, state, and local
environmental laws and regulations. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations, and prior experience in remediation of
contaminated sites. As assessments and remediation progress at individual
sites, these liabilities are reviewed and adjusted to reflect the additional
technical and legal information as it becomes available. In order to comply
with present federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, the Company will be
required to fund remediation efforts, which could result in potentially
substantial operating costs and capital expenditures.
The Company is taking remedial action pursuant to Environmental Protection
Agency ("EPA") regulations at the Lake City, Florida facility. Ongoing testing
is being performed and new information is being gathered to continually assess
the impact and magnitude of the required remediation efforts on the Company.
Based upon the most recent cost estimates provided by environmental
consultants, the Company believes that the total remaining remediation and
compliance costs for this facility will be approximately $2.4 million, which
has been accrued at December 31, 1997.
Additionally, there are other areas on the Lake City property that could
also require remediation. The Company believes it is not responsible for these
areas; however, it may be required to take part in the remediation process to
continue its operations at that location. No estimate of any such costs to the
Company is available at this time.
In connection with the sale of Crystek (see Note L), Whitehall was
required to perform, at its own expense, an environmental site assessment at
the Crystek facility. The Company is also required to remedy all recognized
environmental conditions identified in the assessment to bring the Crystek
facility into compliance with all applicable Federal, State, and local
environmental laws. If the facility is not brought into compliance with
environmental laws by December 31, 1998, the buyer shall have the option of
requiring the Company to repurchase the property. The Company has engaged
environmental consultants to review potential environmental liabilities at the
Crystek facility. Such investigation and testing resulted in the identification
of likely environmental remedial actions. Based upon the cost estimates
provided by the consultants, the Company believes that the total remediation
and compliance costs for this facility will be approximately $1.0 million,
which has been accrued at December 31, 1997.
Future information and developments will require the Company to
continually reassess the expected impact of the environmental matters discussed
above. Actual costs to be incurred in future
F-45
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE O--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
periods may vary from the estimate, given the inherent uncertainties in
evaluating environmental exposures. These uncertainties included the extent of
required remediation based on testing and evaluation not yet completed and the
varying costs and effectiveness of remediation methods.
To comply with the financial assurances required by the Florida Department
of Environmental Protection (FDEP), the Company requested and a bank issued a
$1,700,000 standby letter of credit in favor of the FDEP. This letter of credit
meets all conditions required by the FDEP.
LEGAL MATTERS
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that (i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the
Company and was the direct cause of Mr. Webster's termination as its President
and Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster
into retirement without providing Mr. Webster with retirement benefits which
Mr. Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortuous
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996, the
Court granted a summary judgment in favor of the defendants on Mr. Webster's
remaining claims and entered a take nothing final judgment which dismissed all
of Mr. Webster's claims with prejudice to refiling. On March 26, 1996, Mr.
Webster appealed the final judgment to the Dallas, Texas Court of Appeals. Oral
argument was held on November 13, 1997. To date, no decision has been reached
by the court. Management intends to vigorously defend this appeal.
The Company is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of the
Company.
F-46
<PAGE>
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P--PRO FORMA INFORMATION
The unaudited pro forma financial information presented below is for the
years ended December 31, 1997 and 1996. The unaudited pro forma financial
information gives effect to the sale of the Ocean Systems and Electronics
segments and the purchase of the Macon facility as if such transactions had
occurred as of January 1, 1996:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Net sales ..................... $ 76,153,000 $ 81,719,000
Net income (loss) ............. (12,841,000) 3,506,000
Net income per share .......... (2.33) 0.64
</TABLE>
The pro forma financial information does not purport to represent what the
results of operations of the Company would have actually been if the
aforementioned transactions had occurred on January 1, 1996, nor does it
project the results of operations for any future periods.
NOTE Q--RELATED PARTY TRANSACTIONS
As of December 31, 1997, two former officers of the Company were indebted
to the Company in the aggregate amount of approximately $363,000. This amount
is classified as accounts receivable and is fully reserved. These receivables
will be written off in 1998.
NOTE R--SUBSEQUENT EVENT
In March 1998, the Company entered into a definitive agreement with
Aviation Sales Company (AVS). Under the terms of the agreement, the Company
will exchange its common stock for common stock of AVS. This transaction is
expected to be accounted for as a pooling of interests.
NOTE S--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
------------ ------------ ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997:
Net sales ......................... $ 13,551 $ 19,035 $14,256 $18,949 $ 65,791
Gross profit (loss) ............... 2,560 3,524 (6,955) 2,465 1,594
Net income (loss) ................. 1,135 1,329 (8,231) (6,170) (11,937)
Net income (loss) per common share:
Basic ............................ $ 0.21 $ 0.24 $ 1.49) $ 1.12) $ (2.16)
Diluted .......................... $ 0.20 $ 0.23 $ 1.49) $ 1.12) $ (2.16)
1996:
Net sales ......................... $ 20,187 $ 20,221 $16,318 $13,444 $ 70,170
Gross profit ...................... 3,092 2,879 2,197 2,193 10,361
Net income ........................ 1,063 1,129 1,187 938 4,317
Net income per common share:*
Basic ............................ $ 0.19 $ 0.21 $ 0.22 $ 0.17 $ 0.79
Diluted .......................... $ 0.19 $ 0.20 $ 0.21 $ 0.16 $ 0.75
</TABLE>
- ----------------
* Restated to give effect to 100% stock dividend to stockholders' of record at
the close of business on March 25, 1997.
The fourth quarter of 1997 net loss and loss per share reflect
approximately $6.5 million of adjustments to accrue additional environmental
reserves, increase the allowance for bad debts, and increase the allowance for
obsolete inventory.
F-47
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following tables set forth certain unaudited pro forma condensed
combined financial information for AVS after giving effect to the Merger, as if
it has been consummated, with respect to statement of operations data, at the
beginning of the periods presented, or, with respect to balance sheet data, as
of the date presented. The following tables present such information as if the
Merger had been accounted for as a pooling of interests. The information
presented is derived from, should be read in conjunction with, and is qualified
in its entirety by reference to, the separate historical financial statements
and the notes thereto appearing elsewhere in this Prospectus or incorporated
elsewhere in this Prospectus by reference. The unaudited pro forma condensed
combined financial data have been included for comparative purposes only and do
not purport to be indicative of the results of operations or financial position
which actually would have been obtained if the Merger had been effected at the
beginning of the periods or as of the date indicated or of the financial
position or results of operations which may be obtained in the future.
The following unaudited pro forma condensed consolidated financial
statements are based on the historical financial statements of AVS and the
historical financial statements of entities acquired by AVS 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
Caribe Aviation, Inc. and Aircraft Interior
Design, Inc. ("Caribe") March 9, 1998 Purchase
</TABLE>
Neither the historical financial statements of AVS nor the pro forma
financial statements reflect the March 1998 acquisition of Caribe due to the
immateriality of the amounts.
The post acquisition results of operations of Dixie have been included in
the historical operations of AVS. 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 AVS for 1996 and 1997. The results of operations of AvEng for the
year ended December 31, 1995 have not been restated to give retroactive effect
to the AvEng acquisition due to the immateriality of the restated amounts.
The results of operations of Aerocell and Apex are included in the
historical operations of AVS for the year ended December 31, 1997. AVS's
historical results of operations for the years ended December 31, 1995 and 1996
have not been restated to give retroactive effect to the Aerocell and Apex
acquisitions due to the immateriality of the restated amounts.
The post acquisition results of operations of Kratz have been included in
the historical operations of AVS. Pro forma adjustments to record the
pre-acquisition results of operations of Kratz are included in the accompanying
1997 pro forma financial information.
P-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVS WHITEHALL ADJUSTMENTS BALANCE
----------------- ---------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............... $ 4,985,751 $ 1,251,000 $ -- $ 6,236,751
Accounts receivable, net ................ 66,545,155 16,234,000 -- 82,779,155
Inventories ............................. 139,313,722 6,029,000 -- 145,342,722
Other current assets .................... 5,115,876 4,795,000 -- 9,910,876
------------- ------------- -------------- -------------
Total current assets ................... 215,960,504 28,309,000 244,269,504
EQUIPMENT ON LEASE, net .................. 22,758,149 -- -- 22,758,149
------------- ------------- -------------- -------------
FIXED ASSETS, net ........................ 20,494,275 17,567,000 -- 38,061,275
------------- ------------- -------------- -------------
AMOUNTS DUE FROM
RELATED PARTIES ........................ 2,891,343 2,000,000 -- 4,891,343
------------- ------------- -------------- -------------
NOTES RECEIVABLE ......................... -- 723,000 -- 723,000
------------- ------------- -------------- -------------
OTHER ASSETS .............................
Goodwill ................................ 17,712,145 -- -- 17,712,145
Other ................................... 5,170,433 -- -- 5,170,433
------------- ------------- -------------- -------------
Total other assets ..................... 22,882,578 -- -- 22,882,578
------------- ------------- -------------- -------------
Total assets ........................... $ 284,986,849 $ 48,599,000 $ -- $ 333,585,849
============= ============= ============== =============
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable and
accrued expenses ...................... $ 34,499,239 $ 6,618,000 $ -- $ 41,117,239
Accrued environmental costs ............. -- 3,954,000 -- 3,954,000
Notes payable, current maturities-- ..... 98,672,350 10,080,000 -- 108,752,350
------------- ------------- -------------- -------------
Total current liabilities .............. 133,171,589 20,652,000 -- 153,823,589
------------- ------------- -------------- -------------
LONG-TERM LIABILITIES
Deferred income and other ............... 962,063 471,000 -- 1,433,063
Notes payable ........................... 52,612,550 4,437,000 -- 57,049,550
------------- ------------- -------------- -------------
Total long-term liabilities ............ 53,574,613 4,908,000 -- 58,482,613
------------- ------------- -------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock ......................... -- -- -- --
Common stock ............................ 9,400 770,000 (767,156)(B) 12,244
Additional paid-in capital .............. 70,660,457 1,914,000 (15,377,844)(B) 57,196,613
Retained earnings ....................... 27,570,790 36,500,000 -- 64,070,790
Less--Treasury stock .................... -- (16,145,000) 16,145,000 (B) --
------------- ------------- -------------- -------------
Total stockholders' equity ............. 98,240,647 23,039,000 -- 121,279,647
------------- ------------- -------------- -------------
Total liabilities and
stockholders' equity ................. $ 284,986,849 $ 48,599,000 $ -- $ 333,585,849
============= ============= ============== =============
Outstanding Shares of
common stock ......................... 9,399,932 12,244,011(A)
============= =============
Bookvalue per common share ............. $ 10.45 $ 9.91(A)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVS WHITEHALL ADJUSTMENTS BALANCE
----------------- -------------- -------------------------- ------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ...... $ 108,434,709 $13,588,000 $ (261,333)(E) $121,761,376
Services .......................... -- 42,641,000 -- 42,641,000
Rentals from leases and other ..... 5,368,174 -- -- 5,368,174
------------- ----------- -------------- ------------
113,802,883 56,229,000 (261,333) 169,770,550
COST OF SALES ...................... 71,314,263 48,385,000 (127,266)(E) 119,571,997
------------- ----------- -------------- ------------
GROSS PROFIT ....................... 42,488,620 7,844,000 (134,067) 50,198,553
OPERATING EXPENSES ................. 23,915,313 4,969,000 -- 28,884,313
------------- ----------- -------------- ------------
INCOME FROM OPERATIONS ............. 18,573,307 2,875,000 (134,067) 21,314,240
OTHER (INCOME) EXPENSES ............ 8,287,584 (963,000) -- 7,324,584
------------- ----------- -------------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES .............. 10,285,723 3,838,000 (134,067) 13,989,656
INCOME TAX (BENEFIT) EXPENSE ....... -- 889,000 3,959,146 (D)(E) 4,848,146
------------- ----------- -------------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS ............ $ 10,285,723 $ 2,949,000 $ (4,093,213) $ 9,141,510
============= =========== ============== ============
INCOME (LOSS) FROM
CONTINUING OPERATIONS PER
SHARE:
Diluted (F) ....................... $ 1.00 $ 1.00(C)
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING:
Diluted ........................... 6,259,542 9,161,223(C)
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVS WHITEHALL ADJUSTMENTS BALANCE
--------------- ------------- -------------------------- ------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ...... $151,407,093 $ 4,830,000 $ (380,252)(E) $ 155,856,841
Services .......................... -- 65,340,000 -- 65,340,000
Rentals from leases and other ..... 10,536,776 -- -- 10,536,776
------------ ----------- -------------- -------------
161,943,869 70,170,000 (380,252) 231,733,617
COST OF SALES ...................... 110,358,502 59,809,000 (163,098) (E) 170,004,404
------------ ----------- -------------- -------------
GROSS PROFIT ....................... 51,585,367 10,361,000 (217,154) 61,729,213
OPERATING EXPENSES ................. 29,301,532 4,656,000 -- 33,957,532
------------ ----------- -------------- -------------
INCOME FROM OPERATIONS ............. 22,283,835 5,705,000 (217,154) 27,771,681
OTHER (INCOME) EXPENSES ............ 5,350,020 (818,000) -- 4,532,020
------------ ----------- -------------- -------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES .............. 16,933,815 6,523,000 (217,154) 23,239,661
INCOME TAX (BENEFIT) EXPENSE ....... (426,033) 2,206,000 6,945,531 (D)(E) 8,725,498
------------ ----------- -------------- -------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS ............ $ 17,359,848 $ 4,317,000 $ (7,162,685) $ 14,514,163
============ =========== ============== =============
INCOME FROM CONTINUING
OPERATIONS
PER SHARE:
Diluted (F) ....................... $ 1.08 $ 1.35(C)
============ =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING:
Diluted ........................... 7,819,837 10,769,348(C)
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AVS KRATZ WHITEHALL
----------------- -------------- -----------------
<S> <C> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ......... $ 243,819,616 $28,711,522 $ 672,000
Services ............................. -- -- 65,119,000
Rentals from leases
and other .......................... 13,079,138 -- --
------------- ----------- -------------
256,898,754 28,711,522 65,791,000
COST OF SALES ......................... 180,712,495 18,499,320 64,197,000
------------- ----------- -------------
GROSS PROFIT .......................... 76,186,259 10,212,202 1,594,000
OPERATING EXPENSES .................... 41,192,054 1,879,018 11,590,000
------------- ----------- -------------
INCOME (LOSS) FROM
OPERATIONS ........................... 34,994,205 8,333,184 (9,996,000)
OTHER (INCOME)
EXPENSES ............................. 7,431,916 (87,675) 5,551,000
------------- ----------- -------------
INCOME (LOSS)
FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES ......................... 27,562,289 8,420,859 (15,547,000)
INCOME TAX
(BENEFIT) EXPENSE .................... 10,781,519 -- (3,610,000)
------------- ----------- -------------
INCOME (LOSS)
FROM CONTINUING
OPERATIONS ........................... $ 16,780,770 $ 8,420,859 $ (11,937,000)
============= =========== =============
INCOME FROM
CONTINUING
OPERATIONS PER
SHARE:
Diluted .............................. $ 1.77
=============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING:
Diluted .............................. 9,484,097
=============
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS BALANCE
--------------------------------- ------------------
<S> <C> <C>
OPERATING REVENUES
Sales of aircraft parts, net ......... $ (151,430)(E) $ 273,051,708
Services ............................. -- 65,119,000
Rentals from leases
and other .......................... -- 13,079,138
---------------- --------------
(151,430) 351,249,846
COST OF SALES ......................... 674,431 (E)(G) 264,083,246
---------------- --------------
GROSS PROFIT .......................... (825,861) 87,166,600
OPERATING EXPENSES .................... 1,128,814 (G)(H) 55,789,886
------------------- --------------
INCOME (LOSS) FROM
OPERATIONS ........................... (1,954,675) 31,376,714
OTHER (INCOME)
EXPENSES ............................. 2,225,769 (I) 15,121,010
------------------- --------------
INCOME (LOSS)
FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES ......................... (4,180,444) 16,255,704
INCOME TAX
(BENEFIT) EXPENSE .................... (771,237) (E)(J)(K) 6,400,282
------------------- --------------
INCOME (LOSS)
FROM CONTINUING
OPERATIONS ........................... $ (3,409,207) $ 9,855,422
=================== ==============
INCOME FROM
CONTINUING
OPERATIONS PER
SHARE:
Diluted .............................. $ 0.80(C)
==============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING:
Diluted .............................. 12,322,004(C)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The unaudited pro forma information does not give effect to the March 1998
acquisition of Caribe due to the immateriality of the amounts.
(2) The 1997 unaudited pro forma information has been restated to reflect the
1997 acquisitions of Apex and Aerocell, which were accounted for as
poolings of interests. Kratz was acquired on October 17, 1997, in a
transaction accounted for as a purchase. The historical operations of
Kratz are included in AVS's historical results of operations since the
acquisition date. The unaudited pro forma information for the year ended
December 31, 1997 has been prepared assuming the Merger and the
acquisition of Kratz occurred as of January 1, 1997 for statement of
operations data, and that the Merger occurred as of December 31, 1997 for
balance sheet data. The purchase price paid for Kratz and its allocation
to the net assets acquired is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
<S> <C>
Cash and cash eqivalents ............................... $ 2,970,714
Accounts receivable .................................... 5,190,226
Inventories ............................................ 6,580,130
Prepaid expenses ....................................... 9,304
Deposits and other ..................................... 614,496
Fixed assets ........................................... 11,481,645
Goodwill ............................................... 17,901,747
Accounts payable ....................................... (764,971)
Accrued expenses ....................................... (1,407,326)
42,575,965
Less cash acquired ..................................... (2,970,714)
------------
Cash used in acquisitions, net of cash acquired ........ 39,605,251
============
</TABLE>
The excess of the purchase price over the fair values of the net assets
acquired from Kratz has been recorded as goodwill, which is being amortized on
a straight-line basis over 20 years.
(3) The 1995 and 1996 unaudited pro forma information is presented to show the
effect of the Merger under the pooling of interests method of accounting.
The 1996 unaudited pro forma information has been restated to reflect the
1996 acquisition of AvEng, which was accounted for as a pooling of
interests. Dixie was acquired on August 9, 1996, in a transaction
accounted for as a purchase and accordingly its results of operations are
included since that date. Pro forma adjustments to record the
pre-acquisition results of operations of Dixie in 1996 have not been made
due to the immateriality of the amounts. The 1995 and 1996 results of
operations do not include Apex and Aerocell due to the immateriality of
the amounts. The 1995 results of operations do not include AvEng due to
the immateriality of the amounts.
(4) The following adjustments have been made to give pro forma effect to the
Merger:
(A) This calculation assumes the issuance of approximately 2,844,079 shares
of AVS common stock in the Merger, which is calculated based on an
exchange ratio of .5143 shares of AVS common stock for each share of
Whitehall common stock outstanding at December 31, 1997. Pro forma book
value per share common was computed by adding the 2,844,079 shares of
AVS common stock to be issued in the Merger to the actual number of
shares of AVS common stock outstanding at December 31, 1997.
(B) To record the Merger under the pooling of interest method of accounting
and reflect AVS's common stock to be issued in connection with the
Merger including the retirement of the Whitehall treasury stock.
P-6
<PAGE>
(C) This calculation assumes the conversion of Whitehall's weighted average
number of shares into the weighted average number of shares of AVS
common stock, using an exchange ratio of .5143, for each respective
period.
(D) Periods presented prior to 1997 include pro forma adjustments to record
income taxes of $4,011,432 and $6,604,188 for 1995 and 1996,
respectively, as AVS conducted its business as a partnership prior to
June 26, 1996.
(E) To eliminate intercompany sales from AVS to Whitehall, net of income
tax effect of $52,286, $84,690 and $27,842 for 1995, 1996 and 1997,
respectively.
(F) The 1995 and 1996 AVS earnings per share assumes that the 4,425,000
common shares issued to the partners of AJT Capital Partners (the
predecessor business of AVS) and the 575,000 shares of common stock,
the net proceeds in respect of which were paid to J/T Aviation
Partners, were outstanding for periods prior to the closing of AVS's
initial public offering.
(G) Represents adjustments to record increased depreciation and
amortization expense associated with the Kratz acquisition ($754,470 in
cost of sales and $716,314 in operating expenses).
(H) Represents an adjustment to record certain Kratz salaries at levels set
forth in the purchase agreement.
(I) Represents the incremental increase in interest expense from borrowings
made to finance the Kratz acquisition.
(J) Includes an adjustment of $1,681,605 to record tax provision for the
pre-acquisition operations of Kratz as if it had been taxed as a C
Corporation.
(K) Includes $2,425,000 to remove the valuation allowance on deferred
income taxes recorded by Whitehall during the year ended December 31,
1997, since as a combined entity, the tax losses generated by Whitehall
would have been offset by taxable income from AVS.
P-7
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of March 26, 1998 (the
"Agreement") by and among Aviation Sales Company, a Delaware corporation
("AVS"), WHC Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of AVS ("AVS Sub"), and Whitehall Corporation, a Delaware
corporation (the "Company").
WHEREAS, the Board of Directors of each of AVS and the Company have
determined that a business combination between AVS and the Company merging
their respective businesses is in the best interests of their respective
companies and stockholders and accordingly have agreed to effect the merger
provided for herein upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is the intention of the parties to this Agreement that (a) for
federal income tax purposes, the merger provided for herein shall qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"); and (b) for accounting purposes, the merger
provided for herein shall qualify as a "pooling of interests"; and
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3 of this Agreement),
AVS Sub shall be merged with and into the Company in accordance with the laws
of the State of Delaware and the terms of this Agreement (the "Merger"),
whereupon the separate corporate existence of AVS Sub shall cease, and the
Company shall be the surviving corporation of the Merger (the Company, as the
surviving corporation after the Merger is sometimes referred to herein as the
"Surviving Corporation").
1.2 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Akerman, Senterfitt & Eidson, P.A., SunTrust International Center, One S.E.
Third Avenue, Suite 2800, Miami, Florida 33131 on the date of the last of the
conditions set forth in Article VI of this Agreement (other than (i) those that
are waived by the party or parties for whose benefit such conditions exist, and
(ii) any such conditions which, by their terms, are not capable of being
satisfied until the Closing Date) are satisfied; or (b) at such other place,
time, and/or date as the parties hereto may otherwise agree. The date upon
which the Closing shall occur is referred to herein as the "Closing Date."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article VI of this Agreement have been fulfilled or waived and this Agreement
shall not have been terminated as provided in Article VII hereof, the parties
hereto shall cause a certificate of merger (the "Certificate of Merger") to be
properly executed and filed in accordance with the laws of the State of
Delaware and the terms of this Agreement on the Closing Date. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of Delaware or at such later time as is specified by the
parties hereto as the Effective Time in the Certificate of Merger (the
"Effective Time"). The Merger shall have the effects set forth in Sections 259,
260 and 261 of the General Corporation Law of the State of Delaware (the
"DGCL"). Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of the Company and AVS Sub.
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<PAGE>
1.4 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of AVS, AVS Sub, the Company or the holders of the following
securities:
(i) each share of Common Stock, par value $0.01 per share, of AVS Sub
outstanding immediately prior to the Effective Time, shall be converted
into one share of Common Stock, par value $0.01 per share, of the Surviving
Corporation; and
(ii) subject to Section 1.6(f), each share of Common Stock, $0.10 par
value per share, of the Company (the "Company Common Stock") outstanding
immediately prior to the Effective Time (except as otherwise provided in
Section 1.4(c) hereof), shall be converted into the right to receive 0.5143
of a validly issued, fully paid and nonassessable share of Common Stock,
$.001 par value per share, of AVS ("AVS Common Stock") (the "Exchange
Ratio").
(b) Immediately following the Effective Time, all shares of Company
Common Stock shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of shares of Company Common Stock
shall thereafter cease to have any rights with respect to such shares of
Company Common Stock, except for the right to receive, without interest, the
consideration set forth in this Section 1.4 (and any dividends or other
distributions payable with respect thereto pursuant to Section 1.6(d)) and cash
in lieu of fractional shares of AVS Common Stock in accordance with Section 1.6
of this Agreement upon the surrender of a certificate representing such shares
of Company Common Stock in accordance with the provisions of this Article I.
(c) Each share of Company Common Stock held by the Company as treasury
stock or owned by AVS or any Subsidiary (as defined in Section 1.4(d) of this
Agreement) of AVS immediately prior to the Effective Time shall be canceled,
and no payment shall be made with respect thereto.
(d) For purposes of this Agreement, (i) the term "Average Closing Price"
shall mean the average of the per share last daily closing price of AVS Common
Stock as quoted on the New York Stock Exchange ("NYSE") (and as reported by The
Wall Street Journal or, if not reported thereby, by another authoritative
source) during the ten (10) consecutive trading days ending on and including
the last full trading day immediately preceding the Closing Date; (ii) the word
"Subsidiary" when used with respect to any Person means any corporation or
other organization, whether incorporated or unincorporated, of which (A) at
least fifty percent (50%) of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries; or (B) such Person or any other Subsidiary
of such Person is a general partner (excluding partnerships the general
partnership interests of which held by such Person or any Subsidiary of such
Person do not have a majority of the voting interests in such partnership), it
being understood that representations and warranties of a Person concerning any
former Subsidiary of such Person shall be deemed to relate only to the periods
during which such former Subsidiary was a Subsidiary of such Person; and (iii)
the word "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof, or any affiliate (as that term is defined in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act")) of any of the foregoing.
1.5 STOCK OPTIONS. All options to acquire Company Common Stock
(individually, a "Company Option" and collectively, the "Company Options")
outstanding at the Effective Time under the Company's 1992 Incentive Stock
Option Plan, the Company's 1992 Non-Employee Directors Stock Option Plan or
otherwise (the "Company Stock Option Plans") shall remain outstanding following
the Effective Time. At the Effective Time, such Company Options, by virtue of
the Merger and without any further action on the part of the Company or the
holder of such Company Options, shall be assumed by AVS in such manner that AVS
(a) is a corporation (or a parent or a subsidiary corporation of such
A-2
<PAGE>
corporation) "assuming a stock option in a transaction to which Section 424(a)
applied" within the meaning of Section 424 of the Code; or (b) to the extent
that Section 424 of the Code does not apply to any such Company Options, would
be such a corporation (or a parent or a subsidiary corporation of such
corporation) were Section 424 applicable to such option. Each Company Option
assumed by AVS shall be exercisable upon the same terms and conditions as under
the applicable Company Stock Option Plan and the applicable option agreement
issued thereunder, except that (x) the unexercised portion of each such Company
Option shall be exercisable for that whole number of shares of AVS Common Stock
(rounded down to the nearest whole share) equal to the number of shares of
Company Common Stock subject to the unexercised portion of such Company Option
multiplied by the Exchange Ratio; and (y) the option exercise price per share
of AVS Common Stock shall be an amount equal to the option exercise price per
share of Company Common Stock subject to such Company Option in effect at the
Effective Time divided by the Exchange Ratio (the option price per share, as so
determined, being rounded up to the nearest full cent). No payment shall be
made for fractional interests. The term, exercisability, vesting schedule,
status as an "incentive stock option" under Section 422 of the Code, if
applicable, and all of the other terms of the Company Options shall otherwise
remain unchanged unless modified by or as a result of the transaction
contemplated by this Agreement (including, without limitation, to the extent
that all outstanding Company Options shall become vested and exercisable at the
Effective Time). As soon as practicable after the Effective Time, AVS shall
deliver to the holders of Company Options appropriate notices setting forth
such holders' rights pursuant to such Company Options, as amended by this
Section 1.5 as well as notice of AVS's assumption of the Company's obligations
with respect thereto (which occurs by virtue of this Agreement). AVS shall take
all corporate actions necessary to reserve for issuance such number of shares
of AVS Common Stock as will be necessary to satisfy exercises in full of all
Company Options after the Effective Time.
1.6 EXCHANGE OF CERTIFICATES REPRESENTING COMPANY COMMON STOCK.
(a) Continental Stock Transfer & Trust Company (or such other exchange
agent selected by AVS and reasonably acceptable to the Company) shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) As of the Effective Time and in any event, no later than five (5)
business days after the Effective Time, AVS shall deposit or cause to be
deposited with the Exchange Agent for exchange in accordance with this Article
I, certificates representing the shares of AVS Common Stock issuable pursuant
to Section 1.4 in exchange for certificates formerly representing shares of
Company Common Stock outstanding immediately prior to the Effective Time and a
sufficient amount of cash to satisfy the cash payments to be made by AVS to
certain holders of Company Common Stock pursuant to Section 1.6(f) hereof.
(c) Promptly after the Effective Time, AVS shall cause the Exchange Agent
to mail to each holder of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
("Certificates") whose shares were converted into the right to receive AVS
Common Stock Common Stock pursuant to Section 1.4 (i) a notice of effectiveness
of the Merger, (ii) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to such Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent; and (iii)
instructions for use in effecting the surrender of such Certificates in
exchange for the consideration to be received by such holder pursuant to
Sections 1.4 and 1.6 hereof. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, AVS shall cause to
be delivered to the person in whose name such Certificate shall have been
issued, or to such person as such person shall direct in writing in the letter
of transmittal, (A) a certificate representing that number of whole shares of
AVS Common Stock into which the shares previously represented by the surrender
of Certificates shall have been converted into the right to receive at the
Effective Time pursuant to Section 1.4; and (B) a check representing the amount
of cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive in respect of
the Certificate surrendered pursuant to the provisions of this Section 1.6, in
each case, after giving effect to any
A-3
<PAGE>
required withholding tax, and the shares represented by the Certificate so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
the cash in lieu of fractional shares and unpaid dividends and distributions,
if any, payable to holders of shares of Company Common Stock who receive shares
of AVS Common Stock pursuant to Section 1.4 hereof. In the event of a transfer
of ownership of Company Common Stock which is not registered in the transfer
records of the Company, the consideration to be paid to such holder of Company
Common Stock pursuant to Sections 1.4 and 1.6 hereof may be issued to such a
transferee if the Certificate representing such Company Common Stock is
presented to AVS, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have
been paid or, alternatively, payments of such transfer tax to the Exchange
Agent. Until so surrendered, each Certificate that, at the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes (except to the extent provided in
Section 1.6(d) below), to evidence the consideration to be received by the
holders of Company Common Stock pursuant to Sections 1.4 and 1.6 hereof.
(d) Notwithstanding anything to the contrary contained herein, no
dividends or other distributions declared after the Effective Time on AVS
Common Stock shall be paid with respect to any shares of Company Common Stock
entitled to be converted into shares of AVS Common Stock represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of the certificates
representing whole shares of AVS Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of AVS Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon; and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of AVS Common Stock, less the amount of any withholding taxes
which may be required thereon.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to AVS or the Surviving Corporation, they
shall be canceled and exchanged for the consideration set forth in this Article
I deliverable in respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Section 1.6. Certificates surrendered for
exchange by any person constituting an "affiliate" of the Company for purposes
of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities
Act") shall not be exchanged until AVS has received an Affiliate Letter (as
defined herein) from such person as provided in Section 5.9.
(f) No fractional shares of AVS Common Stock shall be issued upon
surrender for exchange of Certificates for Company Common Stock. In lieu of the
issuance of any fractional share of AVS Common Stock pursuant to Section 1.4,
cash adjustments will be paid to holders in respect of any fractional share of
AVS Common Stock that would otherwise be issuable, and the amount of such cash
adjustment shall be equal to such fractional proportion of the Average Closing
Price of a share of AVS Common Stock.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, AVS will issue in
exchange for such lost, stolen or destroyed Certificate, the consideration to
be received by the holder of such Certificate pursuant to Sections 1.4 and 1.6
hereof.
(h) Any portion of the property delivered to the Exchange Agent in
accordance with this Section 1.6(b) that remains unclaimed two years after the
Effective Time shall be delivered to AVS.
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<PAGE>
Any holder of a Certificate who has not theretofore surrendered such
Certificate for exchange pursuant to this Section 1.6 shall thereafter look
only to AVS for payment of the consideration deliverable in respect of such
Certificate determined pursuant to this Agreement, without any interest
thereon. Payment or delivery of any shares of AVS Common Stock, any cash in
lieu of fractional shares of AVS Common Stock and any dividends, or
distributions with respect to AVS Common Stock shall be subject to applicable
abandoned property, escheat and similar laws and none of AVS, AVS Sub, the
Company, the Surviving Corporation or any other person shall be liable to any
former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar laws.
1.7 ADJUSTMENT OF EXCHANGE RATIO. In the event that, subsequent to the
date of this Agreement but prior to the Effective Time, the AVS Common Stock is
recapitalized or reclassified or AVS shall effect any stock split, reverse
stock split, stock dividend of AVS Common Stock, then the Exchange Ratio and
the Average Closing Price shall be appropriately and equitably adjusted to the
kind and amount of shares of stock and other securities and property which the
holders of such shares of AVS Common Stock would have been entitled to receive
had such shares been issued and outstanding as of the record date for
determining stockholders entitled to participate in such corporate event.
1.8 TAX CONSEQUENCES AND ACCOUNTING TREATMENT. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code and that the transaction be accounted for as
a pooling of interests.
1.9 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and AVS Sub, the officers and directors of the
Company and AVS Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
CERTAIN MATTERS RELATING TO THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of AVS Sub in effect at the Effective Time shall
be the certificate of incorporation of the Surviving Corporation until amended
in accordance with its terms and pursuant to applicable law; provided however,
that Article I of the Certificate of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the corporation is Whitehall
Corporation."
2.2 BY-LAWS OF THE SURVIVING CORPORATION. The By-Laws of AVS Sub in effect
at the Effective Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with the terms of such By-Laws and pursuant to applicable
law and the Certificate of Incorporation of the Surviving Corporation.
2.3 OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION. The officers and
directors of AVS Sub immediately prior to the Effective Time shall be the
officers and directors of the Surviving Corporation immediately after the
Effective Time, and shall hold office until their successors are duly appointed
or elected in accordance with applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AVS AND AVS SUB
AVS and AVS Sub represent and warrant to the Company that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure statement delivered by AVS and
A-5
<PAGE>
AVS Sub to the Company concurrently herewith and identified as the "AVS
Disclosure Statement."All exceptions noted in the AVS Disclosure Statement
shall be numbered to correspond to the applicable sections to which such
exception refers; provided, however that for purposes of this Agreement and the
AVS Disclosure Statement any disclosure set forth on any particular schedule
shall be deemed disclosed in reference to all applicable schedules.
3.1 EXISTENCE, GOOD STANDING, CORPORATE AUTHORITY. Each of AVS, AVS Sub
and each of the Subsidiaries of AVS other than AVS Sub (each such Subsidiary
singularly "AVS Subsidiary" or collectively "AVS Subsidiaries") (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation; (ii) has all requisite
power and authority to own or lease, and operate its properties and assets, and
to carry on its business as now conducted and as currently proposed to be
conducted, except where the failure to have such power and authority would not
have an AVS Material Adverse Effect (as defined herein) and to consummate the
transactions contemplated hereby; (iii) is duly qualified or licensed to do
business and is in good standing in all jurisdictions in which it owns or
leases property or in which the conduct of its business requires it to so
qualify or be licensed, except where the failure to so qualify, individually or
in the aggregate, would not have an AVS Material Adverse Effect; and (iv) has
obtained all licenses, permits, franchises and other governmental
authorizations necessary to the ownership or operation of its properties or the
conduct of its business, except where the failure to have obtained such
licenses, permits, franchises or authorizations would not have an AVS Material
Adverse Effect. The copies of AVS's and AVS Sub's Articles or Certificate of
Incorporation and By-Laws as in effect on the date hereof have been previously
delivered to the Company or have been made available for the Company's review
and are true and correct. For purposes of this Agreement, a "Material Adverse
Effect" when used with respect to any entity means (a) a material adverse
effect on the business, results of operations, financial condition or prospects
of such entity and its subsidiaries, taken as a whole, or (b) a material
impairment in the ability of such entity or its subsidiaries to perform any of
their obligations under this Agreement or to consummate the Merger.
3.2 AUTHORIZATION OF AGREEMENT AND OTHER DOCUMENTS. The execution and
delivery of this Agreement and the other documents executed or to be executed
in connection herewith to which AVS or AVS Sub is a party (collectively, the
"AVS Ancillary Documents"), have been duly authorized by the Board of Directors
of AVS and AVS Sub and no other proceedings on the part of AVS or AVS Sub are
necessary to authorize the execution, delivery or performance of this Agreement
or any AVS Ancillary Document, except the approval of the Merger by the
stockholders of AVS. This Agreement is, and, as of the Closing Date, each of
the AVS Ancillary Documents will be, a valid and binding obligation of AVS
and/or AVS Sub, as the case may be, enforceable against AVS and/or AVS Sub, as
the case may be, in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency; reorganization,
moratorium, fraudulent conveyance or other similar laws affecting enforcement
of creditors' rights generally, and by general principles of equity (regardless
of whether enforcement is considered in a proceeding at law or in equity) and
subject to receipt of approval of the Merger by the AVS stockholders.
3.3 NO VIOLATION. Neither the execution and delivery by AVS and AVS Sub of
this Agreement or the AVS Ancillary Agreements, nor the consummation by AVS and
AVS Sub of the transactions contemplated hereby and thereby in accordance with
their respective terms, will (a) assuming approval of the Merger by the
stockholders of AVS, conflict with or result in a breach of any provisions of
the Articles or Certificate of Incorporation or By-Laws of AVS or AVS Sub; (b)
result in a breach or violation of, a default under, or the triggering of any
payment or other material obligations pursuant to, or accelerate vesting under,
any of the AVS stock option plans, or any grant or award made under any of the
foregoing; (c) subject to obtaining the consents set forth in the AVS
Disclosure Statement, violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the termination, or
in a right of termination or cancellation of, accelerate the performance
required by, result in the triggering of any payment or other material
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the material properties of AVS, AVS Sub or
any of the AVS
A-6
<PAGE>
Subsidiaries, other than as disclosed in the AVS Disclosure Statement, under,
or result in being declared void, voidable, or without further binding effect,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any material license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which AVS,
AVS Sub or any of the AVS Subsidiaries is a party, or by which AVS, AVS Sub or
any of the AVS Subsidiaries or any of their respective properties is bound or
affected, except for any of the foregoing matters which would not have an AVS
Material Adverse Effect; (d) assuming the Merger is so approved by stockholders
of AVS and assuming all required consents and approvals are obtained and all
applicable filings are made, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgement, injunction, order
or decree binding upon or applicable to AVS or AVS Sub, except for any of the
foregoing matters which would not have an AVS Material Adverse Effect; or (e)
other than the filings provided for in Sections 1.3 and 5.7, filings required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
the Exchange Act, the Securities Act, or applicable state securities and "Blue
Sky" laws or filings in connection with the maintenance of qualification to do
business in other jurisdictions (collectively, the "Regulatory Filings"),
require any material consent, approval or authorization of, or declaration of,
or filing or registration with, any domestic governmental or regulatory
authority, the failure to obtain or make which would have an AVS Material
Adverse Effect.
3.4 SEC DOCUMENTS. AVS has delivered or made available to the Company each
registration statement, report, proxy statement or information statement (as
defined in Regulation 14C under the Exchange Act) prepared by it since July 1,
1996, which reports constitute all of the documents (other than preliminary
material) required to be filed by AVS with the Securities and Exchange
Commission ("SEC") since such date, each in the form (including exhibits and
any amendments thereto) filed with the SEC (collectively, the "AVS Reports").
As of their respective dates, each of the AVS Reports complied and, in the case
of filings after the date hereof, will comply as to form in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations thereunder. None of the
AVS Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. AVS has filed with the SEC all reports required to
be filed under Sections 13, 14 and 15(d) of the Exchange Act since July 1,
1996. Each of the consolidated balance sheets of AVS included in or
incorporated by reference into the AVS Reports (including the related notes and
schedules) fairly present in all material respects the consolidated financial
position of AVS and the AVS Subsidiaries as of its date (subject, in the case
of unaudited statements, to normal year-end audit adjustments which would not
be material in amount or effect), and each of the consolidated statements of
income, retained earnings and cash flows of AVS included in or incorporated by
reference into the AVS Reports (including any related notes and schedules)
fairly present in all material respects the results of operations, retained
earnings or cash flows, as the case may be, of AVS and the AVS Subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which would not be material in amount or
effect). Except as and to the extent reflected or reserved against in the
financial statements included in the AVS's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 (the "AVS Form 10-Q") or as disclosed
herein or in the AVS Disclosure Statement, neither AVS nor any of the AVS
Subsidiaries had as of such date any liability or obligation of any kind,
whether accrued, absolute, contingent, unliquidated or other and whether due or
to become due (including any liability for breach of contract, breach of
warranty, torts, infringements, claims or lawsuits), which was material to the
business, assets, results of operations or financial conditions of AVS and the
AVS Subsidiaries taken as a whole. Except as set forth in the AVS Disclosure
Statement, since September 30, 1997, neither AVS nor any of the AVS
Subsidiaries has incurred any liability or obligation of any kind which, in any
case or in the aggregate, is material to the business, assets, results of
operations or financial condition of AVS and the AVS Subsidiaries taken as a
whole, except in the ordinary course of business. There are no extraordinary or
material non-recurring items of income or expense during the periods covered by
such financial statements and the consolidated balance sheets of the AVS
included or incorporated therein do not reflect any write-up or
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revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto. The financial statements of AVS, including the
notes thereto, included in or incorporated by reference into the AVS Reports
comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, and have been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP") (except as may be indicated in the notes thereto). Since January 1,
1993, there has been no change in AVS's accounting methods or principles that
would be required to be disclosed in AVS financial statements in accordance
with GAAP, except as described in the notes to such AVS financial statements.
3.5 NO UNDISCLOSED LIABILITIES. There are no liabilities or obligations of
any nature (whether accrued, absolute or contingent) of AVS or the AVS
Subsidiaries other than (i) liabilities disclosed or provided for in the most
recent financial statements contained in the AVS Reports; (ii) liabilities
which, individually or in the aggregate, are not material to AVS or the AVS
Subsidiaries; (iii) liabilities under this Agreement (or contemplated hereby)
or disclosed in the AVS Disclosure Statement and (iv) liabilities incurred
since September 30, 1997 in the ordinary course of business and consistent with
past practices.
3.6 NO BROKERS. AVS has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company or AVS, AVS Sub or their respective Subsidiaries to pay any finder's
fee, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby; provided, however that AVS has retained SBC
Warburg Dillon Read, Inc. ("SBCWDR") to render an opinion with respect to the
fairness of the Merger transaction from the standpoint of AVS's stockholders
and has agreed to pay a fee to them for providing such services.
3.7 OPINION OF FINANCIAL ADVISOR. AVS has received the opinion of SBCWDR,
to the effect that, as of the date of such opinion, the consideration to be
paid by AVS pursuant to the Merger is fair to AVS and its stockholders from a
financial point of view.
3.8 AVS COMMON STOCK. Subject to obtaining the approval of the
stockholders of AVS, the issuance and delivery by AVS of shares of AVS Common
Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of AVS. The
shares of AVS Common Stock to be issued in connection with the Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable and free of preemptive rights.
3.9 CAPITALIZATION
(a) The total authorized capital stock of AVS consists of (i) 30,000,000
shares of AVS Common Stock, 9,586,871 shares of which are issued and
outstanding as of March 23, 1998, and (ii) 1,000,000 shares of Preferred Stock,
none of which are issued and outstanding as of the date of this Agreement. The
authorized capital stock of AVS Sub consists of 1,000 shares of Common Stock,
$0.01 par value per share, 100 shares of which, as of the date hereof, are
issued and outstanding and are held by AVS.
(b) Except as set forth in the AVS Disclosure Statement, there are
currently no outstanding, and as of the Closing; there will be no outstanding
(i) securities convertible into or exchangeable for any capital stock of AVS or
any of the AVS Subsidiaries, (ii) options, warrants or other rights to purchase
or subscribe to capital stock of AVS or any of the AVS Subsidiaries or
securities convertible into or exchangeable for capital stock of AVS or any of
the AVS Subsidiaries, or (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any capital stock of AVS or any of the AVS Subsidiaries.
3.10 MATERIAL ADVERSE CHANGE. Since September 30, 1997 to the date of this
Agreement, AVS, AVS Sub and the AVS Subsidiaries, taken as a whole, have not
suffered any change in their businesses, operations, assets, liabilities,
financial condition or prospects which would reasonably have an AVS
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Material Adverse Effect; provided, that an AVS Material Adverse Effect will not
be deemed to have occurred solely as a result of fluctuations in the trading
price of the AVS Common Stock.
3.11 DISCLOSURE DOCUMENTS. None of the information supplied or to be
supplied by AVS or any of its affiliates, directors, officers, employees,
agents or representatives, in writing specifically for inclusion or
incorporation by reference in, and which is included or incorporated by
reference in, (i) the Form S-4 (as defined in Section 5.7 of this Agreement) or
any amendment or supplement thereto, (ii) the proxy statement to be mailed to
Company's stockholders (the "Company Proxy Statement") in connection with the
meeting of Company's stockholders called to consider and vote upon the approval
of the Merger (the "Company Stockholder Meeting") or any amendment or
supplement thereto, or (iii) any other documents filed or to be filed by
Company with the Commission or any other Governmental Authority in connection
with the transactions contemplated hereby, will, at the respective times such
documents are filed, and, in the case of the Form S-4 or any amendment or
supplement thereto, at the date of Company Stockholder Meeting, and, in the
case of the Company Proxy Statement or any amendment or supplement to either
thereof, at the time of mailing to Company stockholders or at the time of the
Company Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the Company
Stockholder Meeting. The Form S-4 will comply as to form in all material
respects with the applicable provisions of the Securities Act and the rules and
regulations under such Act (except that no representation is made as to the
form of the Company Proxy Statement to be included as the prospectus therein).
3.12 TAX REORGANIZATION; ACCOUNTING MATTERS. Neither AVS nor any of its
Subsidiaries has taken or failed to take any action which would prevent the
Merger from (a) constituting a reorganization within the meaning of section
368(a) of the Code; or (b) being treated as a "pooling or interests" in
accordance with Accounting Principles Board Opinion No. 16, the interpretative
releases issued pursuant thereto and the pronouncements of the SEC.
3.13 COMPLIANCE WITH LAWS.
(a) AVS, AVS Sub and each of the AVS Subsidiaries hold all permits,
licenses, variances, exemptions, orders, approvals, authorizations,
certificates, filings, franchises, notices and rights of all Governmental
Authorities necessary for each of them to own, lease or operate its properties
and assets and for the lawful conduct of its business (the "Permits"), except
where the failure to hold such Permits would not have an AVS Material Adverse
Effect. None of such Permits is or will be materially impaired by the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(b) AVS, AVS Sub and each of the AVS Subsidiaries are in compliance with
the terms of its Permits in all material respects.
(c) AVS, AVS Sub and each of the AVS Subsidiaries are in compliance with
all statutes, laws, ordinances orders, rules, or regulations of any
Governmental Authority (including, but not limited to, those related to
occupational health and safety, or employment and employment practices) that
are applicable to AVS, AVS Sub or any of the AVS Subsidiaries or affect or
relate to this Agreement or the transactions contemplated hereby, except for
any noncompliance that would not have an AVS Material Adverse Effect.
(d) As of the date of this Agreement, and as of the Closing, no
investigation, review, inquiry or proceeding by any Governmental Authority with
respect to AVS, AVS Sub or any of the AVS Subsidiaries is to the knowledge of
the AVS, pending or threatened which, if determined unfavorably, would have an
AVS Material Adverse Effect.
(e) Neither AVS nor AVS Sub nor any of the AVS Subsidiaries are subject
to any agreement, contract, judgment, order or decree with any Governmental
Authority arising out of any current or previously existing violations of any
laws, ordinances or regulations applicable to AVS, AVS Sub or any of the AVS
Subsidiaries.
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(f) For the purposes of this Agreement, "Governmental Authority" shall
mean any nation, or government, any state, regional, local or other political
subdivision thereof, and any entity or official exercising executive,
legislative, judicial, regulatory, or administrative functions or pertaining to
government.
3.14 LITIGATION. Except as set forth in the AVS Reports filed with the SEC
prior to the date hereof or as set forth in the AVS Disclosure Statement, (i)
there is no litigation or proceeding including, without limitation, any
arbitration proceeding, in law or in equity, and there are no proceedings or
governmental investigations before any commission or other administrative
authority, pending or, to AVS's knowledge, threatened against AVS, AVS Sub or
any of the AVS Subsidiaries which, if adversely determined, is reasonably
likely to have, either individually or in the aggregate, an AVS Material
Adverse Effect; (ii) there is no judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator applicable to AVS, the AVS Sub or any of the AVS Subsidiaries
having, or which is reasonably likely to have, either individually or in the
aggregate, an AVS Material Adverse Effect; and (iii) to the knowledge of AVS,
there is no action, suit, proceeding or investigation pending or threatened
against AVS, the AVS Sub or any of the AVS Subsidiaries which seeks to
restrain, enjoin or delay the consummation of the Merger or any of the other
transactions contemplated hereby or which seeks damages in connection
therewith, and no injunction of any type referred to in Section 6.1(c) has been
entered or issued.
3.15 TAXES.
(a) As used in this Agreement, (i) the term "Taxes" means all federal,
state, local, foreign and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatever of a nature similar to
taxes, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "Tax" means any one of
the foregoing Taxes; and (ii) the term "Returns" means all returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes, and the term "Return" means any one of the foregoing Returns.
(b) There have been properly completed and filed on a timely basis and in
correct form all material Returns required to be filed by AVS or any of the AVS
Subsidiaries. As of the time of filing, the foregoing Returns were correct and
complete in all material respects. Except as set forth in the AVS Disclosure
Statement, an extension of time within which to file any Return which has not
been filed has not been requested or granted.
(c) With respect to all amounts in respect of Taxes imposed upon AVS or
any of the AVS Subsidiaries, or for which AVS or any of the AVS Subsidiaries is
or could be liable, whether to taxing authorities (as, for example, under law)
or to other persons or entities (as, for example, under tax allocation
agreements), with respect to all taxable periods or portions of periods ending
on or before September 30, 1997, (i) all applicable tax laws and agreements
have been complied with in all material respects, and (ii) all amounts required
to be paid by AVS or the AVS Subsidiaries, to taxing authorities or others, on
or before the date hereof have been paid or adequately reserved for on the
financial statements contained in the AVS Reports, and any Taxes accrued but
not due and payable as of September 30, 1997 have been accrued or otherwise
reserved for in financial statements contained in the most recent AVS Report.
No Taxes have been (or will prior to the Closing Date be) recorded by AVS or
any of the AVS Subsidiaries other than in the ordinary course of business.
There are no Liens filed against any asset of the Company or any of its
Subsidiaries resulting from the failure to pay any Tax when due.
(d) No material issues have been raised (and are currently pending) by
any taxing authority in connection with any of the Returns. No waivers of
statutes of limitation with respect to the Returns have been given by AVS or
any of the AVS Subsidiaries (or with respect to any Return which a taxing
authority has asserted should have been filed by AVS or any of the AVS
Subsidiaries) which waivers are
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still in effect. The AVS Disclosure Statement sets forth for the past seven
years, the years for which examinations or audits of Florida state sales tax
and federal income tax returns have been completed, those years for which
examinations are presently being conducted, and those years for which such
returns will be required but are not yet due to be filed and have not yet been
filed. All deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
financial statements contained in the AVS Report, or are being contested and an
adequate reserve therefor has been established and is fully reflected as a
liability in the financial statements contained in the most recent AVS Report.
(e) The unpaid Taxes of AVS or any of the AVS Subsidiaries do not
materially exceed the reserve for tax liability (excluding any reserve for
deferred Taxes established to reflect timing differences between book and tax
income) set forth or included in the financial statements included in the most
recent AVS Report, as adjusted for the passage of time through the Closing.
(f) Neither AVS nor any of the AVS Subsidiaries is or at any time has
been a party to or bound by (nor will AVS or any of the AVS Subsidiaries become
a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement.
(g) All material elections with respect to Taxes affecting AVS or any of
the AVS Subsidiaries that are currently effective as of the date hereof that
are not reflected in the AVS's Returns are set forth in the AVS Disclosure
Statement.
(h) There are no challenges on appeals pending regarding the amount of
Taxes on, or the addressed valuation of, the real estate owned or leased by AVS
or any of the AVS Subsidiaries, and no special arrangements or agreements exist
with any governmental authority with respect thereto (the representations and
warranties contained in this Section 3.15(i) shall not be deemed to be breached
by any prospective general increase in real estate taxes.)
(i) There is no assessment for Taxes (in addition to the normal, annual
general real estate tax assessment) pending against AVS or any of the AVS
Subsidiaries, or to AVS's knowledge, threatened with respect to any portion of
the real estate owned by AVS or any of the AVS Subsidiaries, or to the extent
AVS or any of the AVS Subsidiaries is liable for payment of the real estate
leased by them.
3.16 AFFILIATED TRANSACTIONS. Except as disclosed in any AVS Report filed
with the SEC prior to the date of this Agreement or as set forth in the AVS
Disclosure Statement, since September 30, 1997, neither AVS nor any of the AVS
Subsidiaries has been a party to any transactions (other than employee
compensation and other ordinary incidents of employment) with an "AVS Related
Party," For purposes of this Agreement, the term "AVS Related Party" shall
mean: any present officer or director, 10% stockholder (including any officers
or directors thereof) or present affiliate of AVS or any of the AVS
Subsidiaries, any present or former known spouse of any of the aforementioned
persons or any trust or other similar entity for the benefit of any of the
foregoing persons.
3.17 AVS SUB-CONDUCT OF BUSINESS. Since its incorporation AVS Sub has not
conducted any business.
3.18 INAPPROPRIATE PAYMENTS. Neither AVS nor any of the AVS Subsidiaries
nor, to AVS' knowledge, any of their respective officers, directors, principal
stockholders, employees, agents or representatives has made, directly or
indirectly, with respect to AVS, the AVS Subsidiaries or their respective
business activities, any bribes or kickbacks, illegal political contributions,
payments from corporate funds not recorded on the books and records of AVS or
the AVS Subsidiaries, payments from corporate funds to governmental officials,
in their individual capacities, for the purpose of affecting their action or
the action of the government they represent, to obtain favorable treatment in
securing business or licenses or to obtain special concessions, or illegal
payments from corporate funds to obtain or retain business.
3.19 ABSENCE OF INDEMNIFIABLE CLAIMS, ETC. There are no pending claims
and, to the knowledge of AVS, no facts that would reasonably entitle any
director, officer or employee of AVS or the AVS
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Subsidiaries to indemnification by AVS or the AVS Subsidiaries under applicable
law, the Certificate of Incorporation or By-laws of AVS or the AVS Subsidiaries
or any insurance policy maintained by AVS or the AVS Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to AVS and AVS Sub that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure statement delivered by the Company to AVS and AVS Sub concurrently
herewith and identified as the "Disclosure Statement." All exceptions noted in
the Disclosure Statement shall be numbered to correspond to the applicable
sections to which such exception refers; provided, however that for purposes of
this Agreement and the Disclosure Statement any disclosure set forth on any
particular schedule shall be deemed disclosed in reference to all applicable
schedules.
4.1 ORGANIZATION, STANDING AND QUALIFICATION. The Company and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation; (ii)
has all requisite power and authority to own or lease, and operate their
respective properties and assets, and to carry on their respective businesses
as now conducted and as currently proposed to be conducted except where the
failure to have such power and authority would not have a Company Material
Adverse Effect and to consummate the transactions contemplated hereby; (iii) is
duly qualified or licensed to do business and is in good standing in all
jurisdictions in which they own or lease property or in which the conduct of
their respective businesses requires them to so qualify or be licensed except
where the failure to so qualify, individually or in the aggregate, would not
have a Company Material Adverse Effect; and (iv) has obtained all licenses,
permits, franchises and other governmental authorizations necessary to the
ownership or operation of their respective properties or the conduct of their
respective businesses except where the failure to have obtained such licenses,
permits, franchises or authorizations would not have a Company Material Adverse
Effect.
4.2 CAPITALIZATION.
(a) The total authorized capital stock of the Company consists of (i)
20,000,000 shares of common stock, par value $0.10 per share, 5,530,000 shares
of which are issued and outstanding as of the date of this Agreement and
2,161,312 shares of which are held by the Company in its treasury; and (ii)
500,000 shares of preferred stock, par value $5.00 per share, none of which are
issued and outstanding as of the date of this Agreement. There are no shares of
capital stock of the Company of any other class authorized, issued or
outstanding.
(b) Each share outstanding of Company Common Stock is duly authorized and
validly issued, fully paid and nonassessable and free of preemptive and similar
rights.
(c) There are currently no outstanding, and, except as permitted pursuant
to Section 5.2 or the exercise or cancellation of outstanding options in
accordance with their terms, as of the Closing, there will be no outstanding
(i) securities convertible into or exchangeable for any capital stock of the
Company or any of its Subsidiaries, (ii) options, warrants or other rights to
purchase or subscribe to capital stock of the Company or any of its
Subsidiaries or securities convertible into or exchangeable for capital stock
of the Company or any of its Subsidiaries, or (iii) contracts, commitments,
agreements, understandings, arrangements, calls or claims of any kind to which
the Company or any of its Subsidiaries is a party or is bound relating to the
issuance of any capital stock of the Company or any of its Subsidiaries. The
Disclosure Statement identifies, as of the date hereof, the option holder, the
number of shares subject to each option, the exercise price, the vesting
schedule and the expiration date of each outstanding option to purchase capital
stock of the Company or any of its Subsidiaries.
4.3 SUBSIDIARIES. The Company owns directly or indirectly each of the
outstanding shares of capital stock of (or other ownership interests having by
their terms ordinary voting power to elect a
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majority of directors or others performing similar functions with respect to)
each of the Company's Subsidiaries indicated in the Disclosure Statement as
being owned by the Company. Each of the outstanding shares of capital stock
owned by the Company of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances other than liens imposed by local law
which are not material. The following information for each Subsidiary of the
Company is listed in the Disclosure Schedule, if applicable: (a) its name and
jurisdiction of incorporation or organization, and (b) the location of its
principal executive office.
4.4 OWNERSHIP INTERESTS. Except for the interests in the Company's
Subsidiaries, neither the Company nor any of its Subsidiaries owns any direct
or indirect interest in any corporation, joint venture, limited liability
company, partnership, association or other entity. Since September 30, 1997,
the Company has not (i) disposed of the capital stock (other than Company
Common Stock) or all or substantially all of the assets of any ongoing
business, or (ii) purchased the business and/or all or substantially all of the
assets of another person, firm or corporation (whether by purchase of stock,
assets, merger or otherwise).
4.5 CONSTITUENT DOCUMENTS. True and complete copies of the Certificate of
Incorporation and all amendments thereto, the By-Laws as amended and currently
in force, all stock records, and all corporate minute books and records of the
Company and each of its Subsidiaries have been furnished or made available by
the Company to AVS for inspection to the extent requested by AVS. Since January
1, 1990, the corporate minute books and records of the Company and its
Subsidiaries contain true and complete copies, in all material respects, of all
resolutions adopted by the stockholders or the Board of Directors of the
Company and its Subsidiaries and any other action formally taken by them
respectively as such. The Company has provided to AVS a copy of its stock
ledger as of a recent practicable date certified by the Company's transfer
agent.
4.6 AUTHORIZATION OF AGREEMENT AND OTHER DOCUMENTS. The execution and
delivery of this Agreement and the other documents executed or to be executed
in connection herewith to which the Company is a party (collectively, the
"Ancillary Documents"), have been duly authorized by the Board of Directors of
the Company, and no other proceedings on the part of the Company are necessary
to authorize the execution, delivery or performance of this Agreement or any
Ancillary Document, except the approval of the Merger by the stockholders of
the Company. This Agreement is, and, as of the Closing Date, each of the
Ancillary Documents will be, a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting enforcement of creditors' rights generally, and by general principles
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity) and subject to the receipt of stockholder approval of the
Merger.
4.7 NO VIOLATION. Neither the execution and delivery of this Agreement nor
the Ancillary Documents by the Company nor the consummation by the Company of
the transactions contemplated hereby and thereby in accordance with their
respective terms, will (a) assuming approval of the Merger by the Company's
stockholders, conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-Laws of the Company or any of its
Subsidiaries; (b) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant to, or except
as otherwise provided in any of the individual option agreements under the
Company Stock Option Plans, accelerate vesting under, any of the Company Stock
Option Plans, or any grant or award made under any of the foregoing; (c)
violate, conflict with, result in a breach of any provision of, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination, or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other material obligations pursuant to,
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of the Company or any of its Subsidiaries
under, or result in being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed
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of trust or any material license, franchise, permit, lease, contract, agreement
or other instrument, commitment or obligation to which the Company or any of
its Subsidiaries is a party, or by which the Company or any of its Subsidiaries
or any of their respective properties is bound or affected, except for any of
the foregoing matters which would not have a Company Material Adverse Effect;
(d) assuming the Merger is so approved by the Company's stockholders, and
assuming all required consents and approvals are obtained and all applicable
filings are made, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or any of its Subsidiaries, except for any of
the foregoing matters which would not have a Company Material Adverse Effect;
or (e) other than the Regulatory Filings, require any material consent,
approval or authorization of, or declaration of, or filing or registration
with, any domestic governmental or regulatory authority, the failure to obtain
or make which would have a Company Material Adverse Effect.
4.8 COMPLIANCE WITH LAWS.
(a) The Company and each of its Subsidiaries hold all permits, licenses,
variances, exemptions, orders, approvals, authorizations, certificates,
filings, franchises, notices and rights of all Governmental Authorities
necessary for each of them to own, lease or operate its properties and assets
and for the lawful conduct of its business (the "Permits"), except where the
failure to hold such Permits would not have a Company Material Adverse Effect.
None of such Permits is or will be materially impaired by the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
(b) The Company and its Subsidiaries are in compliance with the terms of
its Permits in all material respects.
(c) The Company and its Subsidiaries are in compliance with all statutes,
laws, ordinances orders, rules, or regulations of any Governmental Authority
(including, but not limited to, those related to occupational health and
safety, or employment and employment practices) that are applicable to the
Company or any of its Subsidiaries or affect or relate to this Agreement or the
transactions contemplated hereby, except for any noncompliance that would not
have a Company Material Adverse Effect.
(d) As of the date of this Agreement, and as of the Closing, no
investigation, review, inquiry or proceeding by any Governmental Authority with
respect to the Company or any of its Subsidiaries is to the knowledge of the
Company, pending or threatened which, if determined unfavorably, would have a
Company Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries are subject to any
agreement, contract, judgment, order or decree with any Governmental Authority
arising out of any current or previously existing violations of any laws,
ordinances or regulations applicable to the Company or any of its Subsidiaries.
4.9 BOOKS AND RECORDS. The Company's and its Subsidiaries' books, accounts
and records are, and have been, in all material respects, maintained in the
Company's and its Subsidiaries usual, regular and ordinary manner, in
accordance with GAAP, and all material transactions to which the Company or any
of its Subsidiaries is or has been a party are properly reflected therein.
4.10 SEC DOCUMENTS. The Company has delivered or made available to AVS
each registration statement, report, proxy statement or information statement
(as defined in Regulation 14C under the Exchange Act) prepared by it, which
reports constitute all of the documents (other than preliminary material)
required to be filed by the Company with the SEC since January 1, 1993, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "Company Reports"). As of their respective dates, each of
the Company Reports complied and, in the case of filings after the date hereof,
will comply as to form in all material respects with the applicable
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requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations thereunder. None of the Company Reports contain any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The Company has filed with the SEC all reports required to be filed under
Section 13, 14 and 15(d) of the Exchange Act since January 1, 1993. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries as of its date (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect, and each of the consolidated statements of
income, retained earnings and cash flows of the Company included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly present in all material respects the results of
operations, retained earnings or cash flows, as the case may be, of the Company
and its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect). There are no extraordinary or material
non-recurring items of income or expense during the periods covered by such
financial statements and the consolidated balance sheets of the Company
included or incorporated therein do not reflect any write-up or revaluation
increasing the book value of any assets, except as specifically disclosed in
the notes thereto. Except as and to the extent reflected or reserved against in
the financial statements included in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 (the "Company Form 10-Q") or as
disclosed therein, neither the Company nor any Company Subsidiary had as of
such date any liability or obligation of any kind, whether accrued, absolute,
contingent, unliquidated or other and whether due or to become due (including
any liability for breach of contract, breach of warranty, torts, infringements,
claims or lawsuits), which was material to the business, assets, results of
operations or financial condition of the Company and its Subsidiaries taken as
a whole. Since September 30, 1997, neither the Company nor any Company
Subsidiary has incurred any liability or obligation of any kind which, in any
case or in the aggregate, is material to the business, assets, results of
operations or financial condition of the Company and its Subsidiaries taken as
a whole, except in the ordinary course of business. The financial statements of
the Company, including the notes thereto, included in or incorporated by
reference into the Company Reports comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, and
have been prepared in accordance with GAAP. Since January 1, 1993, there has
been no material change in the Company's accounting methods or principles that
would be required to be disclosed in the Company's financial statements in
accordance with GAAP, except as described in the notes to such Company
financial statements.
4.11 ADEQUACY OF PROPERTIES; INTANGIBLE PROPERTY.
(a) The properties and assets owned or leased by the Company and its
Subsidiaries (including, without limitation, the Real Property and Leased
Premises) are suitable and adequate for the conduct of their respective
businesses and operations and, except as otherwise disclosed in the Company
Reports filed with the Commission prior to the date hereof, the Company and its
Subsidiaries have good and marketable title to or valid leasehold or other
contractual interests in such properties and assets, free and clear of all
Liens other than Permitted Encumbrances.
(b) All trade receivables and notes receivables which are reflected in
the financial statements contained in the Company Reports or which arose
subsequent to September 30, 1997, whether billed or unbilled, arose out of bona
fide, arms-length transactions for the sale of goods or performance of
services, and to the Company's knowledge, all such trade receivables and notes
receivable are good and collectible (or have been collected) in the ordinary
course of business using normal collection practices at the aggregate recorded
amounts thereof, less the amount of applicable reserves for doubtful accounts
and for allowances and discounts, which reserves are adequate in accordance
with GAAP.
(c) All inventory of the Company or any of its Subsidiaries which is held
for sale or resale, materials and supplies (collectively, "Inventory"),
consists of items of a quantity and quality historically
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useable and/or saleable in the normal course of business. Since September 30,
1997, there has not been a material change in the level of the Inventory. All
Inventory is, and located at the Real Estate (as defined herein) or at the
Leased Premises (as defined herein).
(d) Attached to the Disclosure Statement is a list and description of
each item of real or tangible personal property owned by the Company or any of
its Subsidiaries which has a net book value in excess of $10,000. The
Disclosure Statement lists all properties and assets used by the Company or any
of its Subsidiaries in connection with the operation of their respective
businesses which are held under any lease or under any conditional sale or
other title retention agreement to the extent the Company or its Subsidiaries'
remaining obligations under any such lease or agreement exceed $5,000 and such
remaining obligations extend for one year or more from the date hereof.
(e) The Company and its Subsidiaries own or have adequate rights to use
all patents, trademarks, trade names, service marks, brands, logos, copyrights,
trade secrets, customer lists and other proprietary intellectual property
rights (including, without limitation, all computer software, unpatented
formulations, manufacturing methods, technical agreements and technical
specifications and know-how) required for, used in or incident to the
businesses of the Company and its Subsidiaries as now conducted or proposed to
be conducted. Except as otherwise described in the Company Reports, neither the
Company nor any of its Subsidiaries has received notice, and has reason to
know, of any claim or threatened infringement of the rights of others with
respect to any patents, trademarks, service marks, trade names, brands, logos,
copyrights or licenses used or owned by the Company, the loss of which could
have a Company Material Adverse Effect. The Company has no knowledge that
either it or any of its Subsidiaries is infringing upon or otherwise violating,
or has in the past infringed upon or otherwise violated, the rights of any
third party with respect to any patent, trademark, trade name, service mark or
copyright. To the knowledge of the Company, no current or former employee of
the Company of any of its Subsidiaries is or was a party to any confidentiality
agreement and/or agreement not to compete which restricts or forbids or
restricted or forbade at any time during such employee's employment by the
Company or any of its Subsidiaries, such employee's performance of the
Company's or any of its Subsidiaries' business, as the case may be, or any
activity that such employee was hired to perform. Neither the Company nor any
of its Subsidiaries is now using, and has not in the past used without
appropriate authorization, any confidential information or trade secrets of any
third party. Neither the Company nor any of its Subsidiaries has ever received
any notice alleging such conduct.
(f) For purposes of this Agreement, (i) the term "Lien" shall mean any
security interest, mortgage, pledge, hypothecation, charge, claim, option,
right to acquire, adverse interest, assignment, deposit arrangement,
encumbrance, restriction, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction), and (ii) the term
"Permitted Encumbrances" shall mean the following Liens with respect to the
properties and assets of the Company of any of its Subsidiaries: (A) Liens for
taxes, assessments or other governmental charges or levies not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on the Company's books; (B) Liens of
carriers, warehousemen, mechanics, materialmen and landlords incurred in the
ordinary course of business for sums not overdue or being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on the Company's books; (C) Liens incurred
in the ordinary course of business in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or benefits, or
to secure performance of tenders, statutory obligations, leases and contracts
(other than for borrowed money) entered into in the ordinary course of business
or to secure obligations on surety or appeal bonds; and (D) purchase money
security interests or Liens on property acquired or held by the Company in the
ordinary course of business to secure the purchase price of such property or to
secure indebtedness incurred solely for the purpose of financing the
acquisition of such property, provided that
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the security interests permitted under the clause (D) shall not exceed $250,000
at any time outstanding and shall be listed on the Company Disclosure
Statement.
4.12 REAL ESTATE.
(a) Neither the Company nor any of its Subsidiaries owns any real estate,
or has the option to acquire any real estate, other than the premises
identified in the Disclosure Statement (the "Real Estate"). The Disclosure
Statement accurately sets forth the street addresses of the Real Estate. The
Real Estate is not subject to any leases or tenancies. None of the improvements
comprising the Real Estate or the businesses conducted or proposed to be
conducted by the Company or its Subsidiaries thereon, are, to the Company's
knowledge, in violation of any material use or occupancy restriction,
limitation, condition or covenant of record or any zoning or building law,
code, ordinance or public utility easement or any other applicable law. To the
Company's knowledge, no material expenditures are required to be made for the
repair or maintenance of any improvements on the Real Estate or for the Real
Estate to be used for its intended purpose.
(b) Neither the Company nor any of its Subsidiaries leases or licenses
any real estate other than the premises identified in the Disclosure Statement
as being so leased or licensed (the "Leased Premises"). The Leased Premises are
leased to the Company or its Subsidiaries, pursuant to written leases, true,
correct and complete copies, including all amendments thereto, of which have
been provided to AVS or its counsel. None of the improvements comprising the
Leased Premises, or the businesses conducted by the Company or its Subsidiaries
thereon, are, to the Company's knowledge, in violation of any building line or
use or occupancy restriction, limitation, condition or covenant of record or
any zoning or building law, code or ordinance, public utility or other
easements or other applicable law, except for violations which do not have a
Company Material Adverse Effect or materially interfere with the conduct of the
business of the Company or its Subsidiaries. No material expenditures are
required to be made for the repair or maintenance of any improvements on the
Leased Premises which exceed, in the aggregate $2,000,000 per year other than
routine repairs and maintenance in the ordinary course of business. The Company
or its Subsidiaries have valid leasehold interests in the Leased Premises,
which leasehold interests are free and clear of all Liens other than Permitted
Encumbrances. Neither the Company nor its Subsidiaries are in default under any
material agreement relating to the Leased Premises nor, to the knowledge of the
Company, is any other party thereto in default thereunder. All options in favor
of the Company or its Subsidiaries to purchase any of the Leased Premises, if
any, are in full force and effect.
(c) There are no condemnation proceedings pending against the Company or,
to the Company's knowledge, threatened with respect to any portion of the Real
Estate or the Leased Premises.
(d) To the Company's knowledge, the buildings and other facilities
located on the Real Estate and the Leased Premises are free of any material
latent structural or engineering defects or any material patent structural or
engineering defects.
4.13 CONTRACTS.
(a) Neither the Company nor any of its Subsidiaries is a party to or
bound by, and neither they nor their properties are subject to, any contracts,
agreements or arrangements required to be disclosed in a Form 10-K, Form 10-Q
or Form 8-K under the Exchange Act which is not filed as an exhibit to one or
more of the Company Reports filed and made publicly available prior to the date
of this Agreement.
(b) Neither the Company nor any of its Subsidiaries is a party to, or
bound by, any undischarged written or oral: (i) agreement or arrangement to
which the Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries or any of their respective assets is bound which would be required
to be filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997; (ii) agreement or arrangement obligating the
Company or its Subsidiaries to pay or receive, or pursuant to which the Company
or its Subsidiaries has previously paid or received, an
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amount in excess of $50,000 (excluding purchase and sale orders entered into by
the Company or its Subsidiaries in the ordinary course of business consistent
with past practices); (iii) employment or consulting agreement or arrangement
involving an amount in excess of $25,000; (iv) plan or contract or arrangement
providing for bonuses, severance, options, deferred compensation, retirement
payments, profit sharing, medical and dental benefits or the like covering
employees of the Company, other than Plans, Welfare Plans and Employee Benefit
Plans (in each case as defined herein) described in the Disclosure Statement;
(v) agreement restricting in any manner the Company's right to compete with any
other person or entity, the Company's right to sell to or purchase from any
other person or entity, the right of any other party to compete with the
Company, or the ability of such person or entity to employ any of the Company's
employees; (vi) secrecy or confidentiality agreements (except for secrecy and
confidentiality agreements which (A) are terminable at will at any time by the
Company, (B) do not provide for any payment of consideration and (C) do not
contain any "standstill" provision or similar restriction on the Company's
ability to negotiate an acquisition of another entity); (vii) any
distributorship, non-employee commission or marketing agent, representative or
franchise agreement providing for the marketing and/or sale of the products or
services of the Company or any of its Subsidiaries; (viii) agreement between
the Company and any of its affiliates or other Related Parties (as herein
defined) (excluding any such agreement disclosed in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and its Quarterly Reports on
Form 10-Q for the first three quarters of 1997); (ix) guaranty, performance,
bid or completion bond, or surety or indemnification agreement (excluding (A)
any such item between the Company and its Subsidiaries and (B) any
indemnification agreement entered into in the Company's and/or its
Subsidiaries' ordinary course of business with a customer of the Company (such
ordinary course of business policy is set forth in all material respects in the
general performance agreements attached to the Disclosure Statement); (x)
requirements contract; (xi) loan or credit agreement, pledge agreement, note,
security agreement, mortgage, debenture, indenture, factoring agreement or
letter of credit relating to borrowed money; (xii) agreements with respect to
compliance with Environmental Laws (as defined herein); (xiii) any agreement
relating to the ownership or control of any interest in a partnership,
corporation, limited liability company, joint venture or other entity or
similar arrangement other than as otherwise disclosed herein; (xiv) any
contract or agreement containing change of control provisions; or (xvi) any
other material agreement not entered into in the ordinary course of business.
Neither the Company nor any of its Subsidiaries are currently negotiating (and
have not entered into preliminary discussions with respect to) any transaction
involving an aggregate payment by the Company or its Subsidiaries and/or
receipts to the Company or its Subsidiaries in excess of $50,000 excluding
purchase and sale orders entered into by the Company or its Subsidiaries in the
ordinary course of business consistent with past practices.
(c) All agreements, leases, subleases and other instruments referred to
in this Section 4.13, are, pursuant to their terms, in full force and binding
upon the Company or its Subsidiaries, and, to the knowledge of the Company, the
other parties thereto, except in each case to the extent such failure would not
cause a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is and, to the Company's knowledge, none of the other parties
thereto are in default of a material provision under any such agreement, lease,
sublease or other instrument. Neither the Company nor any of its Subsidiaries
has been notified that the Company is in default under any such lease
agreement, sublease or other instrument and to the Company's knowledge no event
has occurred and it is not aware of the existence of a condition which, with
the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a default of a material provision
under any such agreement, lease, sublease or other instrument by the Company or
its Subsidiaries, or, to the knowledge of the Company, the other contracting
party. Neither the Company nor any of its Subsidiaries has released or waived
any material right under any such agreement, lease, sublease or other
instrument other than in the ordinary course of business consistent with past
practices.
(d) Other than the Company Stock Option Plans, immediately after the
Closing, except as contemplated by this Agreement, neither the Company nor any
of its Subsidiaries will be bound by the terms of any stock option agreement,
registration rights agreement, stockholders agreement,
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management agreement, consulting agreement or any other agreement relating to
the equity or management of the Company or its Subsidiaries.
4.14 INSURANCE. The Company has delivered to AVS prior to the date of this
Agreement copies of all insurance policies which are owned by the Company or
its Subsidiaries or which name the Company or any of its Subsidiaries as an
insured (or loss payee), including without limitation those which pertain to
the Company's or its Subsidiaries' assets, employees or operations. All such
insurance policies are in full force and effect, are valid and enforceable, all
premiums due thereunder have been paid and cover against the risks of the
nature normally insured against by entities in the same or similar lines of
business in coverage amounts typically and reasonable carried by such entities.
Neither the Company nor any of its Subsidiaries have received notice of
cancellation of any such insurance policies.
4.15 LITIGATION. Except as set forth in the Company Reports filed with the
SEC prior to the date hereof, (i) there is no litigation or proceeding,
including, without limitation, any arbitration proceeding, in law or in equity,
and there are no proceedings or governmental investigations before any
commission or other administrative authority, pending or, to the Company's
knowledge, threatened against the Company or any of its Subsidiaries, which, if
adversely determined, is reasonably likely to have, either individually or in
the aggregate, a Company Material Adverse Effect; (ii) there is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator applicable to the Company or
any Company Subsidiaries having, or is reasonably likely to have, either
individually or in the aggregate, a Company Material Adverse Effect; and (iii)
to the knowledge of the Company, there is no action, suit, proceeding or
investigation pending or threatened against the Company, which seeks to
restrain, enjoin or delay the consummation of the Merger or any of the other
transactions contemplated hereby or which seeks damages in connection
therewith, and no injunction of any type referred to in Section 6.1(c) has been
entered or issued.
4.16 WARRANTIES. Neither the Company nor any of its Subsidiaries has made
any oral or written warranties with respect to the quality or absence of
defects of its products or services which they have sold or performed which are
in force as of the date hereof. There are no material claims pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries with respect to the quality of or absence of defects in such
products or services nor are there any facts known to the Company relating to
the quality of or absence of defects in such products or services which, if
known by a potential claimant or governmental authority, would reasonably give
rise to a material claim or proceeding. The Company's warranty policy is
generally described in the Disclosure Statement. The Company has no knowledge
of or reason to believe that the percentage of warranty claims for products
sold or services rendered by the Company and its Subsidiaries prior to the
Closing Date will exceed historical levels.
4.17 PRODUCTS LIABILITY. Neither the Company nor any of its Subsidiaries
have received any written notice relating to, nor does the Company have
knowledge of any facts or circumstances which could give rise to, any claim
involving any product manufactured, serviced, produced, distributed or sold by
or on behalf of the Company or its Subsidiaries resulting from an alleged
defect in design, manufacture, materials or workmanship, or any alleged failure
to warn, or from any breach of implied warranties or representations, other
than notices or claims that have been settled or resolved by the Company or its
Subsidiaries prior to the date of this Agreement.
4.18 TAXES.
(a) There have been properly completed and filed on a timely basis and in
correct form all material Returns required to be filed by the Company or any of
its Subsidiaries. As of the time of filing, the foregoing Returns were correct
and complete in all material respects. An extension of time within which to
file any Return which has not been filed has not been requested or granted.
(b) With respect to all amounts in respect of Taxes imposed upon the
Company or any of its Subsidiaries, or for which the Company or any of its
Subsidiaries is or could be liable, whether to taxing
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authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods or portions of periods ending on or before September 30, 1997, (i) all
applicable tax laws and agreements have been complied with in all material
respects, and (ii) all amounts required to be paid by the Company or its
Subsidiaries, to taxing authorities or others, on or before the date hereof
have been paid or adequately reserved for on the financial statements contained
in the Company Reports, and any Taxes accrued but not due and payable as of
September 30, 1997 have been accrued or otherwise reserved for in financial
statements contained in the most recent Company Report. No Taxes have been (or
will prior to the Closing Date be) recorded by the Company or any of its
Subsidiaries other than in the ordinary course of business. There are no Liens
filed against any asset of the Company or any of its Subsidiaries resulting
from the failure to pay any Tax when due.
(c) No material issues have been raised (and are currently pending) by
any taxing authority in connection with any of the Returns. No waivers of
statutes of limitation with respect to the Returns have been given by the
Company or any of its Subsidiaries (or with respect to any Return which a
taxing authority has asserted should have been filed by the Company or any of
its Subsidiaries) which waivers are still in effect. The Disclosure Statement
sets forth, for the past seven years, the years for which examinations or
audits of Florida state sales tax and federal income tax returns have been
completed, those years for which examinations or audits are presently being
conducted, and those years for which such returns will be required but are not
yet due to be filed and have not yet been filed. All deficiencies asserted or
assessments made as a result of any examinations have been fully paid, or are
fully reflected as a liability in the financial statements contained in the
Company Report, or are being contested and an adequate reserve therefor has
been established and is fully reflected as a liability in the financial
statements contained in the most recent Company Report.
(d) The unpaid Taxes of the Company or any of its Subsidiaries do not
materially exceed the reserve for tax liability (excluding any reserve for
deferred Taxes established to reflect timing differences between book and tax
income) set forth or included in the financial statements included in the most
recent Company Report, as adjusted for the passage of time through the Closing.
(e) Neither the Company nor any of its Subsidiaries is or at any time has
been a party to or bound by (nor will the Company or any of its Subsidiaries
become a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement.
(f) All material elections with respect to Taxes affecting the Company or
any of its Subsidiaries that are currently effective as of the date hereof that
are not reflected in the Company's Returns are set forth in the Disclosure
Statement.
(g) There are no challenges on appeals pending regarding the amount of
Taxes on, or the addressed valuation of, the Real Estate or the Leased
Premises, and no special arrangements or agreements exist with any governmental
authority with respect thereto (the representations and warranties contained in
this Section 4.18(h) shall not be deemed to be breached by any prospective
general increase in real estate taxes.)
(h) There is no assessment for Taxes (in addition to the normal, annual
general real estate tax assessment) pending against the Company, or to the
Company's knowledge, threatened with respect to any portion of the Real Estate
or, to the extent the Company or its Subsidiaries is liable for payment of the
Leased Premises.
4.19 ERISA.
(a) The Disclosure Statement contains a list and brief description of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA and referred to herein as a "Welfare Plan")
and all other
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Benefit Plans (defined herein as any Pension Plan, Welfare Plan and any other
plan, fund, program, arrangement or agreement to provide employees, directors,
independent contractors, officers or agents of any Commonly Controlled Entity
(as defined herein) with medical, health, life, bonus, stock (option, ownership
or purchase), deferred compensation, severance, salary continuation, vacation,
sick leave, fringe, incentive insurance or other benefits) maintained, or
contributed to, or required to be contributed to, by the Company or any of its
Subsidiaries or any other Person that, together with the Company at any time
during the last six years, is or was treated as a single employer under Section
414(b), (c), (m) or (o) of the Code (the Company and each such other Person, a
"Commonly Controlled Entity") for the benefit of any current or former
employees, officers or directors of the Company, any of its Subsidiaries or any
Commonly Controlled Entity. The Company has delivered or made available to AVS
true, complete and correct copies of (i) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to
each Benefit Plan (if any such report was required), (iii) the most recent
summary plan description for each Benefit Plan for which such summary plan
description is required, (iv) each trust agreement and group annuity contract
relating to any Benefit Plan; and (v) a list of all assets and liabilities of,
allocated to or accounted for separately with respect to every Benefit Plan
(including insurance contracts associated with every Benefit Plan regardless of
whether any current cash value exists). Each Benefit Plan has been established,
funded, maintained and administered in all material respects in accordance with
its terms and is in compliance with the applicable provisions of ERISA, the
Code, all other applicable laws and all applicable collective bargaining
agreements except where the failure to comply would not be reasonably expected
to result in a Company Material Adverse Effect.
(b) All Pension Plans have been the subject of favorable and up-to-date
(through any applicable remedial amendment period) determination letters from
the Internal Revenue Service, or a timely application therefor has been filed,
to the effect that such Pension Plans are qualified and exempt from federal
income taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor has any such Pension Plan been
amended since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs.
(c) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity has adopted or been obligated to contribute to any "defined
benefit pension plan" as defined in Section 3(35) of ERISA subject to Title IV
of ERISA in the five years preceding the date hereof.
(d) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity has been required at any time within the five calendar years
preceding the date hereof or is required currently to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA ) or has
withdrawn from any multiemployer plan where such withdrawal has either: (i)
resulted or would result in any "withdrawal liability" (within the meaning of
Section 4201 of ERISA) that has not been fully paid; or (ii) engaged in a
transaction that might have resulted in withdrawal liability but for the
application of Section 4204 of ERISA.
(e) With respect to any Welfare Plan, (i) no such Welfare Plan is funded
through a "welfare benefits fund", as such term is defined in Section 419(e) of
the Code, (ii) no such Welfare Plan is self-insured, and (iii) each such
Welfare Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies with the applicable requirements of Section
4980B(f) of the Code.
(f) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity nor any Person acting on behalf of the Company, its
Subsidiaries or any Commonly Controlled Entity has, in contemplation of any
corporate transaction involving AVS, issued any written communication to, or
otherwise made or entered into any legally binding commitment with, any
employees of the Company, any of its Subsidiaries or of any Commonly Controlled
Entity to the effect that, following the date hereof, (i) any benefits or
compensation provided to such employees under existing Benefit Plans or
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under any other plan or arrangement will be enhanced, (ii) any new plans or
arrangements providing benefits or compensation will be adopted, (iii) any
Benefit Plans will be continued for any period of time or cannot be amended or
terminated at any time or for any reason, or (iv) any plans or arrangements
provided by AVS will be made available to such employees.
(g) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity has ever promised or been obligated to provide former
employees with coverage or benefits under Benefit Plans, other than as required
by Section 4980B of the Code.
(h) All contributions or premiums owed by the Company any of its
Subsidiaries and Commonly Controlled Entities with respect to Benefit Plans
under law, contract or otherwise have been made in full and on a timely basis
and the Company, its Subsidiaries and Commonly Controlled Entities are not
obligated to contribute with respect to any Benefit Plan that involves a
retroactive contribution, assessment or funding waiver arrangement. All
administrative costs attributable to Benefit Plans have been paid when due.
(i) To the Company's knowledge, no Pension Plan or Welfare Plan or any
"fiduciary" or "party-in-interest" (as such terms are respectively defined by
Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction
prohibited by Section 406 of ERISA or 4975 of the Code for which a valid
exception is not available.
(j) There are no pending or, to the Company's knowledge, threatened
likely claims, lawsuits, arbitrations or audits asserted or instituted against
any Benefit Plan, any fiduciary (as defined by Section 3(21) of ERISA thereto,
the Company, any of its Subsidiaries, any Commonly Controlled Entity or any
employee or administrator thereof in connection with the existence, operation
or administration of a Benefit Plan, other than routine claims for benefits.
(k) Nothing in this Agreement or the transaction contemplated hereunder
will: (i) cause the termination or repricing of any insurance contract to which
the Company, any of its Subsidiaries or a Commonly Controlled Entity or Benefit
Plan is a party to the purposes of providing employee benefits; (ii) trigger a
right of any employee of the Company, any of its Subsidiaries, or any Commonly
Controlled Entity to severance, deferred compensation or retirement benefits;
or (iii) cause any early withdrawal or premature termination penalty with
respect to any asset held in connection with any Benefit Plan.
(l) Neither the Company, nor any of its Subsidiaries, nor any Commonly
Controlled Entity maintains any unfunded plan of deferred compensation.
4.20 LABOR MATTERS. Except for events that occur after the date hereof
which are disclosed in writing by the Company to AVS, (a) there is no labor
strike, dispute, slowdown, work stoppage or lockout pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries and during the past three years, there has not been any such
action; (b) to the knowledge of the Company there are no union claims to
represent the employees of the Company or any of its Subsidiaries, (c) neither
the Company nor any of its Subsidiaries is a party to or bound by any
collective bargaining or similar agreement with any labor organization, or work
rules or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any of its Subsidiaries;
(d) none of the employees of the Company or any of its Subsidiaries are
represented by any labor organization and the Company does not have any
knowledge of any current union organizing activities among the employees of the
Company or any of its Subsidiaries, nor to the knowledge of the Company does
any question concerning representation exist with respect to such employees;
(e) neither the Company nor any of its Subsidiaries is delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them to the date of this
Agreement or amounts required to be reimbursed to such employees; (f) upon
termination of the employment of any of the employees of the Company or any of
its Subsidiaries after the Closing, neither the Company nor any of its
Subsidiaries will be liable to any of its employees for
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severance pay, except as otherwise required by federal law; (g) the employment
of each of the Company's or its Subsidiaries' employees is terminable at will
without cost to the Company or any of its Subsidiaries except for payments
disclosed on the Disclosure Statement or required under the Plans, Welfare
Plans and Employee Benefit Plans and payment of accrued salaries or wages and
vacation pay; (h) the Disclosure Statement contains a true and complete list of
all employees who are employed by the Company or any of its Subsidiaries as of
December 31, 1997, and said list correctly reflects their salaries, wages and
other compensation (other than benefits under the Plans, Welfare Plans and
Employee Benefit Plans).
4.21 ENVIRONMENTAL MATTERS.
(a) The Company has obtained all licenses, permits and other
authorizations under Environmental Laws required for the conduct and operation
of its business and is in compliance with the terms and conditions contained
therein and is in compliance with other provisions of applicable Environmental
Laws, except where the failure to obtain such licenses, permits and other
authorizations or the non-compliance with the terms and conditions contained
therein or the non-compliance with other provisions of applicable Environmental
Laws would not singly or in the aggregate create a Company Material Adverse
Effect.
(b) To the knowledge of the Company, there is no condition on any
property currently or formerly owned or leased by the Company that would create
liability for the Company under Environmental Laws, except for liability that
would not singly or in the aggregate create a Company Material Adverse Effect.
(c) To the knowledge of the Company, there is no condition or any other
property owned by any third party that would create liability for the Company
under Environmental Laws, except for liability that would not singly or in the
aggregate create a Company Material Adverse Effect.
(d) There are no (and to the Company's knowledge there is no basis for
any) non-compliance orders or notices of violation (collectively "Notices"),
claims, suits, actions, judgments, penalties, fines, or administrative or
judicial investigations or proceedings (collectively "Proceedings") pending or,
to the knowledge of the Company, threatened against or involving the Company,
or its business, operations, properties or assets, issued by any Governmental
Authority with respect to any Environmental Laws or Licenses issued to the
Company thereunder in connection with, related to or arising out of the
ownership by the Company of its properties or assets or the operation of its
business, which have not been resolved in a manner that would not impose any
material obligation, burden or continuing material liability on AVS or the
Company in the event that the transactions contemplated by this Agreement are
consummated, or which could have a Material Adverse Effect on the Company.
(e) The Company does not use, nor has it used, any Aboveground Storage
Tanks (as defined in clause (g) below) or Underground Storage Tanks (as defined
in clause (g) below), and there are not now any Underground Storage Tanks
beneath any real property currently or previously owned or leased by the
Company that are required to be registered under applicable Environmental Laws.
(f) The Disclosure Statement identifies (i) all environmental audits,
assessments or occupational health studies undertaken by the Company or its
agents or undertaken by any Governmental Authority and known to the Company,
relating to the Company or any real property currently or previously owned or
leased by the Company; (ii) the results of any ground, water or soil monitoring
undertaken by the Company or undertaken by any Governmental Authority and known
to the Company relating to the Company or any real property currently or
previously owned or leased by the Company; and (iii) all material written
communications between the Company and any Governmental Authority arising under
or related to Environmental Laws.
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(g) For purposes of this Section 4.21, the following terms shall have the
meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to such term
in Section 6901 ET SEQ., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks.
"Company" means the Company and its Subsidiaries.
"Environmental Laws" means all federal, state, regional or local
statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees,
rulings, and changes or ordinances or judicial or administrative
interpretations thereof, or similar laws of foreign jurisdictions where the
Company conducts business, whether currently in existence or hereafter enacted
or promulgated, any of which govern (or purport to govern) or relate to
pollution, protection of the environment, public health and safety, air
emissions, water discharges, hazardous or toxic substances, solid or hazardous
waste or occupational health and safety, as any of these terms are or may be
defined in such statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings and changes or ordinances, or judicial or
administrative interpretations thereof, including, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendment and Reauthorization Act of 1986, 42
U.S.C. \s9601, ET SEQ. (collectively "CERCLA"); the Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. \s6901 ET SEQ.
(collectively "RCRA"); the Hazardous Materials Transportation Act, as amended,
49 U.S.C. \s1801, ET SEQ.; the Clean Water Act, as emended, 33 U.S.C. \s1311,
ET SEQ.; the Clean Air Act, as amended (42 U.S.C. \s7401-7642); the Toxic
Substances Control Act, as amended, 15 U.S.C. \s2601 ET SEQ.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. \s136-136y
("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as
amended, 42 U.S.C. \s11001, ET SEQ. (Title III of SARA) ("EPCRA"); the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. \s651, ET
SEQ. ("OSHA"); Chapters 376 and 403, Florida statutes; and Florida common law.
"Underground Storage Tank" shall have the meaning ascribed to such term
in Section 6901 ET SEQ., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Underground Storage Tanks.
4.22 INTERIM CONDUCT OF BUSINESS. Except as otherwise contemplated by this
Agreement, since September 30, 1997, neither the Company nor any of its
Subsidiaries has:
(a) sold, assigned, leased, exchanged, transferred or otherwise disposed
of any material portion of its assets or property, except for sales of
Inventory and cash applied in the payment of the Company's or its Subsidiaries'
liabilities in the usual and ordinary course of business in accordance with the
Company's or its Subsidiaries' past practices;
(b) written off any asset outside the ordinary course of business which
has a net book value which exceeds $25,000 in the aggregate in value, or
written off any amounts in the ordinary course of business in excess of
reserves which have been established for such purpose, which reserves are
adequate in accordance with GAAP applied on a consistent basis;
(c) suffered any casualty, damage, destruction or loss, or interruption
in use, of any material asset, property or portion of Inventory (whether or not
covered by insurance), on account of fire, flood, riot, strike or other hazard
or Act of God;
(d) waived any material right arising out of any material agreement other
than in the ordinary course of business;
(e) made (or committed to make) capital expenditures in an amount which
exceeds $10,000 for any item or $25,000 in the aggregate;
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(f) made any change in accounting methods or principles which are
required to be disclosed in the Company's financial statements in accordance
with GAAP;
(g) borrowed any money or issued any bonds, debentures, notes or other
corporate securities (other than equity securities), including without
limitation, those evidencing borrowed money except under existing credit
agreements;
(h) entered into any transaction with, or made any payment to, or
incurred any liability to, any Related Party (as defined herein)(except for
payment of salary and other customary expense reimbursements made in the
ordinary course of business to Related Parties who are employees of the Company
or its Subsidiaries);
(i) increased the compensation payable to any employee, except for normal
pay increases in the ordinary course of business consistent with past
practices;
(j) made any payments or distributions to its employees, officers or
directors except such amounts as constitute currently effective compensation
for services rendered, or reimbursement for reasonable ordinary and necessary
out-of-pocket business expenses;
(k) paid or incurred any management or consulting fees, or engaged any
consultants, except in the ordinary course of business;
(l) hired any employee who has an annual salary in excess of $75,000;
(m) terminated any employee having an annual salary or wages in excess of
$50,000;
(n) adopted any new Plan, Welfare Plan or Employee Benefit Plan;
(o) issued or sold any securities of any class, except for the exercise
of options to purchase Company Common Stock under the Company Option Plans;
(p) paid, declared or set aside any dividend or other distribution on its
securities of any class, or purchased, exchanged or redeemed any of its
securities of any class; or
(q) without limitation by the enumeration of any of the foregoing,
entered into any material transaction other than in the usual and ordinary
course of business in accordance with past practices.
Notwithstanding the foregoing, the Company shall not be deemed to have breached
the terms of this Section 4.22 by entering into this Agreement or by
consummating the transactions contemplated hereby.
4.23 AFFILIATED TRANSACTIONS. Except as disclosed in any Company Report
filed with the SEC prior to the date of this Agreement, since September 30,
1997, neither the Company nor any of its Subsidiaries has been a party to any
transactions (other than employee compensation and other ordinary incidents of
employment) with a "Related Party," For purposes of this Agreement, the term
"Related Party" shall mean: any present officer or director, 10% stockholder
(including any officers or directors thereof) or present affiliate of the
Company or any of its Subsidiaries, any present or former known spouse of any
of the aforementioned persons or any trust or other similar entity for the
benefit of any of the foregoing persons. Prior to the Closing, all amounts due
and owing to or from the Company or its Subsidiaries by or to any of the
Related Parties (excluding employee compensation and other incidents of
employment) shall be paid in full.
4.24 MATERIAL ADVERSE CHANGE. Since September 30, 1997 to the date of this
Agreement, there has not been any material adverse change in the business,
operations, assets, liabilities, financial condition or prospects of the
Company or its Subsidiaries, taken as a whole.
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4.25 REPRESENTATIONS REGARDING THE AVAERO NOISE REDUCTION JOINT VENTURE.
(a) AvAero Noise Reduction Joint Venture (the "Joint Venture") is a
general partnership duly organized and validly existing under the laws of the
State of Delaware having the requisite power and authority to own or lease its
properties and to carry on its business as now being conducted. The Joint
Venture is qualified to transact business in all jurisdictions in which it owns
or leases real property or in which the conduct of its business requires it to
be qualified, except where the failure to be so qualified would not have a
Joint Venture Material Adverse Effect.
(b) The Joint Venture Agreement made and entered into as of January 5,
1994 by and among Aero Hushkit Corporation, a Delaware corporation ("AHC"), WDW
Aviation Management, Inc., a Delaware corporation and Avro Corp, a California
corporation (the "Joint Venture Agreement"), has been duly executed and
delivered and constitutes the legal, valid and binding obligation of AHC and,
to the knowledge of the Company, each of the other parties thereto, enforceable
against AHC and, to the knowledge of the Company, each of the other parties
thereto in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
(c) The record owners of all the outstanding partnership interests of the
Joint Venture are set forth in the Joint Venture Agreement and the partnership
interest of AHC in the Joint Venture is free of all Liens, other than Permitted
Encumbrances.
(d) To the Company's knowledge the execution and delivery of this
Agreement by the Company, the performance by it of its obligations hereunder
and the consummation by it of the transactions contemplated by this Agreement
will not (i) contravene any provision of the Joint Venture Agreement or other
organizational documents of the Joint Venture, (ii) violate or conflict with
any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any Governmental Authority or of any arbitration award
which is either applicable to, binding upon or enforceable against the Joint
Venture, (iii) conflict with, result in any breach of, or constitute a default
(or an event which would, with the passage of time or the giving of notice or
both, constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any material contract which is applicable to,
binding upon or enforceable against the Joint Venture, (iv) result in or
require the creation or imposition of any Lien upon or with respect to any of
the property, assets or the issued and outstanding interests of the Joint
Venture, or give rise to a right to buy the partnership interest of AHC in the
Joint Venture, or (v) require the consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person in connection with the Joint Venture.
(e) A copy of each of the Joint Venture Agreement, the Manufacturing
Agreement, the Credit Agreement, the Loan Assumption Option Agreement and the
Contribution Agreement has been previously provided by the Company to AVS and
each is true, accurate and complete and reflects all amendments made through
the date of this Agreement.
(f) The Company has delivered to AVS the financial statements of the
Joint Venture, consisting of balance sheets and related statements of income
and cash flows and notes thereto described as follows: (i) for the years ended
December 31, 1996 and 1997 (the "Annual Statements"); and (ii) interim
unaudited financial statements of the Joint Venture for the two months ended
February 28, 1998 (the "Interim Statements"). The Interim Statements together
with the Annual Statements are collectively referred to as the "Financial
Statements." A copy of each of the Financial Statements are attached to the
Disclosure Statement. The Financial Statements fairly present in all material
respects the financial position of the Joint Venture at each of the balance
sheet dates and the results of operations of the Joint Venture for the periods
covered thereby. The Annual Statements have been prepared in accordance with
GAAP consistently applied throughout the periods indicated, except as otherwise
indicated therein or in the notes thereto. The Interim Statements have been
prepared in
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accordance with GAAP except for normal year-end audit adjustments, the absence
of footnotes and as set forth on the Disclosure Statement.
(g) To the Company's knowledge, and other than in the ordinary course of
business consistent with past practice, since the date of the Interim
Statements, the Joint Venture has not: (i) sold, leased or transferred any of
its properties or assets; (ii) made or obligated itself to make capital
expenditures; (iii) made any payment in respect of its liabilities; (iv)
incurred any obligations or liabilities (including any indebtedness) or entered
into any transaction or series of transactions involving in excess of $50,000
in the aggregate; (v) suffered any theft, damage, destruction or casualty loss,
not covered by insurance and for which a timely claim was filed, in excess of
$50,000 in the aggregate; (vi) suffered any extraordinary losses (whether or
not covered by insurance); (vii) waived, canceled, compromised or released any
rights under any material contract or agreement to which the Joint Venture is a
party having a value in excess of $50,000 in the aggregate; (viii) entered into
any transaction with any affiliate of the Joint Venture; (ix) entered into,
terminated, amended or modified any material contract; (x) imposed any security
interest or other Lien on any of its assets, other than Permitted Encumbrances;
or (xi) delayed paying any accounts payable which are due and payable except to
the extent being contested in good faith;. Except as set forth on the
Disclosure Statement, to the Company's knowledge, since the date of the Interim
Statements, the Joint Venture has not made or adopted any changes in its
accounting practices or policies.
(h) To the Company's knowledge, the Joint Venture does not have any
material liabilities or obligations, whether accrued, absolute, contingent or
otherwise, except (i) to the extent reflected or taken into account in its
Financial Statements and not heretofore paid or discharged, (ii) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of its Interim Statements (none of which relates to breach of
contract, breach of warranty, tort, infringement or violation of law, or which
arose out of any action, suit, claim, governmental investigation or arbitration
proceeding), (iii) normal accruals, reclassifications, and audit adjustments
which would be reflected on an audited financial statement and (iv) liabilities
incurred in the ordinary course of business.
(i) To the Company's knowledge, there is no action, suit or other legal
or administrative proceeding or governmental investigation pending, or to the
best knowledge of the Company, threatened, by or against the Joint Venture or
affecting the Joint Venture or any of its properties or assets which, if
adversely determined, is reasonably likely to have a Joint Venture Material
Adverse Effect or which questions the validity or enforceability of the Joint
Venture Agreement. To the Company's knowledge, there are no outstanding orders
or decrees issued by any Governmental Authority in any proceeding to which the
Joint Venture is or was a party which have not been complied with in full.
4.26 INAPPROPRIATE PAYMENTS. Neither the Company, its Subsidiaries nor, to
the Company's knowledge, any of their respective officers, directors, principal
stockholders, employees, agents or representatives has made, directly or
indirectly, with respect to the Company, its Subsidiaries or their respective
business activities, any bribes or kickbacks, illegal political contributions,
payments from corporate funds not recorded on the books and records of the
Company or its Subsidiaries, payments from corporate funds to governmental
officials, in their individual capacities, for the purpose of affecting their
action or the action of the government they represent, to obtain favorable
treatment in securing business or licenses or to obtain special concessions, or
illegal payments from corporate funds to obtain or retain business.
4.27 ABSENCE OF INDEMNIFIABLE CLAIMS, ETC. There are no pending claims
and, to the knowledge of the Company, no facts that would reasonably entitle
any director, officer or employee of the Company or its Subsidiaries to
indemnification by the Company or its Subsidiaries under applicable law, the
Certificate of Incorporation or By-laws of the Company or its Subsidiaries or
any insurance policy maintained by the Company or its Subsidiaries.
4.28 NO UNDISCLOSED LIABILITIES. There are no liabilities or obligations
of any nature (whether accrued, absolute or contingent) of the Company or its
Subsidiaries other than (i) liabilities disclosed or
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provided for in the most recent financial statements contained in the Company
Reports; (ii) liabilities which, individually or in the aggregate, are not
material to the Company or its Subsidiaries; (iii) liabilities under this
Agreement (or contemplated hereby) or disclosed in the Disclosure Statement and
(iv) liabilities incurred since September 30, 1997 in the ordinary course of
business and consistent with past practices.
4.29 NO BROKERS. Neither the Company nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of the Company or AVS, AVS Sub or their
respective Subsidiaries to pay any finder's fee, brokerage or agent's
commissions or other like payments in connection with negotiations leading to
this Agreement or the consummation of the transactions contemplated hereby
provided, however, that the Company has retained Ladenburg, Thalmann & Co.,
Inc. ("Ladenburg") to render an opinion with respect to the fairness of the
consideration to be received by the Company's stockholders in the Merger and
has agreed to pay a fee to Ladenburg.
4.30 TAX REORGANIZATION AND POOLING OF INTEREST ACCOUNTING TREATMENT.
Neither the Company nor any of its Subsidiaries has taken or failed to take any
action which would prevent the Merger from (a) constituting a reorganization
within the meaning of section 368(a) of the Code or (b) being treated as a
"pooling or interests" in accordance with Accounting Principles Board Opinion
No. 16, the interpretative releases issued pursuant thereto, and the
pronouncements of the SEC.
4.31 OPINION OF FINANCIAL ADVISOR. The Company has been orally advised by
Ladenburg to the effect that, as of the date hereof, the consideration to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view.
4.32 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company or any of its affiliates, directors, officers,
employees, agents or representatives in writing specifically for inclusion or
incorporation by reference in, and which is included or incorporated by
reference in, (i) the Form S-4 or any amendment or supplement thereto; (ii) the
Company Proxy Statement, (iii) the proxy statement to be mailed to AVS'
stockholders (the "AVS Proxy Statement") in connection with the meeting of AVS'
stockholders called to consider and vote upon the approval of the Merger (the
"AVS Stockholder Meeting") or (iv) any other documents filed or to be filed
with the SEC or any other Governmental Authority in connection with the
transactions contemplated hereby, will, at the respective times such documents
are filed, and in the case of the Form S-4 or any amendment or supplement
thereto, when the same becomes effective, at the time of the Company
Stockholder Meeting and at the Effective Time, and, in the case of the Company
Proxy Statement or any amendment or supplement to either thereof, at the time
of mailing of the Company Proxy Statement to Company's stockholders or at the
time of the Company Stockholders Meeting or any other meeting of the Company's
stockholders to be held in connection with the Merger, and, in the case of the
AVS Proxy Statement or any amendment or supplement thereto, at the time of the
AVS Stockholder Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or necessary to correct any statement in any earlier
communication. The Form S-4 (to the extent that the Company Proxy Statement
constitutes the prospectus thereunder) and the Company Proxy Statement will
comply as to form in all material respects with the applicable provisions of
the Securities Act, the Exchange Act and the respective rules and regulations
under any such Act.
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ARTICLE V
COVENANTS
5.1 ALTERNATIVE PROPOSALS.
(a) Prior to the Effective Time, the Company agrees that neither it nor
any of its Subsidiaries shall, and it shall direct and cause its officers,
directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of the Subsidiaries) not to, (i) initiate or solicit, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to the stockholders of
the Company) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company or its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "Alternative Proposal"),
(ii) engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal, or (iii) subject to subsection (b) of this
Section 5.1, enter into any agreement or understanding with any Person other
than AVS with the intent to effect any Alternative Proposal; provided that
nothing contained in this Section 5.1 shall prohibit the Company or the Board
of Directors of the Company (the "Company Board"), to the extent required by
their fiduciary duties under applicable law, from providing information to, or
participating in discussions with, any party that makes an unsolicited inquiry
with respect to the Company if the Company Board reasonably believes such party
may propose an Alternative Proposal on terms that are superior, from a
financial point of view, to the terms of the Merger for the stockholders of the
Company. The Company will immediately give written notice to AVS of its receipt
of any Alternative Proposal or inquiry with respect to making an Alternative
Proposal. Nothing contained herein shall be construed to prohibit the Company
or the Company Board from making any disclosure to its stockholders which, in
the judgment of the Company Board as advised by counsel, may be required by
applicable law in connection with any such proposal or offer.
(b) Except as set forth in this Section 5.1, the Company Board shall not
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Alternative Proposal. Notwithstanding the foregoing, if the
Company Board, after consultation with and based upon the advice of independent
legal counsel, determines in good faith that it is necessary to do so in order
to comply with its fiduciary duties to stockholders under applicable law, the
Company Board may approve or recommend a Superior Proposal (as defined below)
or cause the Company to enter into an agreement with respect to, a Superior
Proposal, but in each case only after providing prompt written notice to AVS
advising that the Company Board has determined to approve or recommend, or
authorize the Company to enter into an agreement with respect to, a Superior
Proposal. For purposes of this Agreement, a "Superior Proposal" means an
Alternative Proposal on terms which the Company Board determines in its good
faith judgment to be more favorable to the Company's stockholders than the
Merger.
5.2 INTERIM OPERATIONS.
(a) During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
except as set forth in the Disclosure Statement, unless AVS has consented in
writing thereto (which consent shall not be unreasonably withheld), the Company
shall, and shall cause each of its Subsidiaries to:
(i) conduct their respective operations according to their usual, regular
and ordinary course in substantially the same manner as heretofore
conducted;
(ii) to the extent consistent with their respective businesses, use
commercially reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the
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services of their respective officers and employees and maintain
satisfactory relationships with those persons having business relationships
with them;
(iii) not amend their respective Certificates of Incorporation or By-Laws
or comparable governing instruments;
(iv) promptly notify AVS of any Company Material Adverse Effect, any
material litigation or material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated),
or the material breach of any representation or warranty contained herein;
(v) promptly deliver to AVS true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(vi) not (A) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date hereof
and disclosed pursuant to this Agreement, issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
existed on the date hereof; (B) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire
any shares of its capital stock; (C) increase any compensation or enter
into or amend any employment agreement with any of its present or future
officers, directors or employees, except for normal increases consistent
with past practice; (D) grant any severance or termination package to any
employee or consultant, except to the extent consistent with past
practices; (E) hire any new employee who shall have, or terminate the
employment of any employee who has, an annual salary in excess of $50,000;
or (F) adopt any new employee benefit plan (including any stock option,
stock benefit or stock purchase plan) or amend any existing employee
benefit plan in any material respect, except for changes which are less
favorable to participants in such plans;
(vii) not (A) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock or
other ownership interests; or (B) directly or indirectly, redeem, purchase
or otherwise acquire any shares of its capital stock, or make any
commitment for any such action;
(viii) not enter into any agreement or transaction, or agree to enter
into any agreement or transaction, outside the ordinary course of business,
including, without limitation, any transaction involving a merger,
consolidation, joint venture, license agreement partial or complete
liquidation or dissolution, reorganization, recapitalization, restructuring
or a purchase, sale, lease or other disposition of a material portion of
assets or capital stock;
(ix) not incur any indebtedness for borrowed money (other than borrowings
under the Company's existing credit agreement) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of others;
(x) not make any loans, advances or capital contributions to, or
investments in, any other Person in excess of $10,000;
(xi) Except as described in the Disclosure Statement, not make or commit
to make any capital expenditures in excess of $25,000 individually or
$50,000 in the aggregate;
(xii) not apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any affiliate or Related Party or enter
into any transaction with any affiliate or Related Party (except for
payment of salary and other customary expense reimbursements made in the
ordinary course of business to Related Parties who are employees, directors
or consultants of the Company or its Subsidiaries);
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(xiii) not voluntarily elect to alter the manner of keeping its books,
accounts or records, or change in any manner the accounting practices
therein reflected, except for changes in accounting laws which effect all
companies in the business of the Company generally and those indicated by
good accounting practices;
(xiv) not grant or make any mortgage or pledge or subject itself or any
of its material properties or assets to any lien, charge or encumbrance of
any kind, except Permitted Encumbrances, and liens granted to incur the
indebtedness contemplated by Section 5.2(a)(ix) hereof; and
(xv) maintain insurance on its tangible assets and its businesses in such
amounts and against such risks and losses as are currently in effect.
(b) During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
except as set forth in the Disclosure Statement, unless the Company has
consented in writing thereto (which consent shall not be unreasonably
withheld), AVS shall, and shall cause each of its Subsidiaries to:
(i) conduct their respective operations according to their usual, regular
and ordinary course in substantially the same manner as heretofore
conducted;
(ii) promptly deliver to the Company true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(iii) promptly notify the Company of any AVS Material Adverse Effect, any
material litigation or material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated),
or the material breach of any representation or warranty contained herein;
(iv) promptly notify the Company of its entering into any agreement with
respect to any material transaction involving a merger, consolidation,
joint venture, partial or complete liquidation or dissolution,
reorganization or recapitalization, restructuring or a purchase, sale,
lease or other disposition of a material portion of assets or capital
stock;
(v) not take any action that would result in a failure to maintain the
trading of AVS Common Stock on the NYSE; and
(vi) with respect to AVS only (and not its Subsidiaries), not (A)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests; or (B) directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock, or make any commitment for any
such action.
5.3 MEETINGS OF STOCKHOLDERS. Each of AVS and the Company will take all
action necessary in accordance with applicable law and its Certificate of
Incorporation and Bylaws to convene the AVS Stockholder Meeting and the Company
Stockholder Meetings as promptly as practicable to consider and vote upon the
approval of the Merger, this Agreement and the transactions contemplated
hereby. The Boards of Directors of AVS and the Company Board (subject in the
case of the Company Board to Section 5.1(b)) shall recommend such approval and
each of AVS and the Company shall take all lawful action to solicit such
approval, including, without limitation, timely mailing the AVS Proxy Statement
and the Company Proxy Statement.
5.4 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and AVS shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (b) use all reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Time
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with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and (ii) timely making
all such filings and timely seeking all such consents, approvals, permits or
authorizations; (c) use commercially reasonable efforts to obtain all consents
under or with respect to, any Permit, contract, lease, agreement, purchase
order, sales order or other instrument, where the consummation of the
transactions contemplated hereby would be prohibited or constitute an event of
default, or grounds for acceleration or termination, in the absence of such
consent; and (d) take, or cause to be taken, all other commercially reasonable
actions as are reasonably necessary, proper or appropriate to consummate and
make effective the transactions contemplated by this Agreement.
5.5 INSPECTION OF RECORDS. From the date hereof to the Effective Time, the
Company shall (a) allow all designated officers, attorneys, accountants and
other representatives of AVS reasonable access at all reasonable times to the
offices, records and files, correspondence, audits and properties, as well as
to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs of the Company
and its Subsidiaries; (b) furnish to AVS, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such persons may reasonably request; and (c) instruct
the employees, counsel and financial advisors of the Company and its
Subsidiaries to cooperate with AVS and its investigation of the business of the
Company and its Subsidiaries. From the date hereof to the Effective Time, AVS
shall (a) furnish to the Company, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such persons may reasonably request, and (b) instruct the
officers, counsel and financial advisors of AVS to cooperate with the Company
in its investigation of the business of AVS and its Subsidiaries. All
information disclosed by the Company to AVS and its representatives or by AVS
to the Company and its representatives shall be subject to the terms of those
certain Confidentiality Agreements (the "Confidentiality Agreement") dated as
of January 5, 1998 between AVS and the Company.
5.6 PUBLICITY. Neither party hereto shall make any press release or public
announcement with respect to this Agreement, the Merger or the transactions
contemplated hereby without the prior written consent of the other party hereto
(which consent shall not be unreasonably withheld); provided, however, that
each party hereto may make any disclosure or announcement which such party, in
the opinion of its legal counsel, is obligated to make pursuant to applicable
law or regulation of the New York Stock Exchange, in which case, the party
desiring to make the disclosure shall consult with the other party hereto prior
to making such disclosure or announcement.
5.7 REGISTRATION STATEMENT; PROXY STATEMENT.
(a) AVS and the Company shall cooperate and promptly prepare and file
with the SEC as soon as practicable (i) the Company Proxy Statement, (ii) the
AVS Proxy Statement and (iii) a Registration Statement on Form S-4 (the "Form
S-4") under the Securities Act, with respect to the AVS Common Stock issuable
in the Merger, a portion of which Registration Statement shall also serve as
the Company Proxy Statement. The respective parties will cause the Company
Proxy Statement, the AVS Proxy Statement and the Form S-4 to comply as to form
in all material respects with the applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations promulgated thereunder. AVS
shall use all reasonable efforts, and the Company will cooperate with AVS, to
cause the Form S-4 to be declared effective by the SEC as promptly as
practicable and to continue to be effective as of the Effective Time. AVS shall
use its best efforts to obtain, prior to the effective date of the Form S-4,
all necessary state securities law or "Blue Sky" permits or approvals required
to carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto. No amendment or supplement to the Company Proxy
Statement, the AVS Proxy Statement or the Form S-4 will be made by AVS or the
Company without the approval of the other party, which approval shall not be
unreasonably withheld. AVS will advise the Company, promptly after it receives
notice thereof, of the
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time when the Form S-4 has become effective, the issuance of any stop order, or
the suspension of the qualification of the AVS Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction.
(b) Each of the parties shall notify the other party promptly after
receipt by such first party of any comments of the SEC on, or of any request by
the SEC for amendments or supplements to, the Company Proxy Statement, the AVS
Proxy Statement or the Form S-4. Each of the parties shall supply the other
party with copies of all correspondence between such party or any of its
representatives and the SEC with respect to any of the foregoing filings. If at
any time prior to the AVS Stockholder Meeting any event shall occur relating to
the Company or any of its Subsidiaries or any of their respective officers,
directors or affiliates which should be described in an amendment to the AVS
Proxy Statement, the Company shall inform AVS promptly after becoming aware of
such event. If at any time prior to the Effective Time, any event shall occur
relating to the Company or any of its Subsidiaries or any of their respective
officers, directors or affiliates which should be described in an amendment or
supplement to the Company Proxy Statement or the Form S-4, the Company shall
inform AVS promptly after becoming aware of such event. If at any time prior to
the Company Stockholder Meeting, any event shall occur relating to AVS or any
of its Subsidiaries or any of their respective officers, directors or
affiliates which should be described in an amendment or supplement to the
Company Proxy Statement, AVS shall inform the Company promptly after becoming
aware of such event. Whenever the Company or AVS learn of the occurrence of any
event which should be described in an amendment of, or supplement to, the AVS
Proxy Statement, the Company Proxy Statement or the Form S-4, the parties shall
cooperate to promptly cause such amendment or supplement to be prepared, filed
with and cleared by the SEC and, if required by applicable law, disseminated to
the persons and in the manner required.
5.8 FURTHER ACTION. Subject to the terms and conditions of this Agreement
and applicable law, each of the parties hereto shall use its reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement as soon as reasonably
practicable, including such actions or things as any other party hereto may
reasonably request in order to cause any of the conditions to such other
party's obligation to consummate such transactions specified in Article VI to
be fully satisfied. Without limiting the generality of the foregoing, the
parties shall (and shall cause their respective Subsidiaries, and use their
reasonable efforts to cause their respective affiliates, directors, officers,
employees, agents, attorneys, accountants and representatives, to) consult and
fully cooperate with and provide reasonable assistance to each other in (i) the
preparation and filing with the SEC of the Form S-4, the Company Proxy
Statement, the AVS Proxy Statement, and any necessary amendments or supplements
to any thereof; (ii) seeking to have each such proxy statement cleared, and the
Form S-4 declared effective, by the SEC as soon as reasonably practicable after
filing; (iii) taking such actions as may be required under applicable state
securities or blue sky laws in connection with the issuance of the AVS Common
Stock pursuant to the Merger, (iv) obtaining all necessary consents, approvals,
waivers, licenses, permits, authorizations, registrations, qualifications, or
other permission or action by, and giving all necessary notices to and making
all necessary filings with and applications and submissions to, any
Governmental Authority or other person or entity; (v) lifting any permanent or
preliminary injunction or restraining order or other similar order issued or
entered by any court or governmental entity of any type referred to in Section
6.1(c); (vi) obtaining the tax opinions referred to in Sections 6.2(f) and
6.3(h); (vii) providing all such information about such party, its Subsidiaries
and its officers, directors and affiliates and making all applications and
filings as may be necessary or reasonably requested in connection with any of
the foregoing; and (viii) in general, consummating and making effective the
transactions contemplated hereby.
5.9 AFFILIATE LETTERS. At least 10 days prior to the Closing Date, the
Company shall deliver to AVS a list of names and addresses of those persons who
were or will be, in the Company's reasonable judgment, at the record date for
its stockholders' meeting to approve the Merger, "affiliates" (each such
person, an "Affiliate") of the Company within the meaning of Rule 145 of the
rules and regulations promulgated under the Securities Act. The Company shall
deliver or cause to be delivered to AVS,
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prior to the Closing Date, from each of the Affiliates of the Company
identified in the foregoing list, an Affiliate Letter in substantially the form
attached hereto as Exhibit A. AVS shall be entitled to place legends as
specified in such Affiliate Letters on the certificates evidencing any AVS
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the AVS Common Stock, consistent with the terms of such Affiliate
Letters.
5.10 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
(a) as otherwise expressly provided for herein; and (b) the expenses incurred
in connection with printing and mailing the Form S-4 and the Company Proxy
Statement shall be shared equally by the Company and AVS. The costs of printing
and mailing the AVS Proxy Statement and the HSR Act filing fees in connection
with the Merger shall be borne by AVS.
5.11 TAX TREATMENT OF MERGER AND POOLING OF INTEREST ACCOUNTING TREATMENT.
From and after the date hereof and until the Effective Time, neither AVS nor
the Company nor any of their respective Subsidiaries or other affiliates shall
(a) knowingly take any action, or knowingly fail to take any action, that would
jeopardize qualification of the Merger as (i) a reorganization within the
meaning of Section 368(a) of the Code; or (ii) a "pooling of interests" for
accounting purposes; or (b) enter into any contract, agreement, commitment or
arrangement with respect to the foregoing. After the Effective Time, AVS shall
not take or fail to take (and shall cause the Surviving Corporation not to take
or fail to take) any action that is reasonably likely to jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
5.12 EMPLOYEE BENEFIT PLANS. AVS covenants and agrees that it will
continue the Company's existing benefit plans and arrangements for a period of
up to three (3) months following the Effective Date. Thereafter, to the extent
the existing benefit plans and arrangements provided by the Company to its
employees are terminated, such employees who remain employees of the Surviving
Corporation or AVS or any of its Subsidiaries shall be entitled to participate
in all benefit plans and arrangements that are available and subsequently
become available to AVS's employees on the same basis as AVS's employees in
similar positions are eligible to participate. For purposes of satisfying the
terms and conditions of such plans, AVS shall give full credit for eligibility,
vesting or benefit accrual for each participant's period of service with the
Company prior to the Effective Time. To the extent AVS's benefit plans provide
medical or dental welfare benefits after the Closing Date, AVS shall cause all
pre-existing condition exclusions and actively at work requirements to be
waived and AVS shall provide that any expenses incurred on or before the
Closing Date shall be taken into account under AVS's benefit plans for purposes
of satisfying the applicable deductible, coinsurance and maximum out-of-pocket
provisions for such employees and their covered dependents.
5.13 COMPANY OPTIONS. Immediately after the Effective Time, but in any
event, no later than 5 days after the Closing Date, AVS shall register the
shares of AVS Common Stock issuable upon exercise of such Company Options with
the SEC on Form S-8, to the extent that such Company Options may be registered
on such form.
5.14 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Until six years from the Effective Time, unless otherwise required by
Law, the certificate of incorporation and by-laws of the Surviving Corporation
shall contain provisions no less favorable with respect to the elimination of
liability of directors and the indemnification of (and advancement of expenses
to) directors, officers, employees and agents that are set forth in the
certificate of incorporation and by-laws of the Company, as in effect on the
date hereof.
(b) From and after the Effective Time, AVS and the Surviving Corporation
shall, jointly and severally, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director, employee
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or agent of the Company or any of its Subsidiaries (collectively, the
"Indemnified Parties") against all losses, reasonable expenses (including
reasonable attorneys' fees), claims, damages, liabilities or amounts that are
paid in settlement of, or otherwise in connection with, any threatened or
actual claim, action, suit, proceeding or investigation (a "Claim"), based in
whole or in part on or arising in whole or in part out of the fact that the
Indemnified Party (or the person controlled by the Indemnified Party) is or was
a director, officer, employee or agent of the Company or any of its
Subsidiaries and pertaining to any matter existing or arising out of actions or
omissions occurring at or prior to the Effective Time including, without
limitation, any Claim arising out of this Agreement or any of the transactions
contemplated hereby), whether asserted or claimed prior to, at or after the
Effective Time, in each case to the fullest extent permitted under Delaware
law, and shall pay any expenses, as incurred, in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under Delaware law. Without limiting the foregoing, in
the event any such Claim is brought against any of the Indemnified Parties, (i)
such Indemnified Parties may retain counsel (including local counsel)
satisfactory to them and which shall be reasonably satisfactory to AVS and the
Surviving Corporation and AVS and the Surviving Corporation shall pay, jointly
and severally, all reasonable fees and expenses of such counsel for such
Indemnified Parties; and (ii) AVS and the Surviving Corporation shall use all
reasonable efforts to assist in the defense of any such Claim, provided that
AVS and the Surviving Corporation shall not be liable for any settlement
effected without their written consent, which consent, however, shall not be
unreasonably withheld. Notwithstanding the foregoing, nothing contained in this
Section 5.14 shall be deemed to grant any right to any Indemnified Party which
is not permitted to be granted to an officer, director, employee or agent of
the Company under Delaware law, assuming for such purposes that the Company's
certificate of incorporation and by-laws provide for the maximum
indemnification permitted by law.
5.15 PUBLICATION OF POST-MERGER RESULTS. AVS shall use its reasonable best
efforts to cause financial results covering at least thirty days of post-Merger
combined operations to be published in its first report of quarterly financial
statements as soon as practicable after such information is required to be
filed with the SEC.
5.16 VOTING AGREEMENT--COMPANY. On the date hereof, each of Cambridge
Capital Fund, L.P. and Baker Nye, L.P., acting solely in their capacity as
stockholders of the Company, shall enter into a voting agreement in the form
attached hereto as Exhibit B.
5.17 VOTING AGREEMENT--AVS. On the date hereof, each of AVAC Corporation,
RCP Management LP, Robert Alpert, Dale S. Baker and Harold M. Woody, acting
solely in their capacity as stockholders of AVS, shall enter into a voting
agreement in the form attached hereto as Exhibit C.
5.18 CONFIDENTIALITY. Each party shall, and shall use its reasonable
efforts to cause its officers, employees and authorized representatives to, (i)
hold in confidence all confidential information obtained by it or them from any
other party or any of such other party's officers, employees or authorized
representatives pursuant to this Agreement (unless such information is or
becomes publicly available or readily ascertainable from public or published
information or trade sources through no wrongful act of such first party) and
(ii) use all such data and information solely for the purpose of consummating
the transactions contemplated hereby, except, in either case, as may be
otherwise required by law or legal process or as may be necessary or
appropriate in connection with the enforcement of, or any litigation
concerning, this Agreement. In the event this Agreement is terminated, each
party shall promptly return, if so requested by any other party, all nonpublic
documents obtained from such other party in connection with the transactions
contemplated hereby and any copies thereof which may have been made by such
first party and shall use its reasonable efforts to cause its officers,
employees and authorized representatives to whom such documents were furnished
promptly to return such documents and any copies thereof any of them may have
made.
5.19 DEFENSE OF LITIGATION. Each of the parties agrees to vigorously
defend against all actions, suits or proceedings in which such party is named
as a defendant which seek to enjoin, restrain or prohibit the transactions
contemplated hereby or seek damages with respect to such transactions. No
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party shall settle any such action, suit or proceeding or fail to perfect on a
timely basis any right to appeal any judgment rendered or order entered against
such party therein without the consent of the other party (which consent shall
not be withheld unreasonably). Each of the parties further agrees to use its
reasonable efforts to cause each of its affiliates, directors and officers to
vigorously defend any action, suit or proceeding in which such affiliate,
director or officer is named as a defendant and which seeks any such relief to
comply with this Section to the same extent as if such person were a party
hereto.
5.20 ACTIONS BY AVS SUB. In its capacity as sole stockholder of AVS Sub,
AVS shall cause AVS Sub to approve and adopt the Merger and to take all
corporate action necessary on its part to consummate the Merger and the
transactions contemplated hereby.
5.21 TAKEOVER STATUTES. If any "fair price", "moratorium", "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, each of the Company, AVS
and AVS Sub and their respective members of their Boards of Directors shall
grant such approvals to take such actions as are necessary to that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated herein and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated herein.
5.22 NYSE LISTING. AVS agrees to use its reasonable efforts to cause the
AVS Common Stock to be issued to the stockholders of the Company to have been
authorized for trading on the NYSE, subject only to official notice of listing.
5.23 TERMINATION OF CONFIDENTIALITY AND SECRECY AGREEMENTS. The Company
shall terminate all confidentiality agreements and secrecy agreements to which
it and any of it Subsidiaries are a party relating to the exchange of
information for purposes of evaluating potential acquisitions of any entity.
5.24 BOARD OF DIRECTORS. Effective immediately after the Effective Time,
(a) the number of members of the Board of Directors of AVS will be increased to
eight (8) and (b) George F. Baker shall be appointed as a member of the Board
of Directors of AVS to serve for a term expiring at the annual meeting of the
stockholders of AVS to be held in 2001 and Jeffrey N. Greenblatt shall be
appointed as a member of the Board of Directors of AVS to serve for a term
expiring at the annual meeting of stockholders of AVS to be held in 2000.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions (unless waived by each of the parties hereto in accordance with the
provisions of Section 7.6 hereof):
(a) This Agreement and the Merger and other transactions contemplated
hereby shall have been approved and adopted by the requisite vote of the
stockholders of AVS and the Company.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger or
materially changes the terms or conditions of this Agreement shall have been
issued and remain in effect. In the event any such order or injunction shall
have been issued, each party agrees to use its reasonable efforts to have any
such injunction lifted.
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(d) The Form S-4 shall have become effective under the Securities Act and
shall be effective at the Effective Time, and no stop order suspending the
effectiveness of the Form S-4 shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals under
state securities laws relating to the issuance or trading of the AVS Common
Stock to be issued to the stockholders of the Company in connection with the
Merger shall have been received.
(e) The parties shall have obtained all material consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time and except where
the failure to obtain such consent or approval is not reasonably likely to have
a Surviving Corporation Material Adverse Effect or is not reasonably likely to
prevent or materially burden or materially impair the ability of the parties to
consummate the transactions contemplated by this Agreement.
(f) The AVS Common Stock to be issued to the stockholders of the Company
in connection with the Merger shall have been authorized for trading on the
NYSE, subject only to official notice of issuance.
(g) AVS shall have received a letter from Arthur Andersen (as auditors
for AVS), dated the Closing Date and addressed to AVS, stating substantially to
the effect that, based on such firm's review of this Agreement and the other
procedures set forth in such letter, such firm concurs that the Merger will
qualify as a pooling of interest transaction under Opinion 16 of the Accounting
Principles Board.
(h) The Company shall have received a letter from Arthur Andersen (as
auditors for the Company), dated the Closing Date and addressed to the Company,
stating substantially to the effect that, based on such firm's review of this
Agreement and the other procedures set forth in such letter, such firm concurs
that the Company is qualified to participate in a pooling of interest
transaction under Opinion 16 of the Accounting Principles Board.
6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date each of the following conditions
(unless waived by the Company in accordance with the provisions of Section 7.6
hereof):
(a) Each of AVS and AVS Sub shall have performed, in all material
respects, all of its agreements contained herein that are required to be
performed by AVS on or prior to the Closing Date, and the Company shall have
received a certificate of the Chairman or President of AVS, dated the Closing
Date, certifying to such effect.
(b) The representations and warranties of AVS and AVS Sub contained in
this Agreement and in any document delivered in connection herewith shall be
true and correct in all material respects as of the Closing (except to the
extent such representations and warranties speak of a specified earlier date
and except as specifically contemplated by this Agreement), and the Company
shall have received a certificate of the President of AVS, dated the Closing
Date, certifying to such effect.
(c) The Company shall have received from AVS certified copies of the
resolutions of AVS's and AVS Sub's Boards of Directors and stockholders
approving and adopting this Agreement, the AVS Ancillary Documents and the
transactions contemplated hereby and thereby.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any event that has had a material adverse effect on the
financial condition, business, operations or prospects of AVS and its
Subsidiaries, taken as a whole; provided, that such an event will not be deemed
to have occurred solely as a result of fluctuations in the trading price of the
AVS Common
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<PAGE>
Stock or solely as a result of changes in the aviation industry which generally
impact on all companies in AVS's business (other than specifically on AVS).
(e) The fairness opinion of Ladenburg, to the effect that the Merger or
the Exchange Ratio, as the case maybe, is fair to the stockholders of the
Company from a financial point of view, as described in Section 4.31, has not
be withdrawn; provided, however, that such withdrawal shall only permit the
Company not to fulfill its obligations to effect the Merger if the withdrawal
of such opinion is a result of a material adverse change in the financial
condition, business, operations or prospects of AVS and its Subsidiaries, taken
as a whole.
(f) The Company shall have received, prior to the earlier of the date the
Company Proxy Statement is first mailed to the Company's stockholders and the
effective date of the S-4, the opinion of Baker & Botts L.L.P., counsel to the
Company, dated the Closing Date, to the effect that the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and that the Company and AVS will each be a party
to that reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, counsel shall be entitled to rely upon, among other
things, reasonable assumptions as well as representations and covenants of AVS,
AVS Sub and the Company.
(g) The Company shall have received the opinion of Akerman, Senterfitt &
Eidson, P.A. to such matters as the Company or its counsel shall reasonably
request.
(h) AVS shall have entered into a Registration Rights Agreement with
Cambridge Capital Fund, L.P., Baker Nye, L.P. and the persons serving as
directors and executive officers of the Company immediately prior to the
Effective Time in substantially the form set forth as Exhibit D.
(i) AVS and AVS Sub shall have executed and delivered such other
documents and taken such other actions as the Company shall reasonably request.
6.3 CONDITIONS TO OBLIGATION OF AVS AND AVS SUB TO EFFECT THE MERGER. The
obligations of AVS and AVS Sub to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date each of the following conditions
(unless waived by AVS in accordance with the provisions of Section 7.6 hereof):
(a) The Company shall have performed, in all material respects, all of
its agreements contained herein that are required to be performed by the
Company on or prior to the Closing Date, and AVS shall have received a
certificate of the Chairman or President of the Company, dated the Closing
Date, certifying to such effect.
(b) The representations and warranties of the Company contained in this
Agreement and in any document delivered in connection herewith shall be true
and correct in all material respects as of the Closing (except to the extent
such representations and warranties speak as of a specified earlier date and
except as specifically contemplated by this Agreement), and AVS shall have
received a certificate of the Chairman or President of the Company, dated the
Closing Date, certifying to such effect.
(c) AVS shall have received from the Company certified copies of the
resolutions of the Company's Board of Directors and stockholders approving and
adopting this Agreement, the Ancillary Documents and the transactions
contemplated hereby and thereby.
(d) AVS shall have received the opinion of Baker & Botts, L.L.P. to such
matters as AVS or AVS's counsel shall reasonably request.
(e) The fairness opinion of SBCWDR, to the effect that the Merger of the
Exchange Ratio, as the case maybe, is fair to AVS's stockholders as described
in Section 3.7, has not been withdrawn; provided, however, that such withdrawal
shall only permit AVS not to fulfill its obligations to effect the
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<PAGE>
Merger if the withdrawal of such opinion is a result of a material adverse
change in the financial condition, business, operations or prospects of the
Company and its Subsidiaries, taken as a whole.
(f) From the date of this Agreement through the Effective Time, there
shall not have occurred any event that has had a material adverse effect on the
financial condition, business, operations or prospects of the Company and its
Subsidiaries, taken as a whole, provided, that such an event will not be deemed
to have occurred solely as a result of fluctuations in the trading price of the
Company Common Stock or solely as a result of changes in the aviation industry
which generally impact on all companies in the Company's business (other than
specifically on the Company).
(g) The Company shall have received all necessary consents with respect
to any contract, lease, purchase order, sales order, license agreement, Permit,
Environmental Permit and license which are required as a result of a change of
control of the Company except in those instances where failure to receive any
such consent would not have a Company Material Adverse Effect.
(h) AVS shall have received, prior to the earlier of the date the Company
Proxy Statement is first mailed to the Company's stockholders and the effective
date of the S-4, the opinion of Akerman, Senterfitt & Eidson, P.A., counsel to
AVS, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that the Company and AVS will each be a party to that reorganization within
the meaning of Section 368(b) of the Code. In rendering such opinion, counsel
shall be entitled to rely upon, among other things, reasonable assumptions as
well as representations and covenants of AVS, AVS Sub and the Company.
(i) The Company shall have executed and delivered such other documents
and taken such other actions as AVS shall reasonably request.
ARTICLE VII
TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of AVS and the
Company, by the mutual written consent of AVS and the Company.
7.2 TERMINATION BY EITHER AVS OR THE COMPANY. This Agreement may be
terminated and the Merger may be abandoned by action of either the Company
Board or Board of Directors of AVS if (a) the Merger shall not have been
consummated by September 30, 1998; provided, however, that the right to
terminate this Agreement under this Section 7.2(a) will not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or before such
date; (b) the approval of the stockholders of AVS and the Company required by
Section 6.1(a) shall not have been obtained at meetings duly convened therefor
or at any adjournment thereof; provided, however, that neither party shall have
the right to terminate this Agreement under this Section 7.2(b) if the other
party has caused (directly or indirectly) or aided in the failure to obtain
such approval; provided, however, that the Company shall not be deemed to have
caused or aided in the failure to obtain such approval if the Company Board
withdraws its recommendation to the Company's stockholders in accordance with
Section 5.3 by accepting or recommending a Superior Proposal; or (c) a court of
competent jurisdiction or a governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any other
action either (i) permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement; or (ii) compelling AVS, AVS
Sub or the Surviving Corporation to dispose of or hold separate all or a
material portion of the respective businesses or assets of AVS and the Company,
or sell or license any material product of AVS or the Company, and such order,
decree, ruling or other action shall have become final and non-appealable.
7.3 TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the adoption and approval
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<PAGE>
by the stockholders of the Company or AVS, by action of the Company Board, if
(a) there has been a breach by AVS or AVS Sub of any representation or warranty
contained in this Agreement which would have an AVS Material Adverse Effect; or
(b) there has been a material breach of any of the material covenants or
agreements set forth in this Agreement on the part of AVS, which breach is not
curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Company to AVS.
7.4 TERMINATION BY AVS. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by the stockholders of the Company or AVS, by action of the Board of
Directors of AVS, if (a) the Company Board shall have recommended a Superior
Proposal to the stockholders of the Company; (b) there has been a breach by the
Company of any representation or warranty contained in this Agreement which
would have a Company Material Adverse Effect; or (c) there has been a material
breach of any of the material covenants or agreements set forth in this
Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by AVS to the Company.
7.5 EFFECT OF TERMINATION AND ABANDONMENT.
(a) In the event that this Agreement is terminated by AVS pursuant to
Section 7.4(a) and the Company enters into an agreement or an understanding
with respect to a Superior Proposal within one year of the date of such
termination, then the Company shall immediately pay AVS a fee in an amount
equal to $7,500,000. Additionally, if the Company terminates this Agreement
pursuant to Section 7.3 or if AVS terminates this Agreement pursuant to Section
7.4(b) or 7.4(c), the breaching party shall reimburse the non-breaching party
for all actual out-of-pocket costs and expenses incurred by the non-breaching
party in connection with this Agreement and the consummation and negotiation of
the transactions contemplated hereby, including, without limitation, legal,
professional and service fees and expenses, including fees relating to the
delivery of the fairness opinion provided, however, that the aggregate
reimbursement amount of all such costs and expenses shall not exceed $500,000.
All such amounts which may become due shall be payable pursuant to this Section
7.5 shall be paid by wire transfer of same day funds on the date on which the
Agreement is terminated or, if termination occurs under Section 7.4(a), upon
the date on which the Company enters into an agreement with respect to a
Superior Proposal. The parties acknowledge that the agreements contained in
this Section 7.5(a) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the other party would not
enter into this Agreement. Accordingly, if either party fails to promptly pay
the amounts due pursuant to this Section 7.5(a), and, in order to obtain such
payment, the other party commences a suit which results in a final,
non-appealable judgment against the other party for the amounts set forth in
this Section 7.5(a), the breaching party shall pay to the non-breaching party
its costs and expenses (including attorneys' fees) incurred in connection with
such suit, together with interest on the amount of the fee at the rate of 12%
per annum.
(b) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 7, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
7.5 and the provisions of Sections 5.10 and 5.18, which obligations shall
survive the termination of this Agreement.
7.6 EXTENSION; WAIVER. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for (i) the agreements contained in Sections
1.4, 1.5, 1.6, 1.7, 1.9, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.22 and 5.24 and
Articles II and VIII and the agreements delivered pursuant to this Agreement
shall survive the Merger.
8.2 NOTICES. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand by facsimile, or by nationally recognized private carrier
shall be deemed given on the day following receipt; provided, however, that a
notice delivered by facsimile shall only be effective if such notice is also
delivered by hand, or deposited in the United States mail, postage prepaid,
registered or certified mail, on or before two (2) business days after its
delivery by facsimile. All notices shall be addressed as follows:
<TABLE>
<S> <C>
If to AVS or AVS Sub: If to the Company:
Aviation Sales Company. Whitehall Corporation
6905 NW 25th Street 2659 Nova Drive
Miami, Florida 33122 Dallas, Texas 75229
Fax: (305) 599-6775 Fax: (972) 247-2024
Attn:Dale S. Baker, Attn:George F. Baker
Chairman, President & CEO Chairman & CEO
With copies to: With copies to:
Akerman, Senterfitt & Eidson P.A. Baker & Botts, L.L.P.
One S.E. 3rd Avenue 599 Lexington Avenue
Miami, Florida 33131 New York, New York
Fax: (305) 374-5095 Fax: (212) 705-5125
Attn: Philip B. Schwartz, Esq. Attn: Lee D. Charles, Esq.
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.3 ASSIGNMENT, BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 1.4, 1.5, 1.6, 1.7, 2.3, 2.4 and 5.14, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective heirs, successors, executors, administrators
and assigns any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
8.4 ENTIRE AGREEMENT. This Agreement, the Exhibits, the Disclosure
Statement, the AVS Disclosure Statement, the Ancillary Documents, the AVS
Ancillary Agreements, and any other documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
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<PAGE>
8.5 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of each of the Company and AVS, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
8.7 COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
8.8 HEADINGS. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
8.9 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
8.11 INCORPORATION OF EXHIBITS. The Disclosure Statement, the AVS
Disclosure Statement and all Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
8.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
AVIATION SALES COMPANY
By:
Title:
WHC ACQUISITION CORP.
By:
Title:
WHITEHALL CORPORATION
By:
Title:
[Signature Page of Agreement and Plan of Merger]
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<PAGE>
[LADENBURG THALMANN & CO. INC. LETTERHEAD]
ANNEX B
March 26, 1998
The Board of Directors
Whitehall Corporation
2659 Nova Drive
Dallas, TX 75229
Gentlemen:
You have engaged us pursuant to the engagement letter, dated as of March
10, 1998, between Whitehall Corporation ("Whitehall" or the "Company") and
Ladenburg Thalmann & Co. Inc. ("Ladenburg"). Specifically, you have requested
our opinion ("Opinion") as to whether or not the exchange ratio of 0.51433
shares of Aviation Sales Company ("AVS") Common Stock per share of Whitehall
Common Stock (the "Exchange Ratio") to be issued to stockholders of Whitehall
in connection with the possible merger of the Company with AVS (the
"Transaction") is fair, from a financial point of view, to the public
stockholders of the Company.
The Agreement and Plan of Merger by and among AVS and Whitehall (the
"Merger Agreement") dated as of March 26, 1998 provides that at the closing of
the Transaction, AVS will exchange each of the Company's outstanding common
stock for 0.51433 shares of the common stock of AVS.
In connection with rendering its Opinion, Ladenburg has reviewed such
information as it deems necessary or appropriate for the purpose of rendering
its Opinion. Ladenburg has reviewed information including, but not limited to,
the following: (i) the Merger Agreement; (ii) audited financial statements for
Whitehall for the years ended December 31, 1994, 1995, 1996 and 1997; (iii)
projected financial statements as developed by Ladenburg and reviewed by
Whitehall for the years ended December 31, 1998, 1999, 2000, 2001 and 2002;
(iv) Whitehall's common stock price and volume trading history; (v) AVS's
audited financial statements for the years ended December 31, 1994, 1995, 1996
and 1997; (vi) AVS's common stock price and volume trading history; (vii) AVS's
Offering Memorandum dated February 11, 1998 for $165 million of 81/2% Senior
Subordinated Notes due 2008 and; (viii) publicly available market information
regarding the aviation services industry, AVS, Whitehall and its competitors.
In addition, Ladenburg had several conversations with senior management of AVS
and Whitehall regarding Whitehall, its competitors and the industry but noted,
in the course of these discussions, that Whitehall's management did not have
projected financial statements of their own but were apprised of and approved
Ladenburg's projections.
In rendering its Opinion, Ladenburg has assumed and relied upon the
accuracy and completeness of all financial and other material furnished to
Ladenburg by Whitehall and AVS regarding Whitehall, AVS, the Transaction, the
industry in which Whitehall and AVS operate and their respective competitors.
Ladenburg has not attempted to independently verify the information provided to
it. Ladenburg has not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Whitehall.
Ladenburg expresses no opinion as to what the value of AVS Common Stock
actually will be when issued to Whitehall stockholders or the price at which
AVS will trade subsequent to the closing of the Transaction. Ladenburg was not
authorized, and did not, solicit third party indications of interest in
acquiring all or part of Whitehall, and Ladenburg was not asked to consider,
and its Opinion does not address, the consideration Whitehall might receive
from a third-party purchaser, the relative merits of the Transaction as
compared to any alternative business strategies that might exist for Whitehall
or the effect of any other transaction in which Whitehall might
B-1
<PAGE>
engage. Ladenburg's Opinion is necessarily based upon information available to
it, and financial, stock market and other conditions and circumstances existing
and disclosed to Ladenburg, as of the date of the Opinion.
In conducting its investigation and analyses and in arriving at our
opinion expressed herein, Ladenburg has taken into account such accepted
financial and investment banking procedures and considerations as it has deemed
relevant, including: (i) historical revenues, operating earnings, net income
and capitalization of the Company and certain other publicly held companies in
businesses it believes to be comparable to the Company's; (ii) acquisition
multiples that have historically been paid for other companies in businesses we
believe to be comparable to the Company's; (iii) projected revenues, operating
earnings and net income of the Company in a discounted cash flow analysis; (iv)
the current financial and market position and results of operations of the
Company; and (v) the general condition of the securities market.
Ladenburg, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. Ladenburg has been retained by the Board of Directors of
Whitehall to provide this opinion and has received fees and indemnification
against certain liabilities for the services rendered pursuant to this
engagement. Ladenburg has provided financial advisory services to Whitehall
with respect to the Transaction.
In the ordinary course of business, we actively trade securities for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in the debt or equity securities of the
Company.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to the public stockholders of the Company.
We hereby consent to the use of this opinion letter as an Annex to the
Proxy Statement/Prospectus contained in the Registration Statement on Form S-4
of AVS relating to the proposed merger between AVS and Whitehall and to the
references to such Opinion in such Proxy Statement/Prospectus under the
captions "Summary--The Merger--Fairness Opinion," "The Merger--Background of
the Merger" and "Opinion of Whitehall's Financial Advisor." By giving such
consent we do not thereby admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "expert" as used in,
or that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ LADENBURG THALMANN & CO. INC.
LADENBURG THALMANN & CO. INC.
B-2
<PAGE>
[SBC WARBURG DILLON REED LETTERHEAD]
ANNEX C
March 26, 1998
Board of Directors
Aviation Sales Company
6905 NW 25th Street
Miami, FL 33122-1898
Gentleman:
We understand that Aviation Sales Company, a Delaware corporation
("Aviation Sales" or the "Company"), is considering a transaction (the
"Merger") whereby as a result of the issuance of shares of common stock, par
value $0.10 per share, of the Company ("Aviation Sales Common Stock") to
holders of fully paid ordinary shares, par value $0.10 per share ("Ordinary
Shares"), of Whitehall Corporation ("Whitehall"), pursuant to the terms of the
Merger Agreement, dated March 26, 1998 (the "Merger Agreement"), Whitehall will
become a wholly-owned subsidiary of the Company. In the Merger, each fully paid
Ordinary Share would be canceled in consideration of the issue of 0.5143 shares
(the "Conversion Number") of Aviation Sales Common Stock. Fractional shares
will be canceled and the holders of such shares will recieve cash in lieu of
Aviation Sales Common Stock. Stock options relating to Whitehall ordinary
shares would be transferred in amounts as provided for in the Merger Agreement,
which you have advised us will be calculated with reference to the Conversion
Number. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
You have requested our opinion as to whether the Conversion Number is fair
to the stockholders of the Company from a financial point of view.
In the ordinary course of business, SBC Warburg Dillon Read Inc.
("SBCWDR") and its affiliates may actively trade or hold the equity securities
of the Company or Whitehall for their own accounts and the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Merger. Our
opinion does not reflect any conclusion as to the likely trading range for
Aviation Sales Common Stock following the consummation of the Merger, which may
vary depending on numerous factors which generally influence the prices of
securities. With your consent, we have assumed that the Merger will not result
in taxable income for the Company or its stockholders and will be accounted for
as a pooling-of-interests.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company and Whitehall, (ii) reviewed certain internal financial
information and other data relating to the business and prospects of the
Company, including financial estimates, that were provided to us by the Company
and are not publicly available, (iii) reviewed certain internal financial
information and other data relating to the business and prospects of Whitehall,
including financial estimates, provided by the management of the Company, that
were provided to us by the management of the Company and are not publicly
available, (iv) conducted discussions with members of the senior management of
the Company and Whitehall with respect to the operations, financial condition,
history and prospects of each company, (v) reviewed the historical market
prices and trading activity of the common stocks of the Company and Whitehall,
(vi) considered certain pro forma effects of the Merger on the financial
results of the Company (including the effects of
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<PAGE>
assumed combination savings and synergies that were provided to us by the
Company), (vii) reviewed publicly available financial and stock market data
with respect to certain other companies that we believe to be generally
comparable to the Company and Whitehall, (viii) compared to the financial terms
of the Merger with financial terms of certain other transaction that we believe
to be releveant, (ix) considered the strategic implications of the merger as
presented to us by management of the Company, (x) reviewed drafts of the Merger
Agreement, and (xi) conducted such other financial studies, analyses, and
investigations, and considered such other information as we deemed necessary or
appropriate.
In connection with our review and arriving at our opinion, we have not,
with your consent, assumed any responsibility for independent verification of
any of the information reviewed by us for the purpose of this opinion and have,
with your consent, relied on its being complete and accurate in all material
respects. In addition, with your consent, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of the Company or Whitehall nor have we been furnished with any such
evaluation or appraisal. With respect to the financial estimates (including the
effects of assumed Merger savings and synergies) provided to or otherwise
reviewed by or discussed with us, we have assumed, with your consent, that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgements of the Company's management as to the future financial
performance of each company and that they will be realized in the amounts and
at the times contemplated thereby. At your direction, we have assumed that
there will be no material difference between the actual financial results which
will be obtained by the Company, Whitehall or the combined company and those
specified in the estimates, forecasts and projections provided to us. With
respect to the business and financial information pertaining to Whitehall, we
have not held any independent discussions with Whitehall management as to any
aspect of the information provided. Our opinion necessarily is based upon
economic, monetary, market and other conditions as in effect, and the
information made available to us as of, the date hereof. SBCWDR expressly
reserves its right to withdraw, revise or modify its opinion based upon
additional information provided to it or obtained by it which suggests, in
SBCWDR's judgment, a material adverse change in the assumptions upon which this
opinion is based.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Conversion Number is fair to the stockholders of the Company
from a financial point of view.
Very truly yours,
/s/ SBC WARBURG DILLON READ INC.
C-2
<PAGE>
ANNEX D
VOTING AGREEMENT AND IRREVOCABLE PROXY
THIS VOTING AGREEMENT AND IRREVOCABLE PROXY (the "Agreement") is entered
into as of March 26, 1998, between the undersigned stockholders (the
"Stockholders") of AVIATION SALES COMPANY, a Delaware corporation ("AVS") and
WHITEHALL CORPORATION, a Delaware corporation (the "Company").
WHEREAS, concurrently with the execution and delivery of this Agreement,
WHC ACQUISITION CORP., a Delaware corporation, and a wholly owned subsidiary of
AVS ("Newco"), AVS and the Company have entered into an Agreement and Plan of
Merger dated as of March 26, 1998 (the "Merger Agreement"), providing for the
merger of Newco with and into the Company (the "Merger") pursuant to the terms
and conditions of the Merger Agreement, and setting forth certain
representations, warranties, covenants and agreements of the parties thereto in
connection with the Merger; and
WHEREAS, as an inducement and a condition to Company entering into the
Merger Agreement, pursuant to which each stockholder of the Company, subject to
Section 1.4 of the Merger Agreement, will receive 0.5143 of a share of AVS
Common Stock (as defined in the Merger Agreement) in exchange for each share of
Common Stock, par value $0.10 per share, of the Company ("Company Common
Stock") owned by such stockholder, the Stockholders each have agreed to enter
into this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. REPRESENTATIONS OF STOCKHOLDERS. Each of the Stockholders severally
represents as to himself or itself that such Stockholder:
(a) is the holder in the capacity set forth on Exhibit A hereto of that
number of shares of AVS Common Stock set forth opposite such Stockholder's name
on Exhibit A (such Stockholder's shares of AVS Common Stock, the "Shares");
(b) does not beneficially own (as such term is defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) any shares of AVS Common
Stock other than his or its Shares, but excluding any shares of AVS Common
Stock which such Stockholder has the right to obtain upon the exercise of stock
options outstanding on the date hereof;
(c) has the right, power and authority to execute and deliver this
Agreement and to perform his or its obligations under this Agreement, and this
Agreement has been duly executed and delivered by such Stockholder and
constitutes a valid and legally binding agreement of such Stockholder,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and such execution, delivery and performance by Stockholder of this
Agreement will not (i) conflict with, require a consent, waiver or approval
under, or result in a breach of or default under, any of the terms of any
contract, commitment or other which such Stockholder is bound; (ii) violate any
order, writ, injunction decree or statute, or any rule or regulation,
applicable to Stockholder or any of the properties or assets of Stockholder or
(iii) result in the creation of, or impose any obligation on such Stockholder
to create, any lien, charge or other encumbrance of any nature whatsoever upon
the Shares; and
(d) the Shares are now and will at all times during the term of this
Agreement be held by such Stockholder, or by a nominee or custodian for the
account of such Stockholder, free and clear of all
D-1
<PAGE>
pledges, liens, proxies, claims, shares, security interests, preemptive rights
and any other encumbrances whatsoever with respect to the ownership, transfer
or voting of such Shares except as set forth in the AVS Reports (as defined in
the Merger Agreement); and there are no outstanding options, warrants or rights
to purchase or acquire, or other agreements relating to, such Shares other than
this Agreement.
The representations and warranties contained herein shall be made as the date
hereof and as of each date from the date hereof through and including the date
that the Merger is consummated.
2. AGREEMENT TO VOTE SHARES. Each of the Stockholders severally agrees to
vote his or its Shares and any New Shares (as defined in Section 7 hereof), and
shall cause any holder of record of its Shares or New Shares to vote, (a) in
favor of adoption and approval of the Merger Agreement and the Merger (and each
other action and transaction contemplated by the Merger Agreement and this
Agreement) at every meeting of the stockholders of AVS at which such matters
are considered (each, an "AVS Stockholder Meeting") and at every adjournment
thereof and (b) against any actions or approval that would compete with or
could serve to materially interfere with, delay, discourage, adversely affect
or inhibit the timely consummation of the Merger. Any such vote shall be cast
or consent shall be given in accordance with such procedures relating thereto
as shall ensure that it is duly counted for purposes of determining that a
quorum is present and for purposes of recording the results of such vote or
consent. Each Stockholder also agrees to use his or its reasonable efforts to
take, or cause to be taken, all action, and do, or cause to be done, all things
necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement.
3. IRREVOCABLE PROXY. Each of the Stockholders hereby constitutes and
appoints Company, any nominee of Company, with full power of substitution, as
its true and lawful attorney and proxy and hereby authorizes each, for and in
its name, place and stead, to present and to vote all of the Shares and New
Shares (a) in favor of the adoption and approval of the Merger Agreement and
the Merger (and each other action and transaction contemplated by the Merger
Agreement and this Agreement) and (b) against any action or approval that would
compete with or could serve to materially interfere with, delay, discharge,
adversely affect or inhibit the timely consummation of the Merger Agreement, at
every AVS Stockholder Meeting and at every adjournment or postponement thereof,
to the same extent and with the same effect as the Stockholder might or could
do under applicable law, rules and regulations. The proxy granted pursuant to
the immediately preceding sentence is given in consideration of and as an
inducement to Company to enter into the Merger Agreement and as such is coupled
with an interest and shall be irrevocable unless and until this Agreement
terminates pursuant to Section 11 hereof. Each of the Stockholders hereby
revokes any and all previous proxies granted with respect to any of the Shares
and shall not hereafter, unless and until this Agreement terminates pursuant to
Section 11 hereof, purport to grant any other proxy or power of attorney with
respect to any of the Shares or the New Shares or enter into any agreement
(other than this Agreement), arrangement or understanding with any person,
directly or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of any of the Shares or the New Shares covering the
subject matter hereof.
4. NO VOTING TRUSTS. After the date hereof, the Stockholders severally
agree that they will not, nor will they permit any entity under their control
to, deposit any of their Shares in voting trust or subject any of their Shares
to any arrangement with respect to the voting of such Shares other than
agreements entered into with the Company.
5. NO PROXY SOLICITATIONS. Each of the Stockholders severally agrees that
such Stockholder will not, nor will such Stockholder permit any entity under
their control to, (a) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the 1934 Act)
in opposition to or competition with the consummation of the Merger or
otherwise encourage or assist any party in taking or planning any action which
would compete with or otherwise could serve to materially interfere with,
delay, discourage, adversely affect or inhibit the timely consummation of the
Merger in accordance with the terms of the Merger Agreement, (b) directly or
indirectly encourage, initiate or cooperate in a stockholders' vote or action
by consent of AVS's stockholders in opposition to or in competition with the
consummation of the Merger, or (c) become a member of a "group" (as such term
D-2
<PAGE>
is used in Section 13(d) of the 1934 Act) with respect to any voting securities
of AVS for the purpose of opposing or competing with the consummation of the
Merger.
6. TRANSFER AND ENCUMBRANCE. Except as set forth on Exhibit B hereto, on
or after the date hereof, each of the Stockholders severally agrees not to
voluntarily transfer, sell, offer, pledge or otherwise dispose of or encumber
("Transfer") any of his or its Shares or New Shares prior to the earlier of (a)
the effective date of the Merger or (b) the date this Agreement shall be
terminated in accordance with its terms.
7. ADDITIONAL PURCHASES. Each of the Stockholders severally agrees that in
the event (i) any stock dividend, stock split, recapitalization,
reclassification, combination or exchange of shares of capital stock of AVS on,
of or affecting the Shares of a Stockholder, (ii) such Stockholder purchases or
otherwise acquires beneficial ownership of any shares of AVS Common Stock after
the execution of this Agreement, or (iii) such Stockholder voluntarily acquires
the right to vote any shares of AVS Common Stock other than the Shares
(collectively, "New Shares"), such Stockholder agrees that all such New Shares
acquired or purchased by it shall be subject to the terms of this Agreement to
the same extent as if they constituted Shares.
8. SPECIFIC PERFORMANCE. Each party hereto severally acknowledges that it
will be impossible to measure in money the damage to the other party of the
party hereto fails to comply with any of the obligations imposed by this
Agreement, that every such obligation is material and that, in the event of any
such failure, the other party will not have an adequate remedy at law or
damages. Accordingly, each party hereto severally agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the granting of
such relief on the basis that the other party has an adequate remedy at law.
Each party hereto severally agrees that it will not seek, and agrees to waive
any requirement for, the securing or posting of a bond in connection with any
other party's seeking or obtaining such equitable relief.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns and shall not be assignable without the written consent of all other
parties hereto.
10. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all the parties hereto. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
11. MISCELLANEOUS.
(a) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Delaware.
(b) If any provision of this Agreement or the application of such
provision to any person or circumstances shall be held invalid by a court of
competent jurisdiction, the remainder of the provision held invalid and the
application of such provision to persons or circumstances, other than the party
as to which it is held invalid, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) This Agreement shall terminate upon the earliest to occur of (i) the
effective time of the Merger, and (ii) termination of the Merger Agreement.
D-3
<PAGE>
(e) All Section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(f) The obligations of the Stockholders set forth in this Agreement shall
not be effective or binding upon any Stockholder until after such time as the
Merger Agreement is executed and delivered by the Company, AVS and Newco, and
the parties agree that there is not and has not been any other agreement,
arrangement or understanding between the parties hereto with respect to the
matters set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
WHITEHALL CORPORATION
By_____________________________________
Name:
Title:
THE STOCKHOLDERS
_______________________________________
Robert Alpert
_______________________________________
Dale S. Baker
_______________________________________
Harold M. Woody
RCP MANAGEMENT L.P.
By_____________________________________
its General Partner
AVAC CORPORATION
By_____________________________________
Name:
Title:
[Signature Page to Voting Agreement and Irrevocable Proxy]
D-4
<PAGE>
EXHIBIT "A" TO VOTING AGREEMENT
AND IRREVOCABLE PROXY
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
STOCKHOLDER AVS COMMON STOCK
- ------------------------------------ --------------------
<S> <C>
Robert Alpert ................ 108,000
Dale S. Baker ................ 303,000
Harold Woody ................. 203,000
RCP Management, L.P. ......... 520,000
AVAC Corporation ............. 1,729,000
</TABLE>
D-5
<PAGE>
EXHIBIT B TO VOTING AGREEMENT
AND IRREVOCABLE PROXY
AVAC Corporation and RCP Management L.P., both of which entities are
controlled by Robert Alpert, and/or Robert Alpert, individually, may sell up to
an aggregate of 250,000 shares of the Company's outstanding common stock (which
constitute a portion of the Shares) during the period between the date of the
Agreement and the earlier of the Effective Date of the Merger or the date that
the Agreement is terminated in accordance with its terms.
D-6
<PAGE>
ANNEX E
VOTING AGREEMENT AND IRREVOCABLE PROXY
THIS VOTING AGREEMENT AND IRREVOCABLE PROXY (the "Agreement") is entered
into as of March 26, 1998, between the undersigned stockholders (the
"Stockholders") of WHITEHALL CORPORATION, a Delaware corporation (the
"Company"), and AVIATION SALES COMPANY, a Delaware corporation ("AVS").
WHEREAS, concurrently with the execution and delivery of this Agreement,
WHC ACQUISITION CORP., a Delaware corporation, and a wholly owned subsidiary of
AVS ("Newco"), AVS and the Company have entered into an Agreement and Plan of
Merger dated as of March 26, 1998 (the "Merger Agreement"), providing for the
merger of Newco with and into the Company (the "Merger") pursuant to the terms
and conditions of the Merger Agreement, and setting forth certain
representations, warranties, covenants and agreements of the parties thereto in
connection with the Merger; and
WHEREAS, as an inducement and a condition to AVS entering into the Merger
Agreement, pursuant to which each Stockholder, subject to Section 1.4 of the
Merger Agreement, will receive 0.5143 of a share of AVS Common Stock (as
defined in the Merger Agreement) in exchange for each share of Common Stock,
par value $0.10 per share, of the Company ("Company Common Stock") owned by
such Stockholder, the Stockholders each have agreed to enter into this
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. REPRESENTATIONS OF STOCKHOLDERS. Each of the Stockholders severally
represents as to itself that such Stockholder:
(a) is the holder in the capacity set forth on Exhibit A hereto of that
number of shares of Company Common Stock set forth opposite such Stockholder's
name on Exhibit A (such Stockholder's shares of Company Common Stock, the
"Shares");
(b) does not beneficially own (as such term is defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) any shares of Company Common
Stock other than its Shares, but excluding any shares of Company Common Stock
which such Stockholder has the right to obtain upon the exercise of stock
options outstanding on the date hereof;
(c) has the right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement, and this
Agreement has been duly executed and delivered by such Stockholder and
constitutes a valid and legally binding agreement of such Stockholder,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and such execution, delivery and performance by Stockholder of this
Agreement will not (i) conflict with, require a consent, waiver or approval
under, or result in a breach of or default under, any of the terms of any
contract, commitment or other which such Stockholder is bound; (ii) violate any
order, writ, injunction decree or statute, or any rule or regulation,
applicable to Stockholder or any of the properties or assets of Stockholder or
(iii) result in the creation of, or impose any obligation on such Stockholder
to create, any lien, charge or other encumbrance of any nature whatsoever upon
the Shares; and
(d) the Shares are now and will at all times during the term of this
Agreement be held by such Stockholder, or by a nominee or custodian for the
account of such Stockholder, free and clear of all
E-1
<PAGE>
pledges, liens, proxies, claims, shares, security interests, preemptive rights
and any other encumbrances whatsoever with respect to the ownership, transfer
or voting of such Shares; and there are no outstanding options, warrants or
rights to purchase or acquire, or other agreements relating to, such Shares
other than this Agreement.
The representations and warranties contained herein shall be made as the date
hereof and as of each date from the date hereof through and including the date
that the Merger is consummated.
2. AGREEMENT TO VOTE SHARES. Each of the Stockholders severally agrees to
vote its Shares and any New Shares (as defined in Section 7 hereof), and shall
cause any holder of record of its Shares or New Shares to vote, (a) in favor of
adoption and approval of the Merger Agreement and the Merger (and each other
action and transaction contemplated by the Merger Agreement and this Agreement)
at every meeting of the stockholders of the Company at which such matters are
considered (each, a "Company Stockholder Meeting") and at every adjournment
thereof and (b) against any actions or approval that would compete with or
could serve to materially interfere with, delay, discourage, adversely affect
or inhibit the timely consummation of the Merger including, without limitation,
any Alternative Proposal (as defined in the Merger Agreement). Any such vote
shall be cast or consent shall be given in accordance with such procedures
relating thereto as shall ensure that it is duly counted for purposes of
determining that a quorum is present and for purposes of recording the results
of such vote or consent. Each Stockholder also agrees to use its reasonable
efforts to take, or cause to be taken, all action, and do, or cause to be done,
all things necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement.
3. IRREVOCABLE PROXY. Each of the Stockholders hereby constitutes and
appoints AVS or any nominee of AVS, with full power of substitution, as its
true and lawful attorney and proxy and hereby authorizes each, for and in its
name, place and stead, to present and to vote all of the Shares and New Shares
(a) in favor of the adoption and approval of the Merger Agreement and the
Merger (and each other action and transaction contemplated by the Merger
Agreement and this Agreement) and (b) against any action or approval that would
compete with or could serve to materially interfere with, delay, discharge,
adversely affect or inhibit the timely consummation of the Merger Agreement,
including, without limitation, any Alternative Proposal (as defined in the
Merger Agreement), at every Company Stockholder Meeting and at every
adjournment or postponement thereof, to the same extent and with the same
effect as the Stockholder might or could do under applicable law, rules and
regulations. The proxy granted pursuant to the immediately preceding sentence
is given in consideration of and as an inducement to AVS to enter into the
Merger Agreement and as such is coupled with an interest and shall be
irrevocable unless and until this Agreement terminates pursuant to Section 11
hereof. Each of the Stockholders hereby revokes any and all previous proxies
granted with respect to any of the Shares and shall not hereafter, unless and
until this Agreement terminates pursuant to Section 11 hereof, purport to grant
any other proxy or power of attorney with respect to any of the Shares or the
New Shares or enter into any agreement (other than this Agreement), arrangement
or understanding with any person, directly or indirectly, to vote, grant any
proxy or give instructions with respect to the voting of any of the Shares or
the New Shares covering the subject matter hereof.
4. NO VOTING TRUSTS. After the date hereof, the Stockholders severally
agree that they will not, nor will they permit any entity under their control
to, deposit any of their Shares in voting trust or subject any of their Shares
to any arrangement with respect to the voting of such Shares other than
agreements entered into with AVS or Newco.
5. NO PROXY SOLICITATIONS. Each of the Stockholders severally agrees that
such Stockholder will not, nor will such Stockholder permit any entity under
their control to, (a) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the 1934 Act)
in opposition to or competition with the consummation of the Merger or
otherwise encourage or assist any party in taking or planning any action which
would compete with or otherwise could serve to materially interfere with,
delay, discourage, adversely affect or inhibit the timely consummation of the
Merger in accordance with the terms of the Merger Agreement, (b) directly or
indirectly encourage, initiate or
E-2
<PAGE>
cooperate in a stockholders' vote or action by consent of the Company's
stockholders in opposition to or in competition with the consummation of the
Merger, or (c) become a member of a "group" (as such term is used in Section
13(d) of the 1934 Act) with respect to any voting securities of the Company for
the purpose of opposing or competing with the consummation of the Merger;
provided, that the foregoing shall not restrict any director of the Company
from taking any action such director believes is necessary to satisfy such
director's fiduciary duty to stockholders of the Company.
6. TRANSFER AND ENCUMBRANCE. On or after the date hereof, each of the
Stockholders severally agrees not to voluntarily transfer, sell, offer, pledge
or otherwise dispose of or encumber ("Transfer") any of its Shares or New
Shares prior to the earlier of (a) the effective date of the Merger or (b) the
date this Agreement shall be terminated in accordance with its terms.
7. ADDITIONAL PURCHASES. Each of the Stockholders severally agrees that in
the event (i) any stock dividend, stock split, recapitalization,
reclassification, combination or exchange of shares of capital stock of the
Company on, of or affecting the Shares of a Stockholder, (ii) such Stockholder
purchases or otherwise acquires beneficial ownership of any shares of Company
Common Stock after the execution of this Agreement, or (iii) such Stockholder
voluntarily acquires the right to vote any shares of Company Common Stock other
than the Shares (collectively, "New Shares"), such Stockholder agrees that all
such New Shares acquired or purchased by it shall be subject to the terms of
this Agreement to the same extent as if they constituted Shares.
8. SPECIFIC PERFORMANCE. Each party hereto severally acknowledges that it
will be impossible to measure in money the damage to the other party of the
party hereto fails to comply with any of the obligations imposed by this
Agreement, that every such obligation is material and that, in the event of any
such failure, the other party will not have an adequate remedy at law or
damages. Accordingly, each party hereto severally agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the granting of
such relief on the basis that the other party has an adequate remedy at law.
Each party hereto severally agrees that it will not seek, and agrees to waive
any requirement for, the securing or posting of a bond in connection with any
other party's seeking or obtaining such equitable relief.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns and shall not be assignable without the written consent of all other
parties hereto.
10. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all the parties hereto. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
E-3
<PAGE>
11. MISCELLANEOUS.
(a) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Delaware.
(b) If any provision of this Agreement or the application of such
provision to any person or circumstances shall be held invalid by a court of
competent jurisdiction, the remainder of the provision held invalid and the
application of such provision to persons or circumstances, other than the party
as to which it is held invalid, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) This Agreement shall terminate upon the earliest to occur of (i) the
effective time of the Merger, and (ii) termination of the Merger Agreement.
(e) All Section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(f) The obligations of the Stockholders set forth in this Agreement shall
not be effective or binding upon any Stockholder until after such time as the
Merger Agreement is executed and delivered by the Company, AVS and Newco, and
the parties agree that there is not and has not been any other agreement,
arrangement or understanding between the parties hereto with respect to the
matters set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
AVIATION SALES COMPANY
By_____________________________________
Dale S. Baker, Chairman, President
and Chief Executive Officer
THE STOCKHOLDERS
CAMBRIDGE CAPITAL FUND, L.P.
By ____________________________________
George F. Baker, General Partner
BAKER NYE, L.P.
By ____________________________________
George F. Baker, General Partner
[Signature Page to Voting Agreement and Irrevocable Proxy]
E-4
<PAGE>
EXHIBIT "A" TO VOTING AGREEMENT AND
IRREVOCABLE PROXY
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
STOCKHOLDER COMPANY COMMON STOCK
- -------------------------------------------- ---------------------
<S> <C>
Cambridge Capital Fund, L.P. ......... 1,314,400
Baker Nye, L.P. ...................... 579,000
</TABLE>
E-5
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, AVS 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 AVS) because such person is or was a
director or officer of AVS 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 AVS'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 AVS to procure a
judgment in its favor, Section 145(b) of the Delaware General Corporation Law
provides that AVS 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 AVS to procure a judgment in its favor
because such person is or was a director or officer of AVS 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 AVS'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
AVS 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
stockholders of AVS.
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 AVS itself would have the power to indemnify any such
director or officer against such liability. AVS has obtained such insurance and
premiums are paid by AVS.
The Certificate of Incorporation of AVS provides for the indemnification
of directors and officers of AVS 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
stockholders or disinterested directors, or otherwise.
The Certificate of Incorporation also contains a provision that eliminates
the personal liability of AVS's directors to AVS or its stockholders 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 AVS or
its stockholders, (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
II-1
<PAGE>
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 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
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Merger among the Registrant, WHC Acquisition Corp. and Whitehall
Corporation dated as of March 26, 1998 (incorporated by reference to Annex A to the Proxy
Statement/Prospectus which is a part of this Registration Statement)
3.1 Certificate of Incorporation of AVS and amendment thereto(1)
3.2 Second Amendment to Certificate of Incorporation of AVS(2)
3.3 Bylaws of AVS(1)
4.1 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(3)
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(3)
4.4 Form of Registration Rights Agreement by and among AVS and certain stockholders of Whitehall*
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A. as to the legality of the securities being
registered*
8.1 Form of Opinion of Akerman, Senterfitt & Eidson, P.A. regarding certain tax matters related
to the transaction.**
8.2 Form of Opinion of Baker & Botts L.L.P. regarding certain Federal income tax matters related
to the transaction.**
23.1 Consent of Arthur Andersen LLP (Dallas)*
23.2 Consent of Arthur Andersen LLP (Miami)*
23.3 Consent of Clark, Schaefer, Hackett & Co.*
23.4 Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1).
23.5 Consent of Baker & Botts L.L.P. (included in Exhibit 8.2)
23.6 Consent of SBC Warburg Dillon Read Inc.*
23.7 Consent of Ladenburg Thalmann & Co. Inc. (contained in Annex B to the Proxy Statement/
Prospectus which is a part of this Registration Statement)
24.1 Power of Attorney (included on Signature Page of this Registration Statement)
99.1 Whitehall Corporation Proxy Card*
</TABLE>
- ----------------
* Filed herewith
** To be filed by amendment
+ Compensation plan or agreement
(1) Incorporated by reference to AVS's Registration Statement on Form S-1 dated
April 15, 1996 (File No. 333-3650)
(2) Incorporated by reference to AVS's Quarterly Report on Form 10-Q for the
quarter and nine months ended September 30, 1997
(3) Incorporated by reference to AVS's Registration Statement on Form S-4 dated
March 26, 1996 (File No. 333-48669)
II-2
<PAGE>
B. Financial Statement Schedules
(i) Schedule II--AVS Valuation and Qualifying Accounts
(ii) Schedule II--Whitehall Valuation and Qualifying Accounts
C. Reports, Opinions or Approvals
(i) Opinion of Ladenburg Thalmann & Co. Inc. (included in the Proxy
Statement/Prospectus as Annex B).
(ii) Opinion SBC Warburg Dillon Read Inc. (included in this Proxy
Statment/Prospectus as Annex C).
ITEM 22. UNDERTAKINGS
a. The undersigned registrant hereby undertakes to deliver or to cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
b. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
c. 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 the registration statement through
the date of responding to the request.
d. 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.
e. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
f. 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 30th day of April, 1998.
AVIATION SALES COMPANY
(Registrant)
By:/s/ Dale S. Baker
------------------------------------
Dale S. Baker
President, Chief Executive Officer
and
Chairman of the Board
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 April 30, 1998
- ---------------------------- Chairman of the Board (Principal Executive
Dale S. Baker Officer)
/s/ Joseph E. Civiletto Vice President (Principal Financial and April 30, 1998
- ---------------------------- Accounting Officer)
Joseph E. Civiletto
/s/ Harold M. Woody Executive Vice President and Director April 30, 1998
- ----------------------------
Harold M. Woody
/s/ Robert Alpert Director April 30, 1998
- ----------------------------
Robert Alpert
- ----------------------------
/s/ Sam Humphreys Director April 30, 1998
- ----------------------------
Sam Humphreys
/s/ Kazutami Okui Director April 30, 1998
- ----------------------------
Kazutami Okui
</TABLE>
II-5
<PAGE>
SCHEDULE II
AVIATION SALES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------------------------------
BALANCE AT CHARGED TO
BEGINNING COST AND (A) BALANCE AT
DESCRIPTION OF YEAR EXPENSES OTHER DEDUCTIONS END OF YEAR
- -------------------------------- ------------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Allowances for Doubtful Accounts
Receivable:
Year Ended December 31 -
1995 ......................... $2,625,809 $ 360,000 $-- $1,034,414 $1,951,395
========== ========== === ========== ==========
1996 ......................... $1,951,395 $1,954,000 $-- $ 125,815 $3,779,580
========== ========== === ========== ==========
1997 ......................... $3,779,580 $3,081,063 $-- $3,386,111 $3,474,532
========== ========== === ========== ==========
</TABLE>
- ----------------
(A) Represents accounts receivable written-off.
S-1
<PAGE>
SCHEDULE II
WHITEHALL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGES CHARGED TO
DESCRIPTION BEGINNING TO COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
- ------------------------------------ OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) END OF PERIOD
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Reserves and allowances
deducted from asset accounts-
Allowance for uncollectible
accounts ........................ $ 518,000 $5,076,000 $ -- $ 1,747,000(1) $3,847,000
Allowance for obsolete
inventory ....................... -- 1,220,000 -- --(4) 1,220,000
Totals ........................... $ 518,000 $6,296,000 $ -- $ 1,747,000 $5,067,000
Accrued environmental cost ......... $ 379,000 $3,400,000 $ 400,000(3) $ 225,000(2) $3,954,000
Year Ended December 31, 1996:
Reserves and allowances
deducted from asset accounts-
Allowance for uncollectible
accounts ........................ $ 732,000 $ -- $ -- $ 214,000(1) $ 518,000
Allowance for obsolete
inventory ....................... 300,000 -- -- 300,000(4) --
Totals ........................... $1,032,000 $ -- $ -- $ 514,000 $ 518,000
Accrued environmental cost ......... 625,000 -- -- $ 246,000(2) $ 379,000
Year Ended December 31, 1995:
Reserves and allowances
deducted from asset accounts-
Allowance for uncollectible
accounts ........................ $ 858,000 $ 748,000 $ -- $ 874,000(1) $ 732,000
Allowance for obsolete
inventory ....................... -- 300,000 -- -- 300,000
Totals ........................... $ 858,000 $1,048,000 $ -- $ 874,000 $1,032,000
Accrued environmental cost ......... $ 736,000 $ 416,000 $ -- $ 527,000(2) $ 625,000
</TABLE>
- ----------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Environmental clean up costs incurred.
(3) Purchase accounting.
(4) Reserve adjustment.
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
4.4 Form of Registration Rights Agreement by and among AVS and certain
stockholders of Whitehall
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A. as to the legality
of the securities being registered
23.1 Consent of Arthur Andersen LLP (Dallas)
23.2 Consent of Arthur Andersen LLP (Miami)
23.3 Consent of Clark, Schaefer, Hackett & Co.
23.6 Consent of SBC Warburg Dillon Read Inc.
99.1 Whitehall Corporation Proxy Card
REGISTRATION RIGHTS AGREEMENT
This Agreement, dated as of March ___, 1998, is entered into by and
among Aviation Sales Company, a Delaware corporation (the "Company"), and the
stockholders of the Company, who are more particularly identified on signature
pages attached hereto (collectively, the "Stockholders").
WHEREAS, the Company has entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of the date hereof, by and among the Company,
WHC Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
the Company, and Whitehall Corporation, a Delaware corporation ("Whitehall");
and
WHEREAS, pursuant to the terms of the Merger Agreement, the
Stockholders shall receive an aggregate of _____ shares of Common Stock, $.001
par value per share (the "Common Stock"), of the Company, which are "restricted
securities" (as defined in Rule 144 under the Securities Act), and the Company
has agreed to provide the Stockholders with certain registration rights with
respect to such shares;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
"MANAGING UNDERWRITERS" shall mean the investment bank or
investment bankers and the manager or managers that shall administer any
underwritten offering pursuant to this Agreement.
"REGISTRATION EXPENSES" means the expenses described in
Section 6.
"REGISTRABLE SHARES" shall mean shares of Common Stock issued
to the Stockholders pursuant to the Merger Agreement and any other shares of
capital stock of the Company issued in respect of such shares as a result of
stock splits, stock dividends, reclassification, recapitalizations, mergers,
consolidations or similar events. References in this Agreement to amounts or
percentages
<PAGE>
of Registrable Shares as of or on any particular date shall be deemed to refer
to amounts or percentages after giving effect to any applicable events
contemplated by the preceding sentence.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company, including, without limitation, a Shelf Registration Statement,
on any form (to be selected by the Company) for which the Company then qualifies
and which permits the secondary resale thereunder of Registrable Shares. The
term Registration Statement shall also include all exhibits and financial
statements and schedules and documents incorporated by reference in such
Registration Statement when it becomes effective under the Securities Act, and
in the case of the references to the Registration Statement as of a date
subsequent to the effective date, as amended or supplemented as of such date.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time.
"SELLING STOCKHOLDER" shall mean any Stockholder whose
Registrable Shares are included at the request of such Stockholder in any
Registration Statement filed pursuant this Agreement.
"SHELF REGISTRATION" shall mean a registration effected
pursuant to Section 2.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf"
registration statement pursuant to the provisions of Section 2 of this Agreement
of the Company, which covers any of the Registrable Shares, on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"STOCKHOLDER" shall mean a Stockholder (as defined in the
preamble to this Agreement) or any transferee of Registrable Shares, including,
without limitation, any affiliate of Cambridge Capital Fund, L.P. or Baker Nye,
L.P. if such transferee has executed a counterpart hereof at the time of the
transfer to such transferee, unless the Registrable Shares held by such
transferee are acquired in a public distribution pursuant to a registration
statement under the Securities Act.
2. SHELF REGISTRATION.
a. Within 30 days from the closing date of the Merger, the
Company shall prepare and file with the Commission a Shelf Registration
Statement for the offering and sale of Registrable Shares on a delayed or
continuous basis. The section of the Shelf Registration Statement entitled "Plan
of Distribution" shall be prepared in accordance with the requirements of Item
508 of Regulation S-K promulgated by the Commission under the Securities Act and
shall provide that the Registrable Shares may be distributed in the manner set
forth in the corresponding section of the
2
<PAGE>
Company's prospectus, dated December 4, 1997, included in the Company
Registration Statement on Form S-3 (No. 333-40429). Once the Company has filed
the Shelf Registration Statement, the Company shall use its commercially
reasonable best efforts to have the Commission declare the Shelf Registration
Statement effective. Upon the Shelf Registration Statement being declared
effective by the Commission, the Company will use its commercially reasonable
best efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended under the Securities Act until the date on which the
last of the Registrable Shares are eligible to be offered and sold without
registration under the Securities Act (and without volume or manner of sale
restrictions or limitations) (the "Effectiveness Period").
b. If at any time or from time to time any of the Selling
Stockholders desires to sell Registrable Shares covered by a Shelf Registration
Statement in an underwritten offering, the Managing Underwriters shall be
selected by the holders of a majority of the Registrable Shares included in such
offering; provided, that such Managing Underwriters shall be reasonably
satisfactory to the Company.
c. The Company shall not permit any securities other than
Registrable Shares to be included in the Shelf Registration Statement.
3. REQUIRED REGISTRATIONS.
a. Upon the Company's failure to file, to have declared
effective or to have maintained the effectiveness of a Shelf Registration
Statement throughout the Effectiveness Period, in accordance with the terms and
conditions of this Agreement (a "Shelf Registration Default"), the holder(s) of
a majority of the Registrable Shares shall have the right, any time after the
Shelf Registration Default, to request registration (a "Demand Registration")
under the Securities Act, of any and all Registrable Shares, upon the terms, and
subject to the conditions, set forth herein.
b. One or more Stockholders holding a majority of the
Registrable Shares may elect to exercise the right to request a Demand
Registration pursuant to this Section 3 by furnishing the Company with written
notice thereof (a "Demand Notice") which sets forth the number of Registrable
Shares requested to be registered and such Stockholder's intended method of
distribution of such Registrable Shares. Upon receipt by the Company of a Demand
Notice, the Company shall promptly notify each other Stockholder in writing of
the Demand Notice received by the Company. Upon receipt of such notice from the
Company (the "Company Notice"), each such Stockholder may give the Company a
written request to register all or some of such Stockholder's Registrable Shares
in the registration described in the Company Notice, provided that such written
request is given within twenty (20) days after the date on which the Company
Notice is given (with such request stating (i) the amount of Registrable Shares
to be included, (ii) such Stockholder's intended method of distribution of such
Registrable Shares and (iii) any other information reasonably requested by the
Company to properly effect the registration of such Registrable Shares). The
Company shall as soon as practicable after the date on which the Company Notice
is given, but in no event more than 45 days from receipt by the Company of the
Demand Notice, file with the Commission and use its
3
<PAGE>
commercially reasonable best efforts to promptly cause to become effective a
Registration Statement which shall cover the Registrable Shares specified in the
Demand Notice and in any written request from any other Stockholder received by
the Company within twenty (20) days from the date on which the Company Notice is
given.
c. If so requested by the Selling Stockholders who own a
majority of the Registrable Shares requesting registration, the public offering
or distribution of Registrable Shares pursuant to a Demand Registration shall be
pursuant to a firm commitment underwriting, the Managing Underwriters of which
shall be an investment banking firm selected and engaged by the Selling
Stockholders (subject to the approval of the Company, which approval shall not
be unreasonably withheld).
d. The Company shall not be required to effect more than two
registrations pursuant to this Section 3. In addition, the Company shall not be
required to effect any registration (other than on Form S-3 or any successor
form relating to secondary offerings) within 180 days after the effective date
of any other Registration Statement of the Company.
e. If at the time of any request to register Registrable
Shares pursuant to this Section 3, the Company is engaged or has fixed plans to
engage within 30 days of the time of the Demand Notice in a registered public
offering as to which the Stockholders may include Registrable Shares pursuant to
Section 4 or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, or such
registration would, in the good faith judgment of the Board, require a
disclosure which would be detrimental to the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or 180 days from the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any
18-month period.
4. PIGGY-BACK REGISTRATION.
a. Upon a Shelf Registration Default, the holders of the
Registrable Shares shall have piggy-back registration rights as provided for
herein. In the event that piggy-back rights are available hereunder, whenever
the Company proposes to file a Registration Statement (other than pursuant to
Section 3, on Form S-8 or relating to any registered exchange offer) it will,
prior to such filing, give written notice to all Stockholders of its intention
to do so and, upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; PROVIDED,
4
<PAGE>
HOWEVER, that the Company shall have the right postpone or withdraw any
registration effected pursuant to this Section 4 without any obligation to any
Stockholder whatsoever.
b. In connection with any registration under this Section 4
involving an underwritten offering, the Company shall not be required to include
any Registrable Shares in such registration unless the holders thereof accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If, in the opinion of the Managing Underwriter, it
is appropriate because of marketing factors to limit the number of Registrable
Shares to be included in the offering, then the Company shall be required to
include in the registration only that number of Registrable Shares, if any,
which the Managing Underwriter believes should be included therein, and shall be
entitled to include before such Registrable Shares up to the number of shares of
Common Stock to be issued by the Company in the offering. If the number of
Registrable Shares to be included in the offering in accordance with the
foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to be included in such registration shall participate in the
registration pro rata based upon their total ownership of shares of Common
Stock.
5. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to effect
the registration of any of the Registrable Shares under the Securities Act, the
Company shall:
a. prepare and file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become and remain effective;
b. as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it but not more than 9 months after
the effective date and, in the case of any other offering, until the earlier of
the sale of all Registrable Shares covered thereby or 120 days after the
effective date thereof; PROVIDED, HOWEVER, that with respect to a Shelf
Registration Statement pursuant to Section 2, the Company shall keep the Shelf
Registration Effective during the entire Effectiveness Period;
c. as expeditiously as possible furnish to each Selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the Selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
5
<PAGE>
d. as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or blue sky laws of such states as the Selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; PROVIDED, HOWEVER, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
e. in the case of a Shelf Registration, make available for
inspection by special counsel to the Selling Stockholders ("Special Counsel")
and any Managing Underwriters and their counsel all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records") as shall be reasonably necessary to enable the Stockholders and such
Managing Underwriters to exercise their due diligence responsibility, and cause
the officers, directors and employees of the Company to supply all information
reasonably requested by Special Counsel, such Managing Underwriters and their
counsel in connection with such Registration Statement. Records which the
Company determines, in good faith, to be confidential and as to which it
notifies Special Counsel, any Managing Underwrites and their counsel are
confidential shall not be disclosed by such counsel or such Managing
Underwriters unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in the Registration Statement and such
counsel has given the Company prior written notice of the proposed release and
has afforded the Company an opportunity to amend the Registration Statement, (b)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction and such counsel has given the Company
prior written notice of the proposed release pursuant to such subpoena or other
order and has afforded the Company an opportunity to contest the same, (c) the
disclosure of such Records is required by any governmental regulatory body with
jurisdiction over any Selling Stockholder whose Registrable Shares are covered
by such Registration Statement and such counsel has provided prior written
notice to the Company of the proposed disclosure and has afforded the Company an
opportunity to contest the same or (d) the information contained in such Records
has already become public other than through the fault of such counsel or such
Managing Underwriters;
If the Company has delivered preliminary or final prospectuses to the
Selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the Selling Stockholders and, if requested, the Selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
6. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this Section
6, the term "Registration Expenses" shall mean all expenses to be incurred by
the Company in complying with this Agreement, including,
6
<PAGE>
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and expenses of counsel for the Company, state blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of Selling Stockholders' Special Counsel.
7. INDEMNIFICATION AND CONTRIBUTION.
a. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the Selling Stockholder of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such Selling Stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Selling Stockholder, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or blue sky laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission 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; and the Company will
reimburse such Selling Stockholder, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such Selling
Stockholder, underwriter or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or omission made in such Registration Statement, preliminary
prospectus or final prospectus, or any such amendment or supplement, (i) in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such Selling Stockholder, underwriter or controlling
person specifically for use in the preparation thereof or (ii) which untrue
statement was corrected by the Company and delivered to the Selling Stockholder
prior to consummation of the sale by the Selling Stockholder resulting in such
loss, claim, damage or liability.
b. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each Selling
Stockholder of Registrable Shares, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors and officers and each
underwriter (if any) and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities or blue
sky laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material
7
<PAGE>
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission 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, provided that such
statement or omission was made in reliance upon and in conformity with
information relating to such Selling Stockholder furnished in writing to the
Company by and on behalf of such Selling Stockholder specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement; PROVIDED, HOWEVER, that the obligations of such Selling
Stockholders hereunder shall be limited to an amount equal to the proceeds to
each Selling Stockholder of Registrable Shares sold in connection with such
registration.
c. Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7, except to the extent
that such delay prejudices such indemnifying party. The Indemnified Party may
participate in such defense at such party's expense; PROVIDED, HOWEVER, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
d. If the indemnification provided for under this Section 7 is
unavailable to or insufficient to hold the Indemnified Party harmless under
subparagraphs (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein for any reason
other than as specified therein, then the Indemnifying Party shall contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Indemnifying Party on the one hand and such Indemnified Party on the other from
the subject offering or distribution 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 Indemnifying Party on the one
8
<PAGE>
hand and such Indemnified Party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative benefits received by the Indemnifying Party on the
one hand and the Indemnified Party on the other hand shall be deemed to be in
the same proportion as the net proceeds of the offering or other distribution
(after deducting expenses) received by the Indemnifying Party bears to the net
proceeds of the offering or other distribution (after deducting expenses)
received by the Indemnified Party. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by (or omitted to be supplied by) the Company or
the Selling Stockholder, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
the relative benefits received by each party from the sale of the Registrable
Shares and any other equitable considerations appropriate under the
circumstances. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2 or 3, the Company agrees to (i)
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering,
and (ii) provide such other documents and agreements customarily delivered by an
issuer in an underwritten public offering, including, without limitation,
customary opinions of counsel and accountant "cold comfort" letters.
9. INFORMATION BY STOCKHOLDER. Each Stockholder including Registrable
Shares in any registration shall furnish to the Company such information
regarding such Stockholder and the distribution proposed by such Stockholder as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
10. TERMINATION. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the tenth anniversary
of this Agreement.
11. GENERAL.
a. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
given if sent by registered or certified
9
<PAGE>
mail, first class postage prepaid, return receipt requested, to the address of
such parties set forth on the signature pages of this Agreement or such other
future address as may be specified by any party by notice to all of the other
parties. Such communications may also be given by personal delivery, by
facsimile or by regular mail, but shall be effective only if and when actually
received.
b. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
c. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended with the written consent of the Company and each of the Stockholders. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision. A party hereto
may waive the performance of any covenant for its benefit (either generally or
in a particular instance and either retroactively or prospectively), PROVIDED,
HOWEVER, that no such waiver shall be effective unless in writing and signed by
such party.
d. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
e. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
f. 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 instrument.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of, and be binding upon, the successors, assigns and transferees of each
of the parties hereto.
* * * *
[SIGNATURES ON THE FOLLOWING PAGES]
10
<PAGE>
IN WITNESS WHEREOF, the Company and the Stockholders have executed this
Agreement this _____ day of _________, 1998.
COMPANY
AVIATION SALES COMPANY
By:
------------------------------------------
Dale S. Baker, President
ADDRESS FOR NOTICE:
6905 N.W. 25th St.
Miami, Florida 33122
Telecopy: (305) 599-6610
WITH A COPY TO:
Akerman, Senterfitt & Eidson, P.A.
1 S.E. Third Ave., Suite 2800
Miami, Florida 33131
Attention: Philip B. Schwartz, Esq.
STOCKHOLDERS
CAMBRIDGE CAPITAL FUND L.P.
By:
------------------------------------------
George F. Baker, General Partner
ADDRESS FOR NOTICE:
767 Fifth Avenue
New York, NY 10152
Telecopy: (212) _________
11
<PAGE>
WITH A COPY TO:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, NY
Attention: Lee D. Charles, Esq.
BAKER NYE, L.P.
By:
----------------------------------
George F. Baker, General Partner
ADDRESS FOR NOTICE:
767 Fifth Avenue
New York, NY 10152
Telecopy: (212) _________
WITH A COPY TO:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, NY
Attention: Lee D. Charles, Esq.
-------------------------------
George F. Baker
-------------------------------
Bruce R. Conway
-------------------------------
Arthur H. Hutton
-------------------------------
John J. McAtee, Jr.
12
<PAGE>
-------------------------------
Jack S. Parker
-------------------------------
Lewis S. White
-------------------------------
John H. Wilson
13
<PAGE>
EXHIBIT A
STOCKHOLDERS REGISTRABLE SHARES
- ------------ ------------------
Cambridge Capital Fund, L.P.
Baker Nye, L.P.
George F. Baker
Bruce C. Conway
Arthur H. Hutton
John J. Mcatee, Jr.
Jack S. Parker
Lewis S. White
John H. Wilson
Total
14
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
ATTORNEYS AT LAW
SUNTRUST INTERNATIONAL CENTER
28TH FLOOR
ONE SOUTHEAST THIRD AVENUE
MIAMI, FLORIDA 33131-1714
(305) 374-5600
TELECOPY (305) 374-5095
April 30, 1998
Aviation Sales Company
6905 N.W. 25th Street
Miami, FL 33132
RE: AVIATION SALES COMPANY REGISTRATION STATEMENT ON FORM S-4 INCLUDING
PROXY STATEMENT/PROSPECTUS DATED APRIL 30, 1998
(THE "REGISTRATION STATEMENT")
Ladies and Gentlemen:
We have acted as counsel to Aviation Sales Company, a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company
with the Securities and Exchange Commission of the Registration Statement under
the Securities Act of 1933, as amended. The Registration Statement relates to
an aggregate of up to 3,101,229 shares (the "Shares") of the Company's common
stock, par value $0.001 per share ("Common Stock"), which may be issued by the
Company in connection with the transactions contemplated by the Agreement and
Plan of Merger, dated as of March 26, 1998 (the "Merger Agreement"), among the
Company, WHC Acquisition Corp. ("Sub"), a wholly-owned subsidiary of the
Company, and Whitehall Corporation ("Whitehall"), pursuant to which Sub will be
merged with and into Whitehall (the "Merger") and all of the issued and
outstanding shares of Whitehall common stock will be converted into the Shares.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law
as we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed the genuineness
of all signatures and authenticity of all documents, instruments, records and
certificates submitted to us as originals.
Based upon such examination and review and upon the representations made
to us by the officers and directors of the Company, we are of the opinion that
when the Registration Statement becomes effective under the Securities Act of
1933, as amended, and the Shares are issued pursuant to the terms of the Merger
Agreement, the Shares will constitute legally issued, fully paid and
non-assessable securities of the Company.
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by any other jurisdiction.
<PAGE>
This firm consents to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to the firm under the caption
"Legal Matters" in the Proxy Statement/Prospectus which is part of the
Registration Statement.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
/s/ Akerman, Senterfitt & Eidson, P.A.
--------------------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report and to all references to our Firm included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 28, 1998.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report and to all references to our Firm included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 28, 1998.
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
October 30, 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 included
in Aviation Sales Company's Form 8-K/A dated October 17, 1997 and to all
references to our Firm included in this registration statement.
CLARK, SCHAEFER, HACKETT & CO.
Cincinnatti, Ohio,
April 28, 1998.
EXHIBIT 23.6
CONSENT OF SBC WARBURG DILLON READ INC.
We hereby consent to the use of Annex C containing our opinion letter
dated March 26, 1998 to the Board of Directors of Aviation Sales Company (the
"Company") in the Proxy Statement/Prospectus constituting a part of the
Registration Statement on Form S-4 relating to the proposed combination of the
Company and Whitehall Corporation and to the references to our firm in such
Proxy Statement/ Prospectus. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
SBC WARBURG DILLON READ INC.
By: /s/ SBC Warburg Dillon Read Inc.
New York, New York
April 27, 1998
WHITEHALL CORPORATION
PROXY FOR
SPECIAL MEETING OF STOCKHOLDERS
JUNE , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned stockholder of Whitehall Corporation ("Whitehall") hereby appoints
George F. Baker and John H. Wilson, or either of them, as proxies, each with
power to act without the other and with full power of substitution, for the
undersigned to vote the number of shares of Common Stock of Whitehall that the
undersigned would be entitled to vote if personally present at the Special
Meeting of Stockholders of Whitehall to be held on June , 1998, at
10:00 a.m., local time, at , Florida, and at any adjournment or
postponement thereof, on the following matters that are more particularly
described in the Proxy Statement/Prospectus dated May , 1998:
(1) Proposal to approve and adopt the Agreement and Plan of Merger dated
as of March 26, 1998, by and among Aviation Sales Company ("AVS"), WHC
Acquisition Corp. ("Sub") and Whitehall pursuant to which Sub will merge with
and into Whitehall and each outstanding share of Whitehall Common Stock will be
converted into the right to receive .5143 of a share of AVS common stock,
$0.001 par value.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To consider and take action upon any other matter which may properly
come before the meeting or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1. RECEIPT OF THE PROXY STATEMENT/PROSPECTUS DATED MAY
, 1998, IS HEREBY ACKNOWLEDGED.
Dated:___________, 1998.
___________________________
___________________________
Signature of Stockholder(s)
Please sign your name exactly
as it appears hereon. Joint
owners must each sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give your full title as it
appears therein.
PLEASE MARK, SIGN, DATE AND RETURN USING THE ENCLOSED ENVELOPE.
