SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-11775
AVIATION SALES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 65-0665658
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6905 N.W. 25TH STREET, MIAMI, FLORIDA 33122
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(Address of principal executive offices) (Zip Code)
(305) 592-4055
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.001 New York Stock Exchange
per share
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Securities registered pursuant to section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1999, 12,553,775 shares of Common Stock were outstanding and the
aggregate market value (based on the closing price on the New York Stock
Exchange on March 15, 1999, which was $44.69 per share) of the Common Stock held
by non-affiliates was approximately $378,755,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held in May 1999 are incorporated by reference
into Part III hereof. Certain exhibits listed in Part IV of this Annual Report
on Form 10-K are incorporated by reference from prior filings made by the
Registrant under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended.
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PART I
ITEM 1. BUSINESS
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" IN THIS
ANNUAL REPORT ON FORM 10-K INCLUDES AVIATION SALES COMPANY AND ITS SUBSIDIARIES.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS OR MAY CONTAIN FORWARD-LOOKING
STATEMENTS, SUCH AS STATEMENTS REGARDING THE COMPANY'S GROWTH STRATEGY AND
ANTICIPATED TRENDS IN THE INDUSTRY IN WHICH THE COMPANY OPERATES. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS AND
ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO THE
COMPANY'S OPERATIONS AND RESULTS OF OPERATIONS, COMPETITIVE FACTORS, SHIFTS IN
MARKET DEMAND, AND OTHER RISKS AND UNCERTAINTIES, INCLUDING, IN ADDITION TO
THOSE DESCRIBED BELOW AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K, THE
COMPANY'S ABILITY TO ACQUIRE ADEQUATE INVENTORY AND TO OBTAIN FAVORABLE PRICING
FOR SUCH INVENTORY, COMPETITIVE PRICING FOR THE COMPANY'S PRODUCTS AND SERVICES,
INCREASED COMPETITION IN THE AIRCRAFT SPARE PARTS REDISTRIBUTION AND
MAINTENANCE, REPAIR AND OVERHAUL MARKETS, THE ABILITY TO CONSUMMATE SUITABLE
ACQUISITIONS, UTILIZATION RATES FOR THE COMPANY'S MR&O FACILITIES, THE ABILITY
TO EFFECTIVELY INTEGRATE RECENTLY COMPLETED AND FUTURE ACQUISITIONS, ECONOMIC
FACTORS WHICH AFFECT THE AIRLINE INDUSTRY AND CHANGES IN GOVERNMENT REGULATIONS.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM RESULTS EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE
COMPANY IN THIS ANNUAL REPORT ON FORM 10-K. THE COMPANY DOES NOT UNDERTAKE ANY
OBLIGATION TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS
OR CIRCUMSTANCES.
GENERAL
Aviation Sales Company is a leading provider of fully integrated aviation
inventory and maintenance, repair and overhaul services, and the Company
believes that it is the largest independent provider of heavy maintenance
services for aircraft in North America and the largest redistributor of aircraft
parts in the world. The Company sells aircraft spare parts and provides
inventory management services and maintenance, repair and overhaul ("MR&O")
services to commercial passenger airlines, air cargo carriers, maintenance and
repair facilities and other redistributors throughout the world. Parts sold by
the Company include rotable and expendable airframe and engine components for
commercial airplanes, including Boeing, McDonnell Douglas, Lockheed and Airbus
aircraft and Pratt & Whitney, General Electric and Rolls Royce jet engines. MR&O
services offered by the Company through its six FAA-licensed repair stations
include aircraft heavy maintenance and modification and repair and overhaul on a
wide range of aircraft and aircraft components. Inventory management services
offered by the Company include purchasing services, repair management, warehouse
management, aircraft disassembly services, and consignment and leasing of
inventories of aircraft parts and engines. The Company also manufactures certain
aircraft parts for sale to original equipment manufacturers ("OEMs"), including
precision engine parts.
The Company believes that the annual worldwide market for aircraft spare parts
is approximately $11.0 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 more than double from
1997 to 2017) 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
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 including the Company selling a broad range of
aircraft spare parts, and numerous smaller competitors servicing specialized
niches.
The Company believes that the total worldwide market for MR&O services is
approximately $27.0 billion annually and that $5.3 billion of that amount
represents commercial airframe MR&O services being provided in North America.
Approximately 65% of the North American services are currently being performed
by airlines themselves, with the remaining demand being outsourced to
independent providers such as the Company. Due to the increasing size and age of
the worldwide air fleet, increased outsourcing by airlines and air cargo
carriers seeking to control their costs and reductions in the number of approved
vendors utilized by such airlines and air cargo carriers, the Company believes
that the demand for MR&O services from large, fully integrated independent
providers such as the Company will continue to increase in the future.
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The Company's strategy is to be the vendor of choice to its customers, providing
total inventory solutions and total aircraft maintenance solutions to meet their
spare parts and MR&O requirements. The Company believes that future growth in
its business will come from internal growth combined with growth through
additional acquisitions of companies which expand or add to the Company's
existing product and service offerings. Internal 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 and MR&O services. These services allow the Company's customers to
reduce their costs of operations by outsourcing some or all of their inventory
management and MR&O functions and to take advantage of opportunities to maximize
the value of their spare parts inventory. Additionally, the Company's position
as a leading redistributor of aircraft spare parts allows the Company to better
service its MR&O customers, due to the timely availability of the Company's
extensive parts inventory to its MR&O operations. The Company also manufactures
certain aircraft parts which the Company sells to OEM customers. The Company
believes that its manufacturing capabilities allow it to better service its
existing and future customers, providing it with a competitive advantage. The
Company believes that providing a diversified platform of products and services,
combined with the Company's superior management information systems, financial
strength and access to capital markets, will allow the Company to capitalize on
the current industry environment and to take advantage of favorable industry
trends.
INDUSTRY OVERVIEW
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS AND MR&O SERVICES
According to Boeing's 1998 Current Market Outlook (the "Boeing Report"), the
worldwide fleet of commercial airplanes is expected to double from approximately
12,300 airplanes at the end of 1997 to approximately 26,200 airplanes by 2017.
Further, the Boeing Report projects that cargo jet aircraft will increase from
approximately 1,430 airplanes in 1997 to approximately 2,706 airplanes by 2017.
The majority of the airplanes delivered to cargo operators are expected to be
used aircraft converted from commercial passenger service. Additionally, the
Company believes that the number of planes in service for more than 10 years is
continuing to increase, and that these older planes are the primary market for
redistributors and for independent providers of MR&O services. The Company
believes that all of these factors will increase the demand for aircraft spare
parts from the redistribution market and for MR&O services.
Since the Company's customers consist of airlines, maintenance and repair
facilities that service airlines and other aircraft spare parts redistributors,
as well as original equipment manufacturers, the Company's business is impacted
by the economic factors which affect the airline industry. When such factors
adversely affect the airline industry, they tend to reduce the overall demand
for aircraft spare parts, causing downward pressure on pricing and increasing
the credit risk associated with doing business with airlines. Additionally,
factors such as the price of fuel affect the aircraft spare parts market, since
older aircraft (into which aircraft spare parts are most often placed) become
less viable as the price of fuel increases. There can be no assurance that
economic and other factors which may affect the airline industry will not have
an adverse impact on the Company's business, financial condition or results of
operations.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT AND MR&O 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), the
Company believes that obtaining replacement parts from the redistribution market
and outsourcing inventory management and MR&O functions are areas in which
airlines can reduce their operating costs. Outsourcing inventory management and
MR&O functions allows these functions to be handled less expensively and more
efficiently by an operator such as the Company that can achieve economies of
scale unavailable to individual airlines.
REDUCTION IN NUMBER OF SELECTION VENDORS
In order to reduce costs and streamline decisions, airlines have been reducing
the number of their approved vendors. 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
airlines, there has been and the Company believes there will continue to be a
consolidation in the redistribution and MR&O markets. Further, over the last few
years, several smaller and start-up airlines have chosen to lease inventories of
aircraft spare parts in order to preserve capital while maintaining adequate
spare parts support.
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CONSIGNMENT AND BULK PURCHASES
Certain of the Company's customers adjust inventory levels on a periodic basis
by disposing of excess aircraft parts. Traditionally, larger airlines have used
internal purchasing agents to manage such dispositions. The Company believes
that major airlines and other owners of aircraft spare parts, in order to
concentrate on their core businesses and to more effectively redistribute their
excess parts inventories, are increasingly entering into long-term consignment
agreements with redistributors. By consigning inventories to a redistributor
such as the Company, customers are able to distribute their aircraft spare parts
to a larger number of prospective inventory buyers, allowing customers to
maximize the value of their inventory. Consignment also enables the Company to
offer for sale a significant parts inventory at minimal capital cost to the
Company. Consignment agreements are generally entered into on a long-term basis
for a large group of parts or entire airplanes which are disassembled for sale
of the individual parts. In the Boeing Report, it is noted that approximately
3,732 aircraft will be removed from active commercial service between 1997 and
2017. Many of these aircraft will be disassembled in order to sell their parts.
COMPETITIVE STRENGTHS
The Company believes that its competitive position in the markets which it
serves is based on its diverse product and service offerings, sophisticated
inventory management information systems and a consistent record of meeting
rigorous customer requirements.
DIVERSIFIED PLATFORM OF PRODUCTS AND SERVICES
The Company believes that the breadth of services which it provides to its
customers, including a wide range of parts repair, MR&O and inventory management
services, and specialized manufacturing, allows the Company to be a vendor of
choice to its customers in a highly fragmented industry. The Company has over
1,000 customers, including commercial passenger airlines, air cargo carriers and
maintenance and repair facilities.
LARGE INVENTORY BASE
The Company believes that it has one of the largest inventories of aircraft
spare parts in the world, with over 555,000 line items currently in stock. The
Company's inventory supports the worldwide commercial fleet of over 11,500
aircraft including Airbus A300, A31x, A32x and A340 series aircraft, Boeing 707,
727, 737, 747, 757, 767 and 777 series aircraft, McDonnell Douglas DC-8, DC-9,
DC-10, MD-8x and MD-11 series aircraft, and the Lockheed L-1011 aircraft. In
addition, the Company has parts available for the following engine types:
General Electric CF6, SNECMA CFM-56, Pratt and Whitney JT-3, JT-8, JT-9 and
PW-2000 and the Rolls Royce RB-211.
EMPHASIS ON QUALITY CONTROL
The Company incurs significant expenses to maintain the most stringent quality
control of its products and services and the Company has continually met or
exceeded these requirements. The Company also performs testing and certification
procedures on all of the products that it manufactures, repairs and overhauls,
and maintains detailed records to ensure traceability of the aircraft spare
parts in its inventory and the production of and service on each aircraft
component and airplane. The expense required to institute and maintain the
Company's quality control procedures represents a barrier to entry for other
companies.
PROPRIETARY MANAGEMENT INFORMATION SYSTEMS
The Company's proprietary management information systems comprise an integral
component of the Company's position as a leader in its industry. As industry,
regulatory and public awareness have focused on safety, documentation and
traceability of aircraft parts have become key factors in determining which
companies will be able to effectively compete in the redistribution business.
The requirement to be able to provide documentation about each part sold has
also made it more expensive for new entrants to become involved in the
redistribution market, and therefore acts as a barrier to new entrants into the
market. The Company's MIS systems collect and report data regarding inventory
turnover, documentation, pricing, market availability and customer demographic
information on more than 35 million line items. Access to such information
enables the Company to be aware of and to capitalize on the changing trends in
the marketplace. The Company utilizes electronic data scanning and document
image storage technology for rapid and accurate retrieval of inventory
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traceability documents. The Company is continuing to invest in technology to
maintain its strength in this area. In that regard, the Company is implementing
new management information systems that management believes will allow the
Company to maintain its competitive advantage, as well as mitigate the Year 2000
issues currently inherent in the Company's existing systems. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Impact of the Year 2000."
WORLDWIDE MARKETING PRESENCE
The Company conducts business in more than 100 countries and utilizes sales
representatives in 23 countries. This international presence allows the Company
to meet the demands of its global customer base and provides for a timely supply
of parts and services. During the years ended December 31, 1996, 1997 and 1998,
29%, 24% and 18 %, respectively, of the Company's operating revenues were
derived from sales to international customers and 71%, 76% and 82%,
respectively, of the Company's operating revenues were derived from sales to
domestic customers. For further information, see Note 9 to Notes to Consolidated
Financial Statements.
SIGNIFICANT FINANCIAL AND OTHER RESOURCES
As a result of the Company's capital position, the Company is able to take
advantage of opportunities which arise in the market from time to time to expand
its products and services, make selected acquisitions and evaluate bulk
purchases of inventory. The Company's market presence, industry experience,
sophisticated MIS systems and capital strength enable the Company to quickly
analyze and complete purchases, giving the Company a competitive advantage in
the market.
AIRCRAFT SPARE PARTS
Aircraft spare parts can be categorized by their ongoing ability to be repaired
and returned to service. The general categories are as follows: (a) rotable; (b)
repairable; and (c) expendable. A rotable is a part which is removed
periodically as dictated by an operator's maintenance procedures or on an as
needed basis and is typically repaired or overhauled and re-used an indefinite
number of times. An important subset of rotables is life limited parts. A life
limited rotable has a designated number of allowable flight hours and/or cycles
(one take-off and landing generally constitutes one cycle) after which it is
rendered unusable. A repairable is similar to a rotable except that it can only
be repaired a limited number of times before it must be discarded. An expendable
is generally a part which is used and not thereafter repaired for further use.
The Company's inventory consists in large part of rotable and repairable parts
which are regularly required by its customers. The Company also maintains an
inventory of expendable parts.
Aircraft spare parts conditions are classified within the industry as (a)
factory new, (b) new surplus, (c) overhauled, (d) serviceable and (e) as
removed. A factory new or new surplus part is one that has never been installed
or used. Factory new parts are purchased from manufacturers or their authorized
distributors. New surplus parts are purchased from excess 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, or
overhauled 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.
The Company's inventory consists principally of new, overhauled, serviceable and
repairable aircraft parts that are purchased from many sources. Before parts may
be installed in an aircraft, they must meet certain standards of condition
established by the FAA and/or the equivalent regulatory agencies in other
countries. Specific regulations vary from country to country, although
regulatory requirements in other countries generally coincide with FAA
requirements. Parts must also be traceable to sources deemed acceptable by such
agencies. Parts owned or acquired by the Company may not meet applicable
standards or standards may change in the future, causing parts which are already
contained in the Company's inventory to be scrapped or modified. Aircraft
manufacturers may also develop new parts to be used in lieu of parts already
contained in the Company's inventory. In all such cases, to the extent that the
Company has such parts in its inventory, their value may be reduced.
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OPERATIONS
The Company's core business is the buying and selling of aircraft spare parts
and the providing of MR&O and inventory management services. Additionally, the
Company manufactures aircraft parts for sale to OEM customers.
SALES OF AIRCRAFT SPARE PARTS AND INVENTORY MANAGEMENT SERVICES
The daily operations of the Company encompass inventory sales, brokering and
exchanging aircraft spare parts. The Company advertises its available
inventories held for sale or exchange on the Inventory Locator Service ("ILS")
and the Airline Inventory Redistribution System ("AIRS") electronic databases.
Buyers of aircraft spare parts can access the ILS and AIRS databases and
determine the companies which have the desired inventory available. The Company
estimates that 70% of its daily sales activity results from an ILS or AIRS
inquiry. All major airlines and repair agencies subscribe to one or both of
these databases and, accordingly, the Company maintains continual on-line direct
access with them. The Company also maintains direct Electronic Data Interchanges
("EDI") with significant customers. These programs provide for the electronic
exchange of pricing and availability from the Company to the customer in
response to an electronic request for quotation. ILS and AIRS do not, however,
list price information relating to particular parts. Knowledge of the value of
particular parts is provided by the Company's proprietary database.
The Company currently has over 555,000 line items in stock with market
availability, pricing and historical data available on more than 35 million line
items. The Company sells new, overhauled and serviceable replacement parts from
its inventory. Additionally, the Company will purchase parts on behalf of its
customers against specific orders. The Company also offers a customer exchange
program for rotables. In an exchange transaction, the Company exchanges a new
surplus, overhauled or serviceable part taken from stock with a customer's
as-removed part which has failed. The Company receives an exchange fee for
completing the transaction, plus reimbursement from the customer for the cost to
overhaul or repair the as-removed unit. If the as-removed part cannot be
repaired, it is returned to the customer and the exchange transaction is
converted to an outright sale at a sales price agreed upon at the time the
exchange transaction was negotiated.
The Company meets the outsourcing requirements of its customers through
providing a number of inventory management services which assist airlines in
streamlining their inventory management operations while utilizing their capital
more efficiently and reducing their costs. Through the offering of various
services, the Company believes it can provide an inventory management program
geared to a customer's particular requirements. These services include
consignment, purchasing services and repair management, aircraft disassembly,
warehouse management and leasing.
By consigning inventories to a redistributor such as the Company, customers are
able to distribute their aircraft spare parts to a larger number of prospective
inventory buyers, allowing the customer to maximize the value of their
inventory. Consignment also enables the Company to offer for sale significant
parts inventory at minimal capital cost to the Company. The Company also
provides repair management services to certain of its customers, whereby the
Company receives a fee for managing a customer's spare parts repair
requirements. The Company provides "teardown" services at its Ardmore, Oklahoma
facility. The Company primarily disassembles airplanes to obtain aircraft spare
parts for its inventory, but also tears down airplanes in connection with
consignment arrangements and for the purpose of returning disassembled aircraft
spare parts directly to a customer. In addition, the Company provides warehouse
management services which allow a customer to avoid the costs associated with
the operation of its own inventory warehouse facility by maintaining inventory
at the Company's warehouse facility. The Company also will manage a customer's
inventory at the customer's own facility.
The Company (through its subsidiary, Aviation Sales Leasing Company) provides
long-term leasing of inventories of aircraft spare parts to airline customers.
An increasing number of smaller and start-up airlines have chosen to lease
aircraft spare parts in order to preserve capital while maintaining adequate
spare parts support. The Company believes that it has a competitive advantage in
aircraft 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, 1997
and 1998, the Company had $18.0 million, $22.8 million and $28.4 million,
respectively, of aircraft parts inventories on long-term lease.
MANUFACTURING SERVICES
The Boeing Report projects that global air travel will increase by an average of
5% per year through the year 2007. In addition, average passenger fleet miles
flown are also expected to increase significantly over the next few years,
requiring
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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 services. Consequently, the Company
foresees the manufacture of aircraft parts as a significant growth opportunity
for it, and as an integral component of the Company's expansion strategy.
The Company currently owns two companies which manufacture aircraft parts for
sale to OEMs:
AVS/Kratz-Wilde Machine Company ("Kratz-Wilde") specializes in the
manufacture of machined components primarily for jet engines, and also
produces automotive and faucet components. Kratz-Wilde is a leading
supplier of CFM56 and CF6 engine components to General Electric's
Aircraft Engine business. Kratz-Wilde's operations are housed in three
manufacturing facilities in the greater Cincinnati area. Kratz-Wilde
provides the Company with precision manufacturing capabilities which
the Company believes will allow it to expand its relationship with its
current and future OEM customers.
Apex Manufacturing, Inc. ("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.
MAINTENANCE, REPAIR AND OVERHAUL SERVICES
In 1997, the Company made a strategic decision to expand the services which it
provides to include the MR&O of aircraft. Through Aerocell Structures, Inc.
("Aerocell"), Caribe Aviation, Inc. ("Caribe"), Aircraft Interior Design, Inc.
("Aircraft Interior"), and the Triad International Maintenance Corporation
("TIMCO"), which has facilities in Greensboro, North Carolina, Lake City,
Florida and Macon, Georgia, the Company provides fully integrated MR&O services
for commercial, military and freighter aircraft and for a variety of aircraft
parts.
REPAIR SERVICES
The Company provides repair services at its three FAA licensed repair stations,
Aerocell, Caribe and Aircraft Interior. Aerocell, acquired in September 1997,
specializes in the MR&O of airframe components, including flight controls,
doors, fairing panels, nacelle systems and exhaust systems. Caribe, acquired in
March 1998, is a 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. Aircraft Interior manufactures plastic cabin interior replacement
parts under FAA-PMA approval and refurbishes aircraft interior components,
including passengers and crew seats.
AIRCRAFT HEAVY MAINTENANCE
TIMCO, through its Greensboro, Lake City and Macon facilities, performs aircraft
heavy maintenance and modification services. These principally consist of
scheduled "C" and "D" level maintenance checks and the modification of passenger
airplanes to freighter configurations. "C" and "D" checks each involve a
different degree of inspection, and the services performed at each level vary
depending upon the individual aircraft operator's FAA-certified maintenance
program. "C" and "D" level checks are comprehensive checks 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 and a more thorough review of the
operational systems of the aircraft can be made. 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
personnel with detailed information about the condition of the aircraft and the
need to perform additional
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work or repairs not provided for in the original work scope. Project
coordinators and customer support personnel work closely with the customer
service representative of the Company's airline customer in 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.
Each aircraft certified by the FAA is constructed under a "Type Certificate."
Anything which is done subsequently to overhaul or 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 change. Typical modification services 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 a bulkhead or cargo net; cutting into the fuselage for
the installation of a 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 usually required for the aircraft to comply
with current FAA standards. Additional overhaul and modification services
performed include cockpit reconfiguration and the integration of Traffic Control
and Avoidance Systems ("TCAS"), windshear detection systems and navigational
aids.
SALES AND MARKETING; CUSTOMERS
The Company utilizes inside sales and marketing persons, regional field
salespersons, independent contract representatives and overseas sales offices in
its sales and marketing efforts. The Company's outside sales force is
responsible for obtaining new customers and maintaining relationships with
existing customers. The majority of the Company's day-to-day sales are
accomplished through the Company's inside sales force.
The Company staffs its South Florida parts distribution facility to provide
sales and delivery services seven days a week, 24 hours a day. This service is
critical to provide support to airline customers which, at any time, may have an
aircraft grounded in need of a particular part. The Company's South Florida
location, with easy access to Miami International Airport and Fort Lauderdale
International Airport, assists the Company in providing reliable and timely
delivery of purchased aircraft parts.
The Company has over 1,000 customers, which include commercial passenger
airlines, air cargo carriers, maintenance and repair facilities and other
aircraft parts redistribution companies. The Company's top ten customers
accounted for approximately 26%, 29% and 38% of operating revenues,
respectively, for the three years ended December 31, 1998. No customer accounted
for more than 10% of operating revenues for the year ended December 31, 1998.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed a proprietary management information system which is
an important component of its business and a significant factor in the Company's
leading position in the redistribution market. The Company's management
information system collects and reports data regarding inventory turnover and
traceability, pricing, market availability, customer demographics and other
important data used by the Company. The Company currently maintains marketing
data on and is able to estimate the value of more than 3.7 million line items.
The Company also maintains databases on recommended upgrades or replacements,
including airworthiness directives. Access to such information gives the Company
the best possible opportunity to avoid purchases of aircraft spare parts which
might be deemed unusable. In addition, the data maintained by the Company allows
it to provide its customers with information with respect to obsolescence and
interchangeability of parts. The Company utilizes electronic data scanning and
document image storage technology for accurate and rapid retrieval of inventory
traceability documents that must accompany all sales. These documents are
required by the Company's customers in order for them to comply with applicable
regulatory guidelines. The Company believes that its continued investment in the
development of information systems is a key factor in maintaining its
competitive advantage.
The Company believes that to maintain its competitive advantages, accommodate
growth and keep pace with the rapid changes in technology, it will be prudent to
continue to acquire state of the art management information systems to ensure
the capability to meet the Company's needs for the foreseeable future. In that
regard, the Company is implementing new management information systems that
management believes will allow the Company to maintain its competitive advantage
- 7 -
<PAGE>
and to mitigate the Year 2000 issues currently inherent in the Company's
existing systems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"--Impact of Year 2000."
COMPETITION
There are numerous suppliers of aircraft parts in the aviation market worldwide
which customers can access through inventory listing services. Suppliers of
aircraft parts include major aircraft manufacturers, airline and aircraft
service companies and aircraft spare parts redistributors. Competition in the
redistribution market is generally based on price, availability of product and
quality, including traceability. The Company's major competitors in the
redistribution market 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.
In the MR&O market the Company's major competitors include B.F. Goodrich, Dee
Howard Company, Mobile Aerospace, Inc. and Dalfort Aviation. The Company's
principal competitors for military contracts include Boeing Military Aircraft,
Lockheed-Martin Aeromod and Raytheon-E Systems.
Several of the Company's competitors have greater financial and other resources
than the Company. There can be no assurance that competitive pressures will not
materially and adversely affect the Company's business, financial condition or
results of operations.
GOVERNMENT REGULATION AND TRACEABILITY
The aviation industry is highly regulated. While the Company's redistribution
activities are not regulated, the aircraft spare parts which it sells to its
customers must be accompanied by documentation which enables the customer to
comply with applicable regulatory requirements. Additionally, the Company must
be certified by the FAA in order to manufacture or repair aircraft components
and to perform MR&O services on aircraft. Although the Company believes that its
manufacturing and MR&O operations are in material compliance with applicable
regulations, there can be no assurance of this fact. Further, there can be no
assurance that new and more stringent government regulations will not be adopted
in the future or that any such new regulations, if enacted, would not have a
material adverse effect on the Company's business, financial condition or
results of operations.
The FAA regulates the manufacture, repair and operation of all aircraft and
aircraft parts operated in the United States. Its regulations are designed to
ensure that all aircraft and aircraft equipment are continuously maintained in
proper condition to ensure safe operation of the aircraft. Similar rules apply
in other countries. All aircraft must be maintained under a continuous condition
monitoring program and must periodically undergo thorough inspection and
maintenance. The inspection, maintenance and repair procedures for the various
types of aircraft and aircraft equipment are prescribed by regulatory
authorities and can be performed only by certified repair facilities utilizing
certified technicians. Certification and conformance is required prior to
installation of a part on an aircraft. Presently, the Company utilizes FAA
and/or Joint Aviation Authority certified repair stations (including the
Company's FAA-licensed repair facilities) to repair and certify parts to ensure
worldwide marketability. The operations of the Company may in the future be
subject to new and more stringent regulatory requirements. In that regard, the
Company closely monitors the FAA and industry trade groups in an attempt to
understand how possible future regulations might impact the Company.
An important factor in the aircraft spare parts redistribution market relates to
the documentation or traceability that is supplied with an aircraft spare part.
The Company requires all of its suppliers to provide adequate documentation as
dictated by the appropriate regulatory authority. The Company utilizes
electronic data scanning and storage techniques to maintain complete copies of
all documentation. Documentation required includes, where applicable, (a) a
maintenance release from a certified airline or repair facility signed and dated
by the 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.
Further, the Company's operations are subject to a variety of worker and
community safety laws. The Occupational Safety and Health Act mandates general
requirements for safe workplaces for all employees. Specific safety standards
have been
- 8 -
<PAGE>
promulgated for workplaces engaged in the treatment, disposal or storage of
hazardous waste. The Company believes that its operations are in material
compliance with heath and safety requirements of the Occupational Safety and
Health Act.
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal injury or
death which may result from the failure of an aircraft spare part sold,
manufactured or repaired by it or from its negligence in the repair or
maintenance of an aircraft or an aircraft part. The Company may also 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. While the Company maintains what
it believes to be adequate liability insurance to protect it from such claims
based on its review of the insurance coverages maintained by similar companies
in its industry, no assurance can be given that claims will not arise in the
future or that such insurance coverage will be adequate. Additionally, there can
be no assurance that insurance coverages can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance could have a
material adverse effect on the financial condition of the Company.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 3,800 persons. None
of the Company's employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are good.
- 9 -
<PAGE>
ITEM 2. PROPERTIES.
The Company's executive offices are located in Miami, Florida. The construction
of the Company's new corporate headquarters and warehouse facility recently
commenced. The new facility, which will be a leased facility, will be located on
a 41 acre parcel in the City of Miramar, Florida, will contain approximately
630,000 square feet of space and consist of two buildings. One building, which
will contain approximately 545,000 square feet, will consolidate the operations
of the Company's aircraft spare parts redistribution business as well as serve
as the corporate headquarters of the Company's distributions services,
maintenance, repair and overhaul, leasing and manufacturing operations. The
Company's subsidiary, Caribe, will use the second building which will contain
approximately 85,000 square feet of office and warehouse space.
The following table identifies, as of March 1999, the principal properties
utilized by the Company. See Notes 6 and 8 to Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
APPROXIMATE SQUARE OWNED OR
FACILITY DESCRIPTION LOCATIONS FOOTAGE LEASED
- -------------------- ----------- ------- --------
<S> <C> <C> <C>
Corporate Headquarters and Warehouse Miami, FL 166,000 Leased
Office and Repair Facility Hot Springs, AK 260,000 Owned
Aircraft Disassembly and Storage Ardmore, OK 130,000 Leased
Warehouse Pearland, TX 100,000 Owned
Office and Manufacturing Facility Dallas, TX 80,000 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
Warehouse Claremore, OK 1,000 Leased
Office and Aircraft Maintenance Facility Lake City, FL 650,000 Leased
Office and Aircraft Maintenance Greensboro, NC 610,000 Leased
Office and Aircraft Maintenance Macon, GA 140,000 Leased
</TABLE>
In March 1999, the Company agreed to enter into a lease for a facility in
Winston-Salem, North Carolina containing 250,000 square feet of hangar space.
The Company intends to utilize this space to expand its TIMCO aircraft
maintenance operations.
The Company's ownership interests and leasehold interests in such properties are
pledged as collateral for amounts borrowed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
- 10 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On January 8, 1999, PaineWebber Incorporated filed in the Supreme Court of the
State of New York a complaint against the Company and its subsidiary, Whitehall
Corporation, alleging breach of contract claims and related claims against the
Company and Whitehall and a tortious interference with a contract claim against
the Company. PaineWebber alleges that it is owed a fee in connection with the
Company's acquisition of TIMCO, based upon a 1997 agreement between Whitehall
and PaineWebber relating to a then proposed acquisition of TIMCO by Whitehall
which did not occur. PaineWebber is seeking damages of approximately $1.0
million, plus costs and an unstated amount of punitive damages. PaineWebber is
also seeking payment of approximately $250,000 relating to Whitehall's failure
to honor an alleged right of first refusal provision contained in the 1997
agreement.
The Company believes that its acquisition of TIMCO was not within the scope of
the 1997 PaineWebber/Whitehall agreement and that claims brought under this
agreement against the Company and Whitehall are without merit. The Company is
vigorously defending these claims. The matter has only recently been filed and
the Company intends to file a motion seeking to dismiss this claim. Although the
Company can give no assurance, based upon the available facts, the Company
believes that the ultimate outcome of this matter will not have a material
adverse effect upon the Company's financial condition.
On June 4, 1998, Kenneth L. Harding filed an action against the Company in the
United States District of Oklahoma. Harding alleges that he had a contract with
AvEng Trading Partners, Inc. (the assets of which were subsequently acquired by
the Company) that he would receive a commission of 20% of the margin on all
aircraft parts sales to American Airlines prior to November 1997, in addition to
a $2,000 monthly retainer which he was paid prior to the termination of his
contract by the Company in November 1997. Harding claims that James Stoecker,
AvEng's principal who subsequently became employed by the Company, confirmed and
ratified Harding's contract when Mr. Stoecker was an employee of the Company.
Mr. Stoecker and the Company severed their relationship in November 1997. The
Company is vigorously defending this action. Although the Company can give no
assurance, based upon the available facts, the Company believes that the
ultimate outcome of this matter will not have a material adverse effect upon the
Company's financial condition.
On June 24, 1998, Zantop International Airlines, Inc. Aero filed an action
against Aero Corp.-Macon, Inc., one of the Company's subsidiaries (which is now
part of TIMCO), in the Superior Court of Bibb County, Georgia. The suit seeks an
unspecified amount of damages and certain equitable relief arising out of the
July 1997 sale to Aero Corp.-Macon, Inc. (then a subsidiary of Whitehall) of
certain assets used in connection with the operation of Aero Corp.-Macon, Inc.
The nature of the action involves a contractual dispute relative to certain
purchase price adjustments and inventory purchases. The Company is vigorously
defending this action. Although the Company can give no assurance, based upon
the available facts, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect upon the Company's financial
condition.
For information regarding certain environmental proceedings, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Environmental."
Except as described above, the Company is not presently involved in any material
legal proceedings outside the ordinary course of business. In the opinion of the
Company's management, the ultimate resolution of these claims and lawsuits will
not have a material adverse effect upon the financial position of the Company.
From time to time, the Company or one or more of its subsidiaries 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 or relating to repair and MR&O
services which of the Company provides on aircraft and aircraft parts. The
Company believes that this exposure is adequately covered by insurance, although
there can be no assurance.
- 11 -
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no vote of security holders during the fourth quarter of 1998.
- 12 -
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following information relates to the Company's common stock, par value $.001
per share (the "Common Stock"), which currently is listed on the New York Stock
Exchange under the symbol AVS. At March 16, 1999, there were approximately 318
stockholders of record of the Company's Common Stock. The foregoing number does
not include beneficial holders of the Company's common stock. The high and low
last sales prices of the Common Stock for each quarter during the Company's two
most recent fiscal years, as reported by the New York Stock Exchange, are set
forth below:
HIGH LOW
1997
First Quarter $26.75 $20.50
Second Quarter $25.87 $21.25
Third Quarter $31.25 $20.87
Fourth Quarter $38.93 $30.37
1998
First Quarter $44.75 $33.12
Second Quarter $41.00 $34.87
Third Quarter $41.37 $24.00
Fourth Quarter $40.62 $26.25
The Company did not declare any cash dividends during for the year ended
December 31, 1998. See Note 5 to Notes to Consolidated Financial Statements for
information concerning restrictions contained in the Company's credit agreements
regarding the payment of dividends and Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
- 13 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table represents selected consolidated financial information of
the Company. The selected financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
with Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 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)
-----------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
(In Thousands, Except per Share Data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues............................. $ 60,289 $169,771 $231,734 $322,538 $500,816
Cost of sales and services..................... 39,603 119,438 169,787 244,758 372,728
----------- ----------- ----------- ----------- -----------
Gross profit................................... 20,686 50,333 61,947 77,780 128,088
Operating expenses............................. 17,625 28,884 33,958 52,782 66,719
----------- ----------- ----------- ----------- -----------
Income from operations......................... 3,061 21,449 27,989 24,998 61,369
Interest expense .............................. 4,458 8,287 5,411 8,059 21,343
Other (income) expense......................... (1,414) (1,025) (461) 4,696 (196)
----------- ----------- ----------- ----------- -----------
Income before income taxes, equity (income)
losses of affiliate and extraordinary item... 17 14,187 23,039 12,243 40,222
Income tax expense............................. - 914 1,617 7,260 15,486
----------- ----------- ----------- ----------- -----------
Income before equity (income) losses of affiliate
and extraordinary item....................... 17 13,273 21,422 4,983 24,736
Equity (income) losses of affiliate, net of income
taxes........................................ 50 38 (255) 139 (1,356)
----------- ----------- ----------- ----------- -----------
Income before extraordinary item............... (33) 13,235 21,677 4,844 26,092
Extraordinary item, net of income taxes........ - - 1,862 - 599
----------- ----------- ----------- ----------- -----------
Net income (loss) ............................. $ (33) $ 13,235 $ 19,815 $ 4,844 $ 25,493
=========== =========== =========== =========== ===========
Historical diluted net income (loss) per
share(3)(4).................................. $ - $ 1.44 $ 1.84 $ 0.39 $ 2.01
=========== =========== =========== =========== ===========
Pro Forma diluted net income (loss) per
share(2)(3)(4)............................... $ - $ 1.01 $ 1.19
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Accounts receivable............................ $ 23,968 $ 41,173 $ 55,548 $ 82,779 $115,974
Inventories.................................... 59,069 56,094 79,414 145,343 277,131
Working capital................................ 69,610 68,039 88,222 89,988 169,742
Total assets................................... 121,477 134,660 190,118 341,332 599,377
Total debt..................................... 69,152 62,042 42,360 165,802 366,176
Stockholders' equity........................... 34,068 44,298 115,896 121,279 154,298
</TABLE>
- ---------------------------------------------
(1) Dixie Bearings, Inc. ("Dixie"), which was acquired in August 1996,
Kratz-Wilde, which was acquired in October 1997, Caribe and Aircraft Interior,
which were acquired in March 1998, and TIMCO, which was acquired in September
1998 are accounted for under the purchase method of accounting and accordingly,
their results of operations have been included in the Company's historical
results of operations from their respective date of acquisition.
The acquisition of AvEng, which was acquired in December 1996, Aerocell, which
was acquired on September 30, 1997, Apex, which was acquired in December 1997,
and Whitehall, which was acquired in July 1998, were accounted for using the
pooling of interest method of accounting. AvEng is included in the Company'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. Whitehall is included in
the Company's historical financial results for all periods presented.
- 14 -
<PAGE>
(2) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as the Company conducted its business as a partnership prior to
June 26, 1996.
(3) Weighted average common and common equivalent shares used in calculating
diluted earnings per share are 8,698,898 for 1994; 9,161,379 for 1995;
10,769,408 for 1996; 12,450,176 for 1997 and 12,696,394 for 1998.
(4) The pre 1997 share data assumes that the 4,425,000 shares of common stock
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 the Company's initial public offering ("IPO") in
July 1996.
- 15 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
GENERAL
Operating revenues consist primarily of sales of products and service revenues,
net of allowances for returns. Cost of sales and services consists primarily of
product costs, labor, 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 sales orders received during the period and the mix of aircraft spare
parts contained in the Company's inventory. The Company's operating results are
affected by many factors, including the timing of orders from large customers,
the timing of expenditures to purchase inventory in anticipation of future
sales, the timing of bulk inventory purchases, the mix of available aircraft
parts contained at any time in the Company's inventory, the number of airline
customers seeking repair services and MR&O services at any time, the Company's
ability to fully utilize its available hangar space from period to period and
the timeliness of customer aircraft in arriving for scheduled maintenance. A
large portion of the Company's operating expenses are relatively fixed. Since
the Company typically does not obtain long-term purchase orders or commitments
from its customers, it must anticipate the future volume of orders based upon
the historic purchasing patterns of its customers and upon discussions with its
customers as to their future requirements. Cancellations, reductions or delays
in orders by a customer or group of customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See Note 2 to Notes to Consolidated Financial Statements for a discussion of the
acquisitions completed by the Company in 1996, 1997 and 1998.
- 16 -
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The following tables set forth certain information relating to the Company's
operations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1997 1998
------------------------------- -----------------------------
$ % $ %
------------ ------------ ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Sales of products, net $244,340 75.8% $359,245 71.7%
Services and other 78,198 24.2% 141,571 28.3%
------------ ------------ ------------ -----------
322,538 100.0% 500,816 100.0%
Cost of sales and services 244,758 75.9% 372,728 74.4%
------------ ------------ ------------ -----------
Gross profit 77,780 24.1% 128,088 25.6%
Operating expenses 52,782 16.3% 66,719 13.3%
------------ ------------ ------------ -----------
Income from operations 24,998 7.8% 61,369 12.3%
Interest expense 8,059 2.5% 21,343 4.3%
Other (income) expense 4,696 1.5% (196) 0.0%
------------ ------------ ------------ -----------
Income before income taxes, equity (income)
losses of affiliate and extraordinary item 12,243 3.8% 40,222 8.0%
Income tax expense 7,260 2.3% 15,486 3.1%
------------ ------------ ------------ -----------
Income before equity (income) losses of affiliate
and extraordinary item 4,983 1.5% 24,736 4.9%
Equity (income) losses of affiliate, net of income
taxes 139 0.0% (1,356) (0.3%)
------------ ------------ ------------ -----------
Income before extraordinary item 4,844 1.5% 26,092 5.2%
Extraordinary item, net of income taxes - 0.0% 599 0.1%
------------ ------------ ------------ -----------
Net income $ 4,844 1.5% $ 25,493 5.1%
============ ============ ============ ===========
</TABLE>
Operating revenues for the year ended December 31, 1998 increased $178.3 million
or 55.3% to $500.8 million, from $322.5 million for 1997. Operating revenues
from companies acquired in 1997 and 1998 and accounted for under the purchase
method of accounting added $111.4 million to 1998 operating revenues. Operating
revenues also increased due to increased customer penetration, increased sales
from investments made in additional inventories and improved capacity
utilization of the Company's airframe maintenance facilities. Service revenues
for 1997 were adversely impacted as a result of the unanticipated cancellation
of a U.S. Air Force C-130 maintenance contract awarded in April 1997 and
cancelled at the convenience of the government in June 1997.
Gross profit for the year ended December 31, 1998 increased $50.3 million or
64.7% to $128.1 million, compared with $77.8 million for the year ended December
31, 1997. Gross profit margin for the year ended December 31, 1998 increased to
25.6% from 24.1% for the year ended December 31, 1997. Margins were negatively
impacted in 1997 as a result of the C-130 contract previously discussed. Gross
profit margin was favorably impacted during 1998 by improved utilization of the
Company's MR&O facilities, which was partially offset by an increase in the
percentage of the Company's total business derived from its MR&O operations,
which generally operate at lower gross profit margin percentages then the
Company's redistribution operations.
The Company's operating expenses increased $13.9 million to $66.7 million for
the year ended December 31, 1998, compared with $52.8 million for 1997. Included
in the 1998 operating expenses were $1.8 million of merger expenses relating to
the Whitehall merger. Operating expenses as a percentage of operating revenues
for 1998 were 13.3% (13.0% after adjustment for Whitehall merger expenses),
compared to 16.4% for 1997. Reduction in operating expenses as a percentage of
operating revenues is due primarily to improved operating efficiencies and
economies of scale.
Interest expense for the year ended December 31, 1998 increased due to
substantial borrowings utilized to finance the acquisitions of Kratz-Wilde,
Caribe and TIMCO, and to finance additional inventory acquisitions and equipment
on lease.
Other expense in 1997 includes a $4.5 million writedown of Whitehall's
investment in the preferred stock of the purchaser of its ocean systems business
and a $727,000 gain on the sale by Whitehall of its electronics business.
- 17 -
<PAGE>
As a result of the above factors, net income for the year ended December 31,
1998 was $40.2 million, an increase of 228.5% over 1997.
Equity (income) losses of affiliate, net of income taxes increased from a loss
of $0.14 million to income of $1.4 million in 1998, due to increased volume in
the sales of hushkits.
During the first quarter of 1998, the Company repaid all of its outstanding term
and revolving debt with the proceeds from the sale of its senior subordinated
notes. In connection with the repayment of such debt, the Company wrote off,
during the first quarter of 1998, $1.0 million of deferred financing costs,
resulting in an extraordinary item, net of income taxes, of $0.6 million.
Net income for the year ended December 31, 1998 was $25.5 million ($2.01 per
diluted share) compared to net income of $4.8 million ($0.39 per diluted share)
for 1997. Weighted average common and common equivalent shares outstanding
(diluted) were 12.7 million for the year ended December 31, 1998, compared with
12.5 million for the year ended December 31, 1997.
- 18 -
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following tables set forth certain information relating to the Company's
operations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1997
---------------------------- ----------------------------------
$ % $ %
------------ ----------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Sales of products, net $155,857 67.3% $244,340 75.8%
Services and other 75,877 32.7% 78,198 24.2%
------------ ----------- ------------ -----------
231,734 100.0% 322,538 100.0%
Cost of sales and services 169,787 73.3% 244,758 75.9%
------------ ----------- ------------ -----------
Gross profit 61,947 26.7% 77,780 24.1%
Operating expenses 33,958 14.6% 52,782 16.3%
------------ ----------- ------------ -----------
Income from operations 27,989 12.1% 24,998 7.8%
Interest expense 5,411 2.4% 8,059 2.5%
Other (income) expense (461) (0.2%) 4,696 1.5%
------------ ----------- ------------ -----------
Income before income taxes, equity (income)
losses of affiliate and extraordinary item 23,039 9.9% 12,243 3.8%
Income tax expense 1,617 0.7% 7,260 2.3%
------------ ----------- ------------ -----------
Income before equity (income) losses of affiliate
and extraordinary item 21,422 9.2% 4,983 1.5%
Equity (income) losses of affiliate, net of income
taxes (255) (0.1%) 139 0.0%
------------ ----------- ------------ -----------
Income before extraordinary item 21,677 9.3% 4,844 1.5%
Extraordinary item, net of income taxes 1,862 0.7% - 0.0%
------------ ----------- ------------ -----------
Net income $ 19,815 8.6% $ 4,844 1.5%
============ =========== ============ ===========
</TABLE>
Operating revenues for the year ended December 31, 1997 increased 39.2% to
$322.5 million from $231.7 million for the year ended December 31, 1996. Of this
amount, approximately $44.8 million was derived from the operations associated
with companies acquired during 1997. Operating revenues for 1997 were adversely
affected by service revenues lost due to a U.S. Air Force C-130 maintenance
contract, described above, that was awarded but subsequently cancelled at the
convenience of the government. Operating revenues also increased due to the
inclusion of a full year of sales from Company's bearings distribution business,
which was acquired in August 1996, increased revenues from leasing activities,
increased customer penetration, increased sales due to the Company's investment
in and availability of increased amounts of inventory and the continued
expansion of inventory management services being offered to and utilized by the
Company's customers.
Gross profit increased 25.6% from $61.9 million to $77.8 million for the years
ended December 31, 1996 and 1997, respectively. Gross profit margin in 1997
decreased to 24.1% from 26.7% in 1996. The decrease in gross profit margin
compared to 1996 was due largely to the impact of the loss of the above
described C-130 contract on 1997 results. In addition to the fixed costs
associated with the idle hangar space, Aero Corp.-Lake City incurred incremental
costs associated with hiring and training personnel in anticipation of providing
services under the C-130 contract. A slight decline in margin on sales of
products reflected a declining contribution from bulk inventories of aircraft
parts acquired prior to 1995 and an increase in revenues from the Company's
lower margin bearings distribution business acquired in August 1996.
The Company's operating expenses increased $18.8 million from $34.0 million for
the year ended December 31, 1996 to $52.8 million for the year ended December
31, 1997. Of this increase, approximately $9.8 million related to accounts
receivable, inventory and environmental reserves recorded by Whitehall. See
"--Liquidity and Capital Resources-- Environmental" below. Of the remaining
increase, approximately $4.9 million was attributable to the operating expenses
of companies acquired in 1997, with the balance attributable to higher sales
levels resulting in higher selling and operating expenses. Excluding the above
described Whitehall reserves, operating expenses as a percentage of operating
revenues decreased from 14.6% in 1996 to 13.3% in 1997.
Interest expense increased $2.6 million, or 48.9%, from 1996 to 1997, primarily
due to the increase in borrowings utilized to fund the Company's continued
growth.
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<PAGE>
Other income and expense in 1997 included the $4.5 million writedown of
Whitehall's investment in the preferred stock of the purchaser of its ocean
systems business. Other income and expense in 1996 included interest income of
$307,000.
As a result of the above factors, income before income taxes and extraordinary
item decreased $10.8 million, or 46.9%, from 1996 to 1997.
Equity (income) losses of affiliate, net of income taxes decreased from income
of $0.30 million to a loss of $0.13 million in 1996 due to uncollectible
receivables and obsolete inventory being written off during 1997.
Prior to June 26, 1996, the operations of the Company were conducted by a
partnership and, therefore, the results of operations 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. Additionally, income
taxes for 1996 were offset by one-time deferred tax benefits of approximately
$4.9 million associated with the organization of the Company. No such tax
benefit was realized in 1997.
In connection with its IPO, the Company repaid all outstanding term and
revolving indebtedness. As a result, during 1996 the Company 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.
LIQUIDITY AND CAPITAL RESOURCES
CASH
Cash used in operations during 1997 and 1998 was $53.7 million and $71.0
million, respectively. Cash used in investing activities during 1997 and 1998
was $58.4 million and $114.3 million, respectively. The Company continues to
invest in spare parts inventories in order to support increased parts sales and
continues to grow through strategic acquisitions. During 1997 and 1998 the
Company financed its operating and investing activities primarily with its cash
flow from financing activities, amounting to $114.4 million, and $189.5 million,
respectively.
CAPITAL EXPENDITURES
During 1997 and 1998, the Company incurred capital expenditures of approximately
$8.1 million and $16.6 million, respectively, primarily to renovate the
maintenance facility operated by Aero Corp.-Lake City and to make enhancements
to the Company's management information systems, telecommunications systems and
other capital equipment and improvements. The Company anticipates that it will
incur capital expenditures of approximately $25.3 million in 1999, which relate
to expenditures for new equipment for its manufacturing operations, furniture
and fixtures for its new corporate headquarters, new management information
systems and enhancements to the existing management information systems, as well
as ordinary course repair and replacement of existing equipment. Financing for
such expenditures will be provided from operations and from borrowings under the
Credit Facility (as defined below).
As part of its growth strategy, the Company intends to continue to grow through
internal expansion as well as acquisitions of other businesses. Financing for
such activities will be provided from borrowings under the Credit Facility and
potential issuances of additional debt and/or equity securities. The Company
believes that available capital resources under the Credit Facility will be
sufficient to satisfy the Company's anticipated working capital requirements
over the next twelve months.
ENVIRONMENTAL
The Company is taking remedial action pursuant to Environmental Protection
Agency ("EPA") and Florida Department of Environmental Protection ("FDEP")
regulations at Aero Corp.-Lake City. 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 testing, remediation and compliance costs for this facility will
be approximately $2.4 million. Testing and evaluation for all known sites on
Aero Corp.-Lake City's property is substantially complete and the Company has
commenced a remediation program. The Company is currently monitoring the
remediation, which will extend into the future. Subsequently, the Company's
accruals were increased because of this monitoring, which indicated a need for
new equipment and additional monitoring. Based on current testing, technology,
environmental law and clean-up experience to date, the
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<PAGE>
Company believes that it has established an accrual for a reasonable estimate of
the costs associated with its current remediation strategies. To comply with the
financial assurances required by the FDEP, the Company has issued a $1.7 million
standby letter of credit in favor of the FDEP.
Additionally, there are other areas adjacent to Aero Corp.-Lake City's facility
that could also require remediation. The Company does not believe that it is
responsible for these areas; however, it may be asserted that Whitehall and
other parties are jointly and severally liable and are responsible for the
remediation of those properties. No estimate of any such costs to the Company is
available at this time.
In connection with the sale of Whitehall's electronics business, Whitehall was
required to perform, at its own expense, an environmental site assessment at the
electronics business' facility. Whitehall was also required to remedy all
recognized environmental conditions identified in the assessment to bring such
facility into compliance with all applicable Federal, State, and local
environmental laws. The buyer of this business, subject to the terms and
conditions set forth in the agreement, has the option of requiring Whitehall to
repurchase this property for $300,000.
The Company has accrued $3.4 million towards potential obligations to remediate
the environmental matters described above.
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 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.
SENIOR CREDIT FACILITY
The Company has a credit facility ("Credit Facility") with a syndicate of
financial institutions. The Credit Facility consists of a revolving loan and
letter of credit facility of $250.0 million, up to $30.0 million of which may be
outstanding letters of credit. Borrowings under the Credit Facility are secured
by a lien on substantially all of the Company's assets and the borrowing base
consists of substantially all of the Company's receivables and inventory.
Interest under the Credit Facility is, at the option of the Company, (a) prime
plus a margin, or (b) LIBOR plus a margin, where the respective margin
determination is made upon its financial performance over a 12 month period
(ranging from 0.0% to 1.0% in the event prime is utilized, or 1.125% to 2.5% in
the event LIBOR is utilized). At December 31, 1999, the margin was 0.5% for
prime rate loans and 2.0% for LIBOR rate loans.
The Credit Facility contains certain financial covenants regarding the Company's
financial performance and certain other covenants, including limitations on the
amount of annual capital expenditures and the incurrance of additional debt, and
provides for the suspension of borrowing 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. At
December 31, 1998, the Company was not in compliance with one of its
non-monetary financial covenants and the Company has obtained a waiver from the
lender relating to such covenant. At March 30, 1999, $4.9 million was available
for borrowing under the Credit Facility and outstanding letters of credit
aggregated $22.6 million.
SENIOR SUBORDINATED NOTES
In February 1998 the Company sold $165.0 million of its senior subordinated
notes due in 2008 with a coupon rate of 8.125% at a price of 99.395%. The
Company used the proceeds of the sale to repay all amounts outstanding under its
then outstanding term, acquisition and revolving credit facilities and to fund
the cash requirements related to the acquisition of Caribe and Aircraft
Interior. The funds repaid included amounts borrowed during 1997 to repay
assumed indebtedness of Aerocell and Apex in connection with those acquisitions
and borrowings incurred to fund the purchase price in connection with the
acquisition of Kratz.
The senior subordinated notes mature on February 15, 2008. Interest is payable
on February 15 and August 15 of each year, commencing August 15, 1998. The
senior subordinated notes are general unsecured obligations of the Company,
subordinated in right of payment to all of the Company's existing and future
senior debt, including indebtedness outstanding
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<PAGE>
under the credit facility and under facilities which may replace the credit
facility in the future. In addition, the senior subordinated 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 senior subordinated notes have been issued
permits the Company and its subsidiaries to incur substantial additional
indebtedness, including additional senior debt. Under the indenture, the Company
may borrow unlimited additional amounts so long as after incurring such debt it
meets a fixed charge coverage ratio for the most recent four fiscal quarters of
2.0 to 1 until February 15, 2000 and 2.25 to 1 thereafter. At December 31, 1998,
the Company's fixed charge coverage ratio for the last four fiscal quarters was
3.1 to 1. Additionally, the indenture allows the Company to borrow and have
outstanding additional amounts of indebtedness (even if it does not meet the
required fixed charge coverage ratios), up to enumerated limits. The senior
subordinated notes are also effectively subordinated in right of payment to all
existing and future liabilities of any of its subsidiaries which do not
guarantee the senior subordinated notes.
The senior subordinated notes are fully and unconditionally guaranteed, on a
senior subordinated basis, by substantially all of the Company's existing
subsidiaries and each subsidiary that will be organized in the future by it,
unless such subsidiary is designated as an unrestricted subsidiary. Subsidiary
guarantees are joint and several, full and unconditional, general unsecured
obligations of the 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 their obligations, including the credit facility. Furthermore, the
indenture permits subsidiary guarantors to incur additional indebtedness,
including senior debt, subject to certain limitations.
The senior subordinated notes are redeemable, at the Company's option, 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, the Company may redeem up to 35% of the aggregate principal amount of the
senior subordinated 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 the Company; provided, that at least 65% of the aggregate
principal amount of the senior subordinated notes originally issued remains
outstanding immediately after the occurrence of this redemption.
Upon the occurrence of a change of control, the Company will be required to make
an offer to repurchase all or any part of each holder's senior subordinated
notes at a repurchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the
repurchase date. There can be no assurance that the Company will have the
financial resources necessary to purchase the senior subordinated notes upon a
change of control or that such repurchase will then be permitted under the
credit facility.
The indenture contains certain covenants that, among other things, will limit
the Company's ability and that of 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 its assets.
OTHER NOTES
The Company has entered into several term loan agreements to finance equipment
and rotable parts on long-term lease which secure the loans. These term loans,
in the original aggregate principal amount of $17.7 million, bear interest
ranging from 7.40% to 8.21% and are payable monthly through August 2003. These
term loans contain financial and other covenants and mandatory prepayment
events. At December 31, 1998, the Company was in compliance with all covenants
of these term loans.
In connection with its acquisition of Kratz, AVS/Kratz-Wilde Machine Company, a
subsidiary of the Company, delivered to the sellers a non-interest bearing
promissory note in the original principal amount of $2.2 million, which was
guaranteed by the Company. At December 31, 1998, the Company was in compliance
with the terms of this promissory note.
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<PAGE>
In connection with its acquisition of Caribe and Aircraft Interior, on March 6,
1998 Aviation Sales Manufacturing Company, a subsidiary of the Company,
delivered to the sellers a promissory note in the original principal amount of
$5.0 million, which was guaranteed by the Company. The note is payable over a
two year period with interest at the rate of 8% per annum.
LEASE FOR NEW FACILITY
On December 17, 1998, the Company entered into an operating lease for its
corporate headquarters and warehouse facility with First Security Bank, National
Association, as trustee of a newly created trust, as lessor. The lease has an
initial term of five years and is a triple net lease, with annual rent as
provided in the lease. The lease contains financial covenants regarding the
Company's financial performance and certain other affirmative and negative
covenants which it will be obligated to comply with during the term of the
lease. Substantially all of the Company's subsidiaries have guaranteed its
obligations under the Lease. Additionally, the Company has an option to acquire
the new facility at the end of the lease for an option price as determined in
the lease. Alternatively, if the Company does not purchase the new facility at
the end of the lease, it will be obligated to pay certain amounts as provided in
the lease.
The development of the new facility has been financed by the trust through a
$35.5 million loan obtained from a syndicate of financial institutions. Pursuant
to the agreements which the Company entered into in connection with the lease,
the Company is obligated to develop the new facility on behalf of the trust and
is responsible for the timely completion thereof within an established
construction budget. The Company and substantially all of its subsidiaries have
guaranteed the repayment of $31.2 million of the trust's obligations under the
agreements. The trust's obligations under these agreements are secured by a lien
on the real property and improvements comprising the new facility and on the
fixtures therein. Further, the Company has posted an irrevocable letter of
credit in favor of the trust in the amount of approximately $8.0 million to
secure both the Company's obligations under the lease and the trust's
obligations under these agreements.
IMPACT OF THE YEAR 2000
Over the last year, the Company has been implementing new management information
("MIS") systems in order to both allow the Company's computer systems, which are
an important component of its businesses, to meet the Company's needs into the
foreseeable future and to mitigate the Year 2000 issues which the Company's
management believes could be inherent in the Company's existing MIS systems. The
Company has also grown rapidly over the last year, and particularly over the
last six months, and has expanded its operations beyond the redistribution of
aircraft spare parts into the MR&O of aircraft and aircraft components and into
the manufacturing of aircraft parts for sale to original equipment
manufacturers. Due to its rapid expansion, the Company recently commenced an
assessment of the MIS requirements in all of its businesses.
The Year 2000 issue is the potential for system and processing failures of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. The Company may be affected by
Year 2000 issues in its own non-compliant information technology ("IT") systems
or non-IT systems, as well as by Year 2000 issues related to non-compliant IT
and non-IT systems operated by third parties.
STATE OF READINESS
The Company has substantially completed an assessment of its internal and
external (third-party) IT systems and non-IT systems. At this point in its
assessment, which the Company believes is approximately 78% complete (in the
aggregate), other than as described herein, the Company is not currently aware
of any Year 2000 problems relating to its systems or the systems operated by
third parties which would have a material effect on the Company's business,
results of operations or financial condition, without taking into account the
Company's efforts to avoid such problems, although there can be no assurance
thereof. In addition, the Company believes that it is approximately 27% and 20%
complete (in the aggregate), respectively, with its Year 2000 remediation and
validation.
The Company's IT systems consist of software licensed from third parties and
hardware purchased or leased from third parties. The Company is currently
implementing new MIS systems, which are primarily designed to service the
Company's distribution services and manufacturing businesses, including new
software and hardware, which management believes that, once fully implemented,
will be Year 2000 compliant and will meet the requirements of the Company's
distribution services and manufacturing businesses into the foreseeable future.
The Company anticipates the systems for each of the distribution services
operations and the manufacturing operations will be substantially implemented by
the end of the third quarter of 1999, although there can be no assurance
thereof.
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<PAGE>
The Company has determined that the MIS system which is currently being used by
its distribution services business is not Year 2000 compliant. If the
implementation of the Company's new MIS system is delayed for any reason beyond
April 1999, the Company may decide to modify its existing MIS system to make it
Year 2000 compliant. The Company believes that such modifications would need to
commence no later than July 1999 for the Company to be in a position to
implement, remediate and validate its existing system, as modified, for Year
2000 compliance prior to January 1, 2000. While the Company has been informed by
its vendors that its existing MIS system can be brought into Year 2000
compliance on a timely basis, there can be no assurance of this fact.
To date, the Company has determined that some of the MIS systems which are
currently being used by its MR&O businesses are not Year 2000 compliant.
Excluding the non-IT systems at its TIMCO Greensboro, Lake City and Macon
facilities, the Company has substantially completed its assessment of the
hardware and software being used by its MR&O operations and believes that such
systems can be made Year 2000 compliant by the end of 1999. The Company is still
in the process of conducting an assessment of the Year 2000 compliance of the
non-IT systems for its TIMCO Greensboro, Lake City and Macon facilities, which
were acquired in 1998. Until such time as the Company substantially completes
such assessment, the Company is unable to determine the scope of remediation and
validation work associated with the non-IT systems at such facilities.
The Company has also determined that its MIS systems which are being used by its
manufacturing business are not Year 2000 compliant. The Company has
substantially completed its assessment of the hardware and software being used
by its manufacturing operations and believes that such systems can be made Year
2000 compliant either through replacement of the MIS systems or remediation of
the existing hardware and software of its various manufacturing operations. It
expects to complete such changes prior to the end of 1999.
Excluding its TIMCO Greensboro, Lake City and Macon facilities, the Company has
further substantially completed an assessment of its non-IT systems which the
Company has identified as containing embedded chip systems for Year 2000 issues.
At this point in its assessment, the Company is not currently aware of any Year
2000 problems relating to these systems which would have a material effect on
the Company's business, results of operations, or financial condition, without
taking into account the Company's efforts to avoid such problems. Additionally,
the Company is reviewing the efforts of its vendors and customers to become Year
2000 compliant. Letters and questionnaires have been or are in the process of
being sent to all critical entities with which the Company does business to
assess their Year 2000 readiness. To date, the Company has received responses
from approximately 40% of such third parties, and approximately 60% of the
companies that have responded have provided assurances to the Company that they
have already addressed, or that they will address on a timely basis, all of
their known significant Year 2000 issues. The Company anticipates that these
activities will be on-going for all of 1999 and will include follow-up telephone
interviews, correspondence and on-site meetings as considered necessary in the
circumstances. Although this review is continuing, the Company is not currently
aware of any vendor or customer circumstances that may have a material adverse
impact on the Company. The Company will seek alternative suppliers if
circumstances warrant. The Company can provide no assurance that Year 2000
compliance plans of its vendors and customers will be completed on a timely
manner.
In that regard, the Company believes that issues relating to the Year 2000
compliance of aircraft spare parts in its inventory, if any, will ultimately be
the responsibility of the manufacturers of such parts, although there can be no
assurance. Further, it is unclear whether the Company's product liability
insurance would ultimately cover a claim based upon a Year 2000 problem in a
part sold by the Company.
The Company's IT systems and other business resources rely on IT systems and
non-IT systems provided by service providers and therefore may be vulnerable to
those service providers' failure to remediate their own Year 2000 issues. Such
service providers include those for the Company's network and e-mail services
and landlords for the Company's currently occupied leased office spaces. The
Company has contacted these principal service providers and has been notified
that the IT and non-IT systems which they provide to the Company are Year 2000
compliant.
COSTS
The Company believes that the cost of the new MIS system (i) for its
distribution services business will be approximately $13.5 million, of which
approximately $4.8 million has been expended to date and approximately $8.7
million of which it believes will be expended during 1999 and (ii) for its
manufacturing business will be approximately $2.1 million of which
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<PAGE>
approximately $947,000 has been spent to date and approximately $1.15 million
will be expended during 1999. At present, the Company is in the early stages of
assessing the Year 2000 compliance of the non-IT systems at its TIMCO
Greensboro, Lake City and Macon facilities. Until such assessment is
substantially complete, the Company does not believe it will be in a position to
estimate the Year 2000 compliance costs for its MR&O business. The costs of the
Company's new MIS systems are being funded from the Company's existing lines of
credit. The $4.8 million and $947,000, respectively, spent to date has related
substantially to the cost of the new MIS systems and not to bringing the
Company's existing MIS systems into Year 2000 compliance. Such cost estimates
include both hardware and software costs, as well as the anticipated costs of
the use of consultant services, but do not include Company internal costs
associated with such efforts, which are not separately tracked for Year 2000
compliance efforts. Such internal costs principally consist of the payroll costs
for Company employees working on such compliance efforts.
If the Company determines that due to delays in the implementation of its new
MIS system for its distribution services business, it is in the Company's best
interest to update its existing MIS system for such business to make it Year
2000 compliant, so that such system remains available for use in the Company's
business until the new MIS system for business becomes operational, the cost of
such update is expected to be approximately $3.5 million. Such cost, if
incurred, would be in addition to the costs associated with the development and
implementation of the new MIS system for its distribution services business as
described above, and would not be recoverable in connection with the development
and implementation of the new MIS system for such business.
RISKS RELATING TO THE COMPANY'S FAILURE TO BECOME YEAR 2000 COMPLIANT
To the extent that the Company's assessment is finalized without identifying any
additional material non-compliant IT systems operated by the Company or by third
parties, the most reasonably likely worst case Year 2000 scenario is that the
Company will have to bring its existing MIS systems into Year 2000 compliance;
provided, however, that while the Company believes based upon its assessments
that its existing systems can be made Year 2000 compliant prior to December 31,
1999, there can be no assurance of this fact. The Company believes that it will
be able to either bring its new MIS systems substantially into operation or
bring its existing systems into Year 2000 compliance by the end of 1999,
although there can be no assurance.
The Company's failure to bring either its new MIS systems into operation or
bring its existing MIS systems into Year 2000 compliance by the end of 1999
would likely have a material adverse effect on the Company, in that it would
make it very difficult for the Company to operate its business in the ordinary
course and would likely cause the Company to lose revenues, have increased
operating costs and have business interruptions of a material nature (which
would likely not be covered by the Company's existing business interruption
insurance) until such systems were in place. In addition, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
CONTINGENCY PLANS
As discussed above, the Company is engaged in an ongoing Year 2000 assessment in
order to determine the operational problems and costs (including loss of
revenues) that would be reasonably likely to result from the failure by the
Company and certain third parties to complete efforts necessary to achieve Year
2000 compliance on a timely basis. The Company is currently continuing to
develop its new MIS systems for its distribution services business, and hopes to
be in a position by March 1999 to determine whether such system will be far
enough along in its development so that it can be made operational prior to the
end of 1999. Alternatively, unless by the end of April 1999 the Company has
determined that it is reasonably likely that it will be in a position to bring
its new MIS system for its distribution services business into operation prior
to the end of the year, the Company will likely opt to expend the costs
associated with bringing the Company's existing MIS system for its distribution
services business into Year 2000 compliance.
The Company is currently considering what its contingency plans will be in the
event that the Company is not able to bring its IT and non-IT systems for its
TIMCO Greensboro, Lake City and Macon facilities into Year 2000 compliance by
the end of 1999. The Company currently plans to complete such contingency plans
by the end of April 1999.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward- looking statement." The
Company's major market risk exposure is changing interest rates in the United
States and fluctuations in the London Interbank Bank Offered Rate. The Company's
policy is to manage interest rates through use of a combination of fixed and
floating rate debt. All items described are non-trading. The table below assumes
the December 31, 1998 interest rates remain constant.
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
---- ---- ---- ---- ---- ------------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate debt......... - - - - - 164,163 164,163 164,163
Average interest rates.. 8.13%
Variable rate debt: 174,007 - - - - - 174,007 174,007
Average interest rates.. 7.66%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is hereby incorporated by reference from the
Registrant's definitive Proxy Statement for the Annual Meeting scheduled to be
held in May 1999, under the caption, "Election of Directors," to be filed by
the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from the
Registrant's definitive Proxy Statement for the Annual Meeting scheduled to be
held in May 1999, under the caption, "Executive Compensation," to be filed by
the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is hereby incorporated by reference from the
Registrant's definitive Proxy Statement for the Annual Meeting scheduled to be
held in May 1999, under the caption, "Security Ownership of Certain Beneficial
Owners and Management," to be filed by the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is hereby incorporated by reference from the
Registrant's definitive Proxy Statement for the Annual Meeting scheduled to be
held in May 1999, under the caption "Certain Transactions," to be filed by the
Registrant.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The consolidated balance sheets as of December 31, 1997 and
December 31, 1998 and the related consolidated statements of income and
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998 are filed as part of this report:
(1) FINANCIAL STATEMENTS PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 F-3
Consolidated Statements of Income for the three years ended
December 31, 1998 F-5
Consolidated Statements of Stockholders'
Equity for the three years ended December 31, 1998 F-6
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998 F-7
Notes to Consolidated Financial Statements F-9
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts for the
three years ended December 31, 1998 F-36
(3) EXHIBITS
3.1 Certificate of Incorporation of the Company and
amendment thereto(1)
3.2 Second Amendment to Certificate of Incorporation(4)
3.3 Bylaws of the Company(1)
4.1 Indenture, dated as of February 17, 1998, among
Aviation Sales Company, certain of its subsidiaries,
and SunTrust Bank Central Florida, National
Association, Trustee(3)
10.1 Third Amended and Restated Credit Agreement, dated as
of October 17, 1997, by and among the Company,
certain of its subsidiaries and Citicorp USA, Inc.,
as agent(2)
10.2 Lease, dated as of December 2, 1994, by and between
Aviation Properties and the Partnership(1)
*10.3 Memorandum of Purchase and Sale effective as of March
31, 1998 by and between Aviation Properties of Texas
and Aviation Sales Operating Company for Pearland
facility
*10.4 Lease dated July 22, 1998 by and between Ben Quevedo,
Ltd. and Caribe
*10.5 Form of Employment Agreement, dated January 1, 1999,
by and between Dale S. Baker and the Company
+10.6 Amended Employment Agreement, effective as of
December 2, 1994, by and between Harold Woody and
the Company(4)
*10.7 Form of Employment Agreement, dated January 1, 1999,
by and between James D. Innella and the Company
- 28 -
<PAGE>
+10.8 Amended Employment Agreement, effective as of June 1,
1996, by and between Michael A. Saso and the
Company(4)
*10.9 Form of Employment Agreement, dated January 1, 1999,
by and between Benito Quevedo and the Company
+10.10 1996 Director Stock Option Plan(4)
+10.11 1996 Stock Option Plan(4)
+10.12 1997 EBITDA Incentive Compensation Plan(5)
*10.13 Form of Aviation Sales Company 1999 EBITDA Plan
*+10.14 Form of Stock Option Agreement (Non-Plan) by and
between the Company and each of Dale S. Baker,
James D. Innella and Benito Quevedo
10.15 Merger Agreement by and among Aviation Sales Company,
AVS/ASI Merger Corp., Aerocell Structures, Inc. and
the shareholders of Aerocell Structures, Inc., dated
as of September 30, 1997(6)
10.16 Asset Purchase Agreement by and between Aviation
Sales Company and Kratz-Wilde Machine Company, dated
as of September 30, 1997(7)
10.17 Stock for Asset Purchase Agreement by and between
Aviation Sales Company, AVS/AMI Merger Corp., Apex
Manufacturing, Inc. and the shareholders of Apex
Manufacturing, Inc., dated as of December 31, 1997(8)
10.18 Merger Agreement by and among Aviation Sales Company,
AVS/CAI Merger Corp., Caribe Aviation, Inc., Aircraft
Interior Design, Inc. and Benito Quevedo(9)
10.19 Agreement and Plan of Merger dated as of March 26,
1998 by and among Aviation Sales Company, WHC
Acquisition Corp. and Whitehall Corporation (10)
10.20 Stock Purchase Agreement dated August 10, 1998 by
and among Aviation Sales Maintenance, Repair &
Overhaul Company, Primark Corporation and Triad
International Maintenance Corporation (11)
10.21 First Amendment to Stock Purchase Agreement dated
September 22, 1998(11)
10.22 Amendment No. 2 and Consent dated as of September 18,
1998 to Third Amendment and Restated Credit Agreement
dated as of October 17, 1997(11)
10.23 Amendment No. 3 dated as of November 24, 1998 to
Third Amended and Restated Credit Agreement dated
as of October 17, 1997(12)
10.24 Amendment No. 4 dated as of December 15, 1998 to
Third Amended and Restated Credit Agreement dated
as of October 17, 1997 (13)
*10.25 Amendment No. 5 dated as of February 15, 1999 to
Third Amended and Restated Credit Agreement dated
as of October 17, 1997
10.26 Credit Agreement dated as of December 17, 1998 among
First Security Bank, National Association, as owner
trustee for the Aviation Sales Trust 1998-1, as
lessor, NationsBank, National Association, as
administrative agent, and the several lenders thereto
(13)
10.27 Lease Agreement dated as of December 17, 1998 between
First Security Bank, National Association, as owner
trustee under Aviation Sales Trust 1998-1, as lessor,
and the Company, as lessee (13)
- 29 -
<PAGE>
10.28 Guaranty Agreement (Series A Obligations) between the
Company, substantially all of its subsidiaries and
NationsBank, National Association, as agent for the
Series A lenders, dated as of December 17, 1998
10.29 Guaranty Agreement (Lease Obligations) between
substantially all of the subsidiaries of the Company
and First Security Bank, National Association, as
owner trustee for the Aviation Sales Trust 1998-1,
dated as of December 17, 1998 (13)
10.30 Participation Agreement between the Company as
Construction Agent and Leases, First Security Bank,
National Association, as Owner Trustee, the Various
Banks and other lending institutions as the holders
and lenders, and NationsBank, National Association,
as Administrative Agent, dated as of December 17,
1998 (13)
*21.1 List of Subsidiaries of Registrant
*23.1 Consent of Arthur Andersen LLP
*27.1 Financial Data Schedule
* Filed herewith
+ Compensation plan or agreement
(Footnotes on next Page)
- 30 -
<PAGE>
(FOOTNOTES FROM PRIOR PAGE)
- ---------------------------
(1) Incorporated by reference to Company's Registration Statement
on Form S-1 dated April 15, 1996 (File No. 333-3650)
(2) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter and nine months ended September 30,
1997
(3) Incorporated by reference to Company's Registration Statement
on Form S-4 dated March 26, 1998 (File No. 333-48669)
(4) Incorporated by reference to Amendment No. 1 to Company's
Registration Statement on Form S-1 dated June 6, 1996
(File No. 333-3650)
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(6) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 30, 1997
(7) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated October 17, 1997
(8) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated December 31, 1997
(9) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated March 6, 1998
(10) Incorporated by reference to Registrant's Registration
Statement on Form S-4 filed April 30, 1998 (File No.
333-31479)
(11) Incorporated by reference to Registrant's Current Report on
Form 8-K dated September 22, 1998
(12) Incorporated by reference to Registrant's Current Report on
Form 8-K dated November 24, 1998
(13) Incorporated by reference to Registrant's Current Report on
Form 8-K dated December 17, 1998
(B) REPORTS ON FORM 8-K.
The following Current Reports on Form 8-K were filed during the fourth quarter
of 1998:
(i) Current Report on Form 8-K, dated September 22, 1998 reporting
under: (a) Item 2, the acquisition of Triad International
Maintenance Corporation by the Company and (b) Item 5, the
Company's entering into Amendment No. 2 and Consent to Third
Amended and Restated Credit Facility.
(ii) Current Report on Form 8-K/A dated July 31, 1998, amending the
Company's Current Report on Form 8-K dated July 31, 1998
reporting the Whitehall acquisition by including under Item 7
certain supplemental financial statements which give
retroactive effect to the Company's acquisition of Whitehall
and including a Management's Discussion and Analysis of
Financial Condition and Results of Operations relating to the
periods presented in such supplemental financial statements.
(iii) Current Report on Form 8-K, dated November 24, 1998 reporting
under: (a) Item 5, the Company's entering into Amendment No. 3
to Third Amended and Restated Credit Facility and (b) Item 5,
the filing of certain financial statements which give
retroactive effect to the Company's acquisition of Whitehall
and including a Management's Discussion and Analysis of
Financial Condition and Results of Operations relating to the
periods presented in such financial statements.
- 31 -
<PAGE>
(C) EXHIBITS
For exhibits, see Item 14(A)(3) above.
- 32 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AVIATION SALES COMPANY
(Registrant)
BY: /S/ DALE S. BAKER March 31, 1999
- ----------------------
Dale S. Baker, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE:
------------------- -----
<S> <C>
/S/ DALE S. BAKER March 31, 1999
- ------------------
Dale S. Baker
President, Chief Executive Officer, Chief Financial Officer and
Chairman of the Board (Principal Executive and Financial Officer)
/S/ HAROLD M. WOODY March 31, 1999
- --------------------
Harold M. Woody
Executive Vice President and Director
/S/ GARLAN BRAITHWAITE March 31, 1999
- ----------------------
Garlan Braithwaite
Vice President - Finance
(Principal Accounting Officer)
/S/ ROBERT ALPERT March 31, 1999
- -----------------
Robert Alpert
Director
/S/ SAM HUMPHREYS March 31, 1999
- -----------------
Sam Humphreys
Director
/S/ PHILIP B. SCHWARTZ March 31, 1999
- ----------------------
Philip B. Schwartz
Director
/S/ GEORGE F. BAKER March 31, 1999
- -------------------
George F. Baker
Director
/S/ JEFFREY N. GREENBLATT March 31, 1999
- -------------------------
Jeffrey N. Greenblatt
Director
</TABLE>
[SIGNATURE PAGE TO FORM 10-K]
- 33 -
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 F-3
Consolidated Statements of Income for the three years ended
December 31, 1998 F-5
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1998 F-6
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1998 F-36
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
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. 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 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 Aviation Sales Company and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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,
February 9, 1999.
F-2
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
DECEMBER 31,
---------------------------------
1997 1998
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,237 $ 10,536
Accounts receivable, net of allowance for doubtful accounts of
$7,322 and $12,489 in 1997 and 1998, respectively 82,779 115,974
Inventories 145,343 277,131
Deferred income taxes 3,057 5,932
Other current assets 14,142 16,416
------------ -----------
Total current assets 251,558 425,989
------------ -----------
EQUIPMENT ON LEASE, net of accumulated amortization
of $3,627 and $3,014 in 1997 and 1998, respectively 22,758 28,354
------------ -----------
FIXED ASSETS, net 38,061 69,744
------------ -----------
AMOUNTS DUE FROM RELATED PARTIES 2,891 2,204
------------ -----------
OTHER ASSETS:
Goodwill, net 17,712 56,936
Deferred income taxes 1,485 -
Deferred financing costs, net 2,676 8,104
Other assets 4,191 8,046
------------ -----------
Total other assets 26,064 73,086
------------ -----------
Total assets $ 341,332 $ 599,377
============ ===========
</TABLE>
(Continued)
F-3
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
---------------------------------
1997 1998
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 31,500 $ 50,931
Accrued expenses 21,318 26,317
Current portion of notes payable 12,541 4,908
Current portion of capital lease obligations 84 84
Revolving loan 96,127 174,007
------------ -----------
Total current liabilities 161,570 256,247
------------ -----------
LONG-TERM LIABILITIES:
Senior subordinated notes - 164,163
Notes payable, net of current portion 52,876 18,881
Capital lease obligations, net of current portion 4,174 4,133
Deferred income 962 1,371
Other long-term liabilities 471 284
------------ -----------
Total long-term liabilities 58,483 188,832
------------ -----------
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,
and 13,362,568 shares outstanding in 1997 and 12,515,809 shares
issued and outstanding in 1998 13 12
Additional paid-in capital 72,962 64,344
Retained earnings 64,449 89,942
------------ -----------
137,424 154,298
Less treasury stock (1,111,562 shares at December 31, 1997), at cost (16,145) -
------------ -----------
Total stockholders' equity 121,279 154,298
------------ -----------
Total liabilities and stockholders' equity $ 341,332 $ 599,377
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Operating revenues:
Sales of products, net $ 155,857 $ 244,340 $ 359,245
Services and other 75,877 78,198 141,571
----------- ----------- ------------
231,734 322,538 500,816
Cost of sales and services 169,787 244,758 372,728
----------- ----------- ------------
Gross profit 61,947 77,780 128,088
Operating expenses 33,958 52,782 66,719
----------- ----------- ------------
Income from operations 27,989 24,998 61,369
Interest expense 5,411 8,059 21,343
Other (income) expense (461) 4,696 (196)
----------- ----------- ------------
Income before income taxes, equity (income) losses
of affiliate and extraordinary item 23,039 12,243 40,222
Income tax expense 1,617 7,260 15,486
----------- ----------- ------------
Income before equity (income) losses of
affiliate and extraordinary item 21,422 4,983 24,736
Equity (income) losses of affiliate,
net of income taxes (255) 139 (1,356)
----------- ----------- ------------
Income before extraordinary item 21,677 4,844 26,092
Extraordinary item, net of income taxes 1,862 - 599
----------- ----------- ------------
Net income $ 19,815 $ 4,844 $ 25,493
=========== =========== ============
BASIC EARNINGS PER SHARE:
Income before extraordinary item $ 2.04 $ 0.40 $ 2.13
Extraordinary item, net of income taxes 0.18 - 0.05
----------- ----------- ------------
Net income $ 1.86 $ 0.40 $ 2.08
=========== =========== ============
DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ 2.01 $ 0.39 $ 2.06
Extraordinary item, net of income taxes 0.17 - 0.05
----------- ----------- ------------
Net income $ 1.84 $ 0.39 $ 2.01
=========== =========== ============
PRO FORMA BASIC EARNINGS PER SHARE
(See Note 10):
Pro forma income before extraordinary item $ 1.38
Extraordinary item, net of income taxes 0.18
-----------
Pro forma net income $ 1.20
===========
PRO FORMA DILUTED EARNINGS PER SHARE
(See Note 10):
Pro forma income before extraordinary item $ 1.36
Extraordinary item, net of income taxes 0.17
-----------
Pro forma net income $ 1.19
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
----------- ------ ---------- ---------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 10,175,788 $ 10 $ 12,732 $ 47,697
Net income - - - 19,815
Stock options exercised 33,738 - 413 -
Distribution to partners prior to public offering - - - (3,042)
Payments to J/T Aviation Partners (Note 1) (575,000) (1) (4,262) (5,898)
Net proceeds from sale of common stock 3,737,500 4 64,572 -
----------- ----- -------- ---------
BALANCE AS OF DECEMBER 31, 1996 13,372,026 13 73,455 58,572
Impact of immaterial poolings (Note 2) - - 583 1,033
Net income - - - 4,844
Stock options exercised 47,542 - 872 -
Gain on litigation settlement with
former employee (Note 7) (75,000) - (2,625) -
Issuance of common stock to
employees (Note 6) 18,000 - 677 -
----------- ----- -------- ---------
BALANCE AS OF DECEMBER 31, 1997 13,362,568 13 72,962 64,449
Net income - - - 25,493
Stock issued in Caribe acquisition (Note 2) 182,143 - 5,720 -
Rescinded stock grant (Note 6) (18,000) - - -
Stock options exercised 100,660 - 1,806 -
Retirement of treasury stock (1,111,562) (1) (16,144) -
----------- ----- -------- ---------
BALANCE AS OF DECEMBER 31, 1998 12,515,809 $ 12 $ 64,344 $ 89,942
=========== ===== ======== =========
<CAPTION>
TREASURY STOCK TOTAL
---------------------------- STOCKHOLDERS'
SHARES AMOUNT EQUITY
------------ --------- -------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 (1,111,562) $ (16,145) $ 44,294
Net income - - 19,815
Stock options exercised - - 413
Distribution to partners prior to public offering - - (3,042)
Payments to J/T Aviation Partners (Note 1) - - (10,161)
Net proceeds from sale of common stock - - 64,576
------------ --------- ----------
BALANCE AS OF DECEMBER 31, 1996 (1,111,562) (16,145) 115,895
Impact of immaterial poolings (Note 2) - - 1,616
Net income - - 4,844
Stock options exercised - - 872
Gain on litigation settlement with
former employee (Note 7) - - (2,625)
Issuance of common stock to
employees (Note 6) - - 677
------------ --------- ----------
BALANCE AS OF DECEMBER 31, 1997 (1,111,562) (16,145) 121,279
Net income - - 25,493
Stock issued in Caribe acquisition (Note 2) - - 5,720
Rescinded stock grant (Note 6) - - -
Stock options exercised - - 1,806
Retirement of treasury stock 1,111,562 16,145 -
------------ --------- ----------
BALANCE AS OF DECEMBER 31, 1998 - $ - $ 154,298
============ ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 19,815 $ 4,844 $ 25,493
Adjustments to reconcile net income to net cash
used in operating activities-
Depreciation and amortization 4,035 5,619 11,350
Proceeds from sale of equipment on lease, net of gain - 3,797 1,289
Gain on sale of fixed assets (11) - (72)
Equity (income) losses of affiliate, net of income taxes (255) 139 (1,356)
Write-off of preferred stock - 4,500 -
Provision for doubtful accounts 1,954 8,157 1,692
Deferred income taxes (5,379) 279 (1,106)
Extraordinary item, net of income taxes 1,862 - 599
Issuance of common stock to employees - 677 -
Gain on litigation settlement with former employee - (2,625) -
Increase in accounts receivable, net (13,430) (28,782) (3,012)
Increase in inventories (21,264) (58,523) (102,224)
Increase in other current assets (4,398) (8,458) (1,147)
(Increase) decrease in other assets 318 (882) (1,562)
Increase in accounts payable 2,434 8,322 10,589
Increase (decrease) in accrued expenses 2,539 8,804 (11,824)
Increase in deferred income 13 72 409
Increase (decrease) in other liabilities (297) 322 (72)
---------- ---------- ----------
Net cash used in operating activities (12,064) (53,738) (70,954)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired (8,954) (41,447) (75,703)
Purchases of fixed assets (5,549) (8,133) (16,618)
Purchases of equipment on lease (7,830) (10,528) (23,410)
Proceeds from sale of electronics business - 1,720 -
Proceeds from sale of fixed assets 11 - 751
Payments from related parties 117 23 687
---------- ---------- ----------
Net cash used in investing activities (22,205) (58,365) (114,293)
---------- ---------- ----------
</TABLE>
(Continued)
F-7
<PAGE>
<TABLE>
<CAPTION>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings of amounts under senior debt facility $ 41,013 $ 113,433 $ 77,880
Proceeds from sale of common stock 64,576 - -
Proceeds from issuance of senior subordinated notes - - 164,002
Repayment of amounts outstanding under senior debt
facility (61,521) (6,643) (56,190)
Payments to J/T Aviation Partners (10,161) - -
Distribution to partners--prior to public offering (3,042) - -
Proceeds from note to prior owners of Kratz-Wilde - 2,200 -
Proceeds from equipment loans 822 7,200 10,488
Payments on equipment loans - (452) (921)
Payments on capital leases - - (41)
Stock options exercised 413 872 1,806
Payment of deferred financing costs (1,548) (2,188) (7,478)
--------- ----------- -----------
Net cash provided by financing activities 30,552 114,422 189,546
--------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,717) 2,319 4,299
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 7,635 3,918 6,237
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,918 $ 6,237 $ 10,536
========= =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Promissory notes received for sale of electronics
business $ - $ 864 $ -
Disposition of ocean systems business' assets
in exchange for preferred stock:
Inventory 3,943 - -
Fixed assets, net 557 - -
Investment in preferred stock (4,500) - -
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $ 4,946 $ 6,655 $ 15,684
========= =========== ===========
Income taxes paid $ 6,722 $ 6,661 $ 18,669
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Aviation Sales Company ("ASC") is a Delaware corporation. The operations of ASC
were initially conducted by two predecessor partnerships, AJT Capital Partners,
which was formed in February of 1992 to acquire certain aircraft and spare parts
owned by Eastern Air Lines, Inc., and ASC Acquisition Partners, L.P. (the
"Partnership"), which was formed in November of 1994 to acquire the Aviation
Sales Company business unit from Aviall Services, Inc.
ASC was organized on June 26, 1996, when: (i) all but one of the parties holding
interests in the Partnership contributed their interests in the Partnership to
ASC in exchange for 2,924 shares of ASC'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 ASC in exchange for 1,501 shares
of ASC's common stock and an amount equal to the proceeds to be received by ASC
for 575 shares of common stock sold in ASC's initial public offering (the
"IPO"), as more completely described below. For periods prior to the closing of
the IPO, the 4,425 shares issued to the partners and the 575 shares of common
stock, the net proceeds in respect of which were paid to J/T, are presented as
outstanding.
In July 1996, ASC completed its IPO of 3,738 shares of its common stock at $19
per share raising net proceeds, after expenses, of $64,576. Of such proceeds,
$10,161 was used to pay indebtedness due to J/T in connection with the formation
of the Company and the balance of which was used to repay senior and
subordinated indebtedness. See Note 5.
On July 31, 1998, ASC acquired Whitehall Corporation ("Whitehall") for
consideration of 2,844 shares of ASC common stock. Under the terms of the
acquisition agreement, each share of Whitehall common stock was exchanged for
.5143 shares of ASC common stock. The acquisition of Whitehall has been
accounted for under the pooling of interests method of accounting. The
accompanying consolidated financial statements give retroactive effect to the
acquisition of Whitehall. All share amounts have been restated to include the
conversion of the Whitehall common stock to ASC common stock in the merger and a
two for one stock split effected by Whitehall in March 1997. The operations of
ASC and Whitehall retroactively consolidated are referred to herein as the
operations of the Company.
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 the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
F-9
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
RECLASSIFICATIONS
Certain 1996 and 1997 account balances have been reclassified to be consistent
with the 1998 financial statement presentation.
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, 1997 and
1998, include cash held by the Company in demand deposit accounts.
REVENUE RECOGNITION
Sales of aircraft parts and repairs are recognized as product sales when a unit
is shipped and title has passed to the customer or when a repaired unit is
returned to the customer. The Company records reserves for estimated sales
returns in the period sales are made. Reserves for returns as of December 31,
1997 and 1998 were $1,741 and $1,399, respectively. The Company also warehouses
and sells inventories on behalf of others under consignment arrangements. The
Company records sales of aircraft parts from consignment inventories as product
sales upon shipment of the unit. 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 as product sales at the time the unit
is shipped.
Aircraft maintenance service revenues are recognized when services are performed
and unbilled receivables are recorded. Unbilled receivables are billed on the
basis of contract terms (which are generally on completion of an aircraft) and
deliveries. The Company also 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 services and other
revenue.
INVENTORIES
Inventories, which consist primarily of aircraft 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
recertification are sold. The Company enters into consignment arrangements for
bulk quantities of inventory items. Costs to disassemble and warehouse bulk
items are carried as inventory and expensed as the consigned items are sold. The
Company maintains raw materials and work in progress inventories in support of
its manufacturing and maintenance, repair and overhaul activities. At December
31, 1997 and 1998, inventories consisted of the following:
F-10
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
1997 1998
----------- -----------
Finished goods including aircraft parts $ 131,582 $ 248,430
Work in progress 2,115 7,626
Raw materials 11,646 21,075
----------- -----------
$ 145,343 $ 277,131
=========== ===========
EQUIPMENT ON LEASE
The 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.
FIXED ASSETS, NET
At December 31, 1997 and 1998, fixed assets, net consisted of the following:
1997 1998
----------- -----------
Land $ 1,307 $ 1,397
Buildings 8,770 12,889
Machinery and equipment 28,171 48,782
Furniture and fixtures 6,763 4,817
Leasehold improvements 10,259 25,440
----------- -----------
55,270 93,325
Accumulated depreciation (17,209) (23,581)
----------- -----------
$ 38,061 $ 69,744
=========== ===========
For financial reporting purposes, the Company provides for depreciation of fixed
assets 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 20 years for the Company's fixed
assets.
Maintenance and repair expenditures are charged to expense as incurred, and
expenditures for improvements 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.
Depreciation expense amounted to $1,843, $3,120 and $6,501 for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-11
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
INVESTMENTS
In November 1996, Whitehall sold substantially all of the assets related to its
ocean systems business in exchange for 818 shares of the buyer's preferred
stock, which carries a liquidation preference of $5.50 per share. The preferred
stock is convertible at the Company's election after December 31, 1997 into
shares of the buyer's common stock at a 45% conversion rate. In 1996, Whitehall
considered this investment as one that would be held to maturity and that its
carrying value of $4,500 approximated its fair market value. The carrying value
was the net cost of the assets exchanged for the stock. However, although the
buyer of the ocean systems business provided additional capital and new
management, the continuing decline in defense spending and other concerns caused
Whitehall's management in 1997 to reevaluate the value of this preferred stock.
As a result, other (income) expense in the accompanying 1997 statement of income
contains a $4,500 write-off of the value of the preferred stock.
In March 1997, Whitehall sold its electronics business for approximately $2,764,
consisting of approximately $1,900 in cash and $864 in 10% promissory notes.
During 1994, Whitehall obtained a 40% ownership interest in a joint venture
involved in the development of aircraft-related technology for an initial
investment of $1. The Company accounts for its investment in the joint venture
under the equity method. In 1994, Whitehall loaned $2,000 to the joint venture,
which is evidenced by a promissory note which accrues interest at a maximum rate
of 5% per annum. Principal and accrued interest became due on January 5, 1999.
Management is evaluating the possibility of extending the note or converting the
note and accrued interest into a capital contribution. The note is secured by
certain assets of the joint venture.
Summarized balance sheet information for the joint venture as of December 31,
1997 and 1998 is as follows:
1997 1998
---------- ----------
Current assets $ 14,358 $ 18,294
Noncurrent assets 2,782 1,351
Current liabilities 12,489 8,150
Noncurrent liabilities 2,000 2,000
Summarized results of operations for the joint venture for the years ended
December 31, 1996, 1997 and 1998 is as follows:
1996 1997 1998
--------- ---------- ---------
Net sales $ 11,520 $ 17,810 $ 45,483
Gross profit 4,104 3,578 7,754
Net income (loss) 1,044 (569) 5,557
F-12
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
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, 1996, 1997 and 1998 was $616, $386 and
$949, respectively. In February 1998 the Company completed the offering and sale
of $165,000 of its senior subordinated notes and used a portion of the proceeds
to retire existing term and revolving indebtedness. In connection with these
transactions, the Company wrote off the deferred financing costs related to the
term loans. See Note 5.
The cost and accumulated amortization of deferred financing costs as of December
31, 1997 and 1998 is as follows:
1997 1998
--------- ----------
Deferred financing costs:
Original basis $ 3,244 $ 9,378
Accumulated amortization (568) (1,274)
--------- ----------
$ 2,676 $ 8,104
========= ==========
The excess of the purchase price over the fair values of the net assets acquired
from Kratz-Wilde Machine Company, Inc., Caribe Aviation, Inc. and Triad
International Maintenance Corporation were approximately $17,902, $9,703 and
$31,200, respectively. These amounts have been recorded as goodwill, which are
being amortized on a straight-line basis over 20 years. Amortization expense for
the years ended December 31, 1997 and 1998 was $190 and $1,679, respectively.
Goodwill and accumulated amortization as of December 31 1997 and 1998 is as
follows:
1997 1998
---------- ----------
Goodwill:
Original basis $ 17,902 $ 58,805
Accumulated amortization (190) (1,869)
---------- ----------
$ 17,712 $ 56,936
========== ==========
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.
F-13
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
DEFERRED INCOME
Advance payments and deposits received on operating leases are initially
deferred and subsequently recognized as the Company's obligations under the
lease agreements are fulfilled.
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 operating expenses in
the accompanying consolidated statements of income.
STOCK COMPENSATION PLANS
The Company accounts for the fair value of its grants under its stock option
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 ASC was conducted by the Partnership and
therefore was not subject to income taxes. ASC, as a result of its organization
and the transfer of the net assets of the Partnership to it, became subject to
federal and state income taxes. At that time, ASC 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 was
credited to operations at the time of adoption. The transfer of J/T's interest
in the Partnership to ASC described in Note 1 resulted in a step-up in basis in
ASC's net assets for tax purposes. As a result, during 1996, a deferred tax
benefit of $3,962 was recorded. See Note 11.
Prior to the merger, Whitehall filed a consolidated federal income tax return
with its subsidiaries. Deferred federal income taxes have been provided for
temporary differences between tax and financial reporting resulting primarily
from depreciation provisions, allowances and expense accruals.
Under SFAS 109, deferred tax assets or liabilities are computed based upon the
difference between the financial statement and income tax bases 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
F-14
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
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 the Company's variable rate long-term debt
reprices to market and its fixed rate long-term debt is at what management
believes to be fair market interest rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 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. The Company
adopted SFAS 130 effective January 1, 1998. The adoption of SFAS 130 did not
have a material impact on the Company's consolidated financial statements. No
additional disclosure is required as net income is the same as comprehensive
income for all periods presented.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's business
segments, products, services, geographic areas and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items and segment
assets. The Company adopted SFAS No. 131 effective December 31, 1998. Management
operates the business of the Company as a single operating segment. As a result,
no additional disclosure was required.
F-15
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company adopted SOP 98-1
prospectively on January 1, 1999. Management does not believe that the adoption
of SOP 98-1 will have a material effect on the Company's financial position or
results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 establishes standards for the reporting and disclosure of
start-up costs, including organization costs. The Company adopted SOP 98-5
effective on January 1, 1999. Management does not believe that the adoption of
SOP 98-5 will have a material effect on the Company's financial position or
results of operations.
NOTE 2--BUSINESS COMBINATIONS
ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
In August 1996, the Company completed the acquisition of certain assets of the
business of Dixie Bearings, Incorporated ("Dixie") for approximately $9,000 in
cash. The historical operations of Dixie, when compared to the historical
operations of the Company, are not significant.
In July 1997, Whitehall completed the acquisition of an aircraft maintenance
facility for approximately $6,700 in cash and assumed liabilities. This
acquisition involved the purchase of inventories, equipment, and certain
intangible assets.
In October 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 $39,600 in cash and notes and the assumption of
certain liabilities of Kratz-Wilde in the approximate amount of $2,200. (See
Note 5).
In March 1998, the Company completed the acquisition of Caribe Aviation, Inc.
("Caribe") and Caribe's wholly owned subsidiary Aircraft Interior Design, Inc.
("AIDI") for $23,300, consisting of $5,000 in cash, and $5,000 in promissory
notes payable over two years; the issuance of 182 shares of the Company's common
stock; and the repayment of approximately $7,600 of indebtedness owed by Caribe
and AIDI to a financial institution.
In September 1998, the Company completed the acquisition of Triad International
Maintenance Corporation ("TIMCO") for $63,300 in cash. (See Note 5).
Additionally, as a part of the transaction, the Company agreed to guarantee
certain industrial revenue bond financing incurred in connection with the
development of TIMCO's Greensboro operating facilities, in the approximate
amount of $11,700 and the Company has posted an irrevocable letter of credit to
secure its obligations thereunder.
F-16
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 2--BUSINESS COMBINATIONS - (CONTINUED)
The Company's acquisitions of Dixie, Aero Corp-Macon, Kratz-Wilde, Caribe, AIDI
and TIMCO have been accounted for under the purchase method of accounting and
accordingly, the purchase price has been allocated to the assets purchased and
liabilities assumed based upon the fair values at the date of acquisition, and
their results of operations have been included in the accompanying consolidated
financial statements from the date of acquisition.
Unaudited pro forma consolidated results of operations assuming the Aero
Corp-Macon, Kratz-Wilde, Caribe, AIDI and TIMCO acquisitions had occurred at the
beginning of the periods presented are as follows:
DECEMBER 31,
---------------------
1997 1998
--------- ---------
In thousands, except
earnings per share
Revenue $ 503,100 $ 614,900
Income before extraordinary item 3,700 27,700
Net income 3,700 27,100
Diluted earnings per share before extraordinary item $ 0.29 $ 2.13
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 these businesses as of January 1, 1997.
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.
In December 1996, the Company acquired AvEng Trading Partners, Inc. ("AvEng"), a
company that was formed in 1995, for consideration of 400 shares of the
Company's common stock. The acquisition was accounted for using the pooling of
interests method of accounting.
F-17
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 2--BUSINESS COMBINATIONS-(CONTINUED)
In September 1997, the Company acquired Aerocell Structures, Inc. ("Aerocell")
for consideration of 621 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 1997
have not been restated to give retroactive effect to the acquisition due to the
immateriality of the restated amounts.
In December 1997, the Company acquired Apex Manufacturing, Inc. ("Apex") for
consideration of 239 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 1997
have not been restated to give retroactive effect for the acquisition due to the
immateriality of the restated amounts.
In July 1998, the Company acquired Whitehall for consideration of 2,844 shares
of the Company's common stock. The acquisition was accounted for using the
pooling of interests method of accounting and thus, the accompanying
consolidated financial statements have been restated to give retroactive effect
for the acquisition for all periods presented.
Details of the results of operations of ASC and the pooled entities for the
periods before the pooling of interest combinations were consummated are as
follows:
1996 1997 1998
----------- ----------- -----------
Revenue:
ASC $ 152,271 $ 230,181 $ 414,318
AvEng, Aerocell and Apex 9,293 26,566 -
Whitehall 70,170 65,791 86,498
----------- ----------- -----------
$ 231,734 $ 322,538 $ 500,816
=========== =========== ===========
Income from operations before
extraordinary item:
ASC $ 16,553 $ 13,653 $ 19,977
AvEng, Aerocell and Apex 807 3,128 -
Whitehall 4,317 (11,937) 6,115
----------- ----------- -----------
$ 21,677 $ 4,844 $ 26,092
=========== =========== ===========
F-18
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 2--BUSINESS COMBINATIONS-(CONTINUED)
PURCHASE PRICE ALLOCATIONS
The 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:
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
------- -------- ---------
Accounts receivable $ 2,898 $ 7,011 $ 31,874
Inventories 6,000 8,803 15,057
Prepaid expenses - 19 1,127
Deposits and other - 619 483
Fixed assets 100 21,962 22,245
Goodwill - 17,902 40,903
Accounts payable (44) (2,328) (8,842)
Accrued expenses - (2,632) (16,424)
Deferred income taxes - (557) -
Notes payable - (3,446) (5,000)
Capital lease obligations - (4,290) -
Common stock issued - (1,616) (5,720)
------- -------- ---------
Cash used in acquisitions, net
of cash acquired $ 8,954 $ 41,447 $ 75,703
======= ======== =========
NOTE 3--ACCOUNTS RECEIVABLE
The Company distributes products to commercial airlines, air cargo carriers,
distributors, maintenance facilities, corporate aircraft operators and other
related companies. The Company performs periodic credit evaluations of its
customers' financial conditions and provides allowances for doubtful accounts as
required. No customer represented greater than 10 percent of revenues or
accounts receivable for the years ended December 31, 1996, 1997 or 1998. Accrued
sales not billed for aircraft maintenance services are billed on the basis of
contract terms (which are generally on completion of an aircraft) and
deliveries. Accrued sales not billed amounted to $6,578 and $23,862 at December
31, 1997 and 1998, respectively and are included in accounts receivable in the
accompanying consolidated balance sheets. All accrued amounts at December 31,
1998 are expected to be billed and collected in 1999.
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. The C-130 contract provides for reimbursement by
the United States Air Force of costs incurred during its operation. At December
31, 1997, the Company recorded a $2,800 net receivable from the government for
these costs, which was the Company's best estimate of the amount it will collect
for the claim it has made. During 1998, the Company collected approximately $750
from the government related to this claim. The Company is currently negotiating
a termination settlement with the government.
F-19
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
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:
DECEMBER 31,
------------------------------
1997 1998
----------- -----------
Equipment on lease, at cost $ 26,385 $ 31,368
Accumulated amortization (3,627) (3,014)
----------- -----------
$ 22,758 $ 28,354
=========== ===========
Deposits of $962 and $799, respectively, received on outstanding leases are
recorded as deferred income in the accompanying consolidated balance sheets and
will be applied in connection with the final settlement of these leases.
Amortization expense on equipment on lease amounted to $1,576, $1,923, and
$2,018 for the years ended December 31, 1996, 1997 and 1998, respectively.
Future minimum lease receivables under outstanding leases are as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1999 $ 5,762
2000 4,894
2001 4,442
2002 3,429
2003 2,772
Thereafter 10,010
-------------
$ 31,309
=============
F-20
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 5--NOTES PAYABLE AND REVOLVING LOAN
At December 31, 1997 and 1998, notes payable and revolving loan consisted of the
following:
DECEMBER 31,
-----------------------------
1997 1998
------------ ------------
Revolving loan $ 96,127 $ 174,007
Amended term loans 55,643 -
Senior subordinated notes, net of discount - 164,163
Term loan - purchased assets 546 -
Term loan - leased assets 7,028 16,589
Note payable to prior owners of Kratz-Wilde 2,200 2,200
Note payable to prior owner of Caribe - 5,000
------------ ------------
161,544 361,959
Less--current maturities (108,668) (178,915)
------------ ------------
Net long-term notes payable $ 52,876 $ 183,044
============ ============
Future maturities of notes payable and revolving loan at December 31, 1998 are
as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1999 $ 178,915
2000 5,247
2001 1,659
2002 5,595
2003 6,380
Thereafter 164,163
-----------
$ 361,959
===========
SENIOR CREDIT FACILITY
Prior to July 2, 1996, the Company financed its working capital needs primarily
through, (a) a series of term loans (with $55,000 in principal outstanding at
December 31, 1995) payable periodically through November 30, 2000, and (b) a
$20,000 revolving credit facility expiring November 30, 1999. On July 2, 1996,
the Company used the net proceeds of its IPO to repay all of this indebtedness.
In connection with this repayment and restructuring of the previous bank lending
agreement, the Company wrote-off $3,053 of deferred financing costs (resulting
in an extraordinary item, net of income taxes of $1,862). At the same date, the
Company entered into a new credit facility with a group of financial
institutions. The Credit Facility (the "Credit Facility") consisted of (a) a
term loan facility in an original principal amount of $20,000 and (b) a $50,000
revolving loan, letter of credit and acquisition loan facility.
In October 1997, in connection with the acquisition of Kratz-Wilde, the Company
further amended its Credit Facility. The Amended Credit Facility (the "Amended
Credit Facility") consisted of: (a) term loans of $55,600, and (b) a revolving
loan and letter of credit facility of $91,400. The term loan portion of the
Amended Credit Facility was repayable in quarterly installments through July 31,
2002 and the revolving loan portion of the Amended Credit Facility was due and
payable on July 31, 2002.
F-21
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 5--NOTES PAYABLE AND REVOLVING LOAN -(CONTINUED)
In February 1998, the Company repaid all amounts then outstanding under the
Amended Credit Facility with the net proceeds from the Company's sale of
$165,000 of its senior subordinated notes (See Senior Subordinated Notes below).
The Company wrote off deferred financing costs of $981 in connection with the
repayment of the term loan portion of the Amended Credit Facility, resulting in
an extraordinary item, net of taxes, of $599.
In September 1998, in connection with the acquisition of TIMCO, the Company
further amended its Amended Credit Facility to increase the revolving loan and
letter of credit facility to $200,000, up to $30,000 of which may be outstanding
letters of credit.
In November 1998, the Amended Credit Facility was further amended to increase
the revolving loan and letter of credit facility to $250,000.
Borrowings under the Amended Credit Facility are secured by a lien on
substantially all of the Company's assets and the borrowing base consists of
substantially all of the Company's receivables and inventory. Interest under the
Amended Credit Facility is, at the option of the Company, (a) prime plus a
margin, or (b) LIBOR plus a margin, where the respective margin determination is
made upon the Company's financial performance over a 12 month period (ranging
from 0.0% to 1.0% in the event prime is utilized, or 1.125% to 2.5% in the event
LIBOR is utilized). At December 31, 1998, the margin was 0.5% for prime rate
loans and 2.0% for LIBOR rate loans.
The Amended Credit Facility contains certain financial covenants regarding the
Company's financial performance 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 borrowing and repayment of
all debt in the event of a material adverse change in the business of the
Company or a change in control. In addition, the Amended 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. At December 31, 1998 the
Company was not in compliance with one of its financial covenants and the
Company has obtained a waiver from the lender relating to such non-compliance.
At December 31, 1998, $12,478 was available for borrowing under the Amended
Credit Facility and outstanding letters of credit aggregated $22,600.
SENIOR SUBORDINATED NOTES
In February 1998, the Company sold $165,000 of senior subordinated notes due in
2008 with a coupon rate of 8.125% at a price of 99.395%. The proceeds of the
sale were used to repay all amounts then outstanding under the Company's Amended
Credit Facility and to fund the cash requirements related to the acquisition of
Caribe and AIDI.
The senior subordinated notes mature on February 15, 2008. Interest is payable
on February 15 and August 15 of each year, commencing August 15, 1998. The
senior subordinated notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior debt,
including indebtedness outstanding under the credit facility and under
facilities which may replace the credit facility in the future. In addition, the
senior subordinated notes are effectively subordinated to all secured
obligations to the extent of the assets securing such obligations, including the
credit facility.
F-22
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 5--NOTES PAYABLE AND REVOLVING LOAN -(CONTINUED)
The indenture pursuant to which the senior subordinated notes have been issued
permits the Company and its subsidiaries to incur substantial additional
indebtedness, including additional senior debt. Under the indenture, the Company
may borrow unlimited additional amounts so long as after incurring such debt it
meets a fixed charge coverage ratio for the most recent four fiscal quarters of
2.0 to 1 until February 15, 2000 and 2.25 to 1 thereafter. At December 31, 1998,
the Company's fixed charge coverage ratio for the last four fiscal quarters was
3.2 to 1. Additionally, the indenture allows the Company to borrow and have
outstanding additional amounts of indebtedness (even if it does not meet the
required fixed charge coverage ratios), up to enumerated limits. The senior
subordinated notes are also effectively subordinated in right of payment to all
existing and future liabilities of any of its subsidiaries which do not
guarantee the senior subordinated notes.
The senior subordinated notes are fully and unconditionally guaranteed, on a
senior subordinated basis, by substantially all of the Company's existing
subsidiaries and each subsidiary that will be organized in the future by the
Company unless such subsidiary is designated as an unrestricted subsidiary.
Subsidiary guarantees are joint and several, full and unconditional, general
unsecured obligations of the 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 their obligations, including the credit facility.
Furthermore, the indenture permits subsidiary guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations. The Company
has not presented separate financial statements and other disclosures concerning
each of the subsidiary guarantors because management has determined that such
information is not material to investors.
The senior subordinated notes are redeemable, at the Company's option, 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, the Company may redeem up to 35% of the aggregate principal amount of the
senior subordinated 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 the Company; provided, that at least 65% of the aggregate
principal amount of the senior subordinated notes originally issued remains
outstanding immediately after the occurrence of this redemption.
Upon the occurrence of a change of control, the Company will be required to make
an offer to repurchase all or any part of each holder's senior subordinated
notes at a repurchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the
repurchase date. There can be no assurance that the Company will have the
financial resources necessary to purchase the senior subordinated notes upon a
change of control or that such repurchase will then be permitted under the
credit facility.
F-23
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 5--NOTES PAYABLE AND REVOLVING LOAN -(CONTINUED)
The indenture contains certain covenants that, among other things, limits the
Company's ability and that of 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 the Company's assets.
OTHER LOANS
Prior to its acquisition by the Company, Whitehall had a credit facility with a
bank. The credit facility consisted of a $12,000 line of credit and a $3,000
standby letter of credit agreement. The line of credit bore interest at prime.
The Company repaid this debt at the closing of its acquisition of Whitehall with
proceeds borrowed under the Amended Credit Facility.
The Company has term loan agreements in the aggregate principal amount of
$17,700 to finance certain equipment and rotable parts on long-term leases which
secure the loans. These loans bear interest ranging from 7.40% to 8.21% and are
payable monthly through July 2003. These loans contain financial and other
covenants and mandatory prepayment events, as defined. At December 31, 1998, the
Company was in compliance with all covenants of these loans.
In connection with the acquisition of Kratz-Wilde (See Note 2), a subsidiary of
the Company delivered a non-interest bearing promissory note (guaranteed by the
Company) to the sellers in the original principal amount of $2,200. Payments of
$1,250 are due on January 1, 1999 and January 1, 2000. Interest on this note has
been imputed at 8%.
In connection with the acquisition of Caribe and AIDI (See Note 2), a subsidiary
of the Company delivered to the sellers a promissory note in the original
principal amount of $5,000, which was guaranteed by the Company. The note is
payable over a two year period with an interest rate of 8% per annum.
NOTE 6--RELATED-PARTY TRANSACTIONS
The Company leases its current corporate headquarters and warehouse in Miami,
Florida (the "Miami Property") from an entity controlled by certain shareholders
of the Company. The lease on the Miami Property calls for annual payments in the
amount of $893 expiring on December 2, 2014. In connection with the purchase of
the Miami Property by the related party, the Company made an unsecured $2,466
loan to the related party, which loan bears interest at 8% per annum, with
principal and interest due in a single payment on December 2, 2004. The
remaining outstanding balance of $2,204 is reflected as amounts due from related
parties in the accompanying consolidated balance sheets.
The Company leases a warehouse in Miami, Florida, from an executive of the
Company. The lease expires on July 31, 2001 and requires annual payments of $41,
$42 and $25 in 1999, 2000 and 2001, respectively.
F-24
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 6--RELATED-PARTY TRANSACTIONS - (CONTINUED)
The Company previously leased a warehouse in Pearland, Texas, from a related
party. The lease required annual payments of $114 and was to expire on December
2, 2000. On March 31, 1998, the Company purchased the Pearland property from the
related party for $1,800 in cash and through the reduction of an accounts
receivable due from the related party at the date of the sale.
The Company believes that the terms of its agreements with related parties are
no less favorable than could have been obtained from unaffiliated third parties.
At December 31, 1997, as payment of bonuses, six officers of the Company were
each granted 3 shares of the Company's common stock. The fair value of these
shares on the date of issuance, $677, has been included in general and
administrative expenses in the accompanying 1997 statement of operations. On
June 18, 1998, the Compensation Committee of the Company's Board of Directors
rescinded this share grant. No consideration was provided or will be provided in
the future in connection with the rescission.
At December 31, 1997, two former officers of Whitehall were indebted to
Whitehall in the aggregate amount of approximately $363. These receivables were
written off by Whitehall in 1998, prior to the acquisition of Whitehall by the
Company.
NOTE 7--COMMITMENTS AND CONTINGENCIES
LITIGATION AND CLAIMS
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 shares of the Company's
common stock back to the Company, which shares were immediately retired. The
fair value of the shares at the date of the settlement, $2,625, is included in
the accompanying 1997 statement of income as a gain on litigation settlement
with former employee.
On January 8, 1999, Paine Webber Incorporated filed in the Supreme Court of the
State of New York a complaint against the Company and its subsidiary, Whitehall,
alleging breach of contract claims and related claims against the Company and
Whitehall and a tortious interference with a contract claim against the Company.
Paine Webber alleges that it is due a fee in connection with the Company's
acquisition of TIMCO, based upon a 1997 agreement between Whitehall and Paine
Webber relating to a then proposed acquisition of TIMCO by Whitehall which did
not occur. Paine Webber is seeking approximately $1,000, plus costs and an
unstated amount of punitive damages. Paine Webber is also seeking approximately
$250 allegedly due relating to the failure of Whitehall to honor an alleged
right of first refusal provision in the 1997 agreement.
The Company believes that its acquisition of TIMCO was not within the scope of
the 1997 Paine Webber/Whitehall agreement and that claims brought under this
agreement against the Company and Whitehall are without merit. The Company is
vigorously defending these claims. Although the Company can give no assurance,
based upon the available facts, the Company believes that the ultimate outcome
of this matter will not have a material adverse effect upon its financial
condition.
F-25
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 7--COMMITMENTS AND CONTINGENCIES
On June 4, 1998, Kenneth L. Harding filed an action against the Company in the
United States District Court of Oklahoma. Harding alleges that he had a contract
with AvEng Trading Partners, Inc. (which was subsequently acquired by the
Company) that he would receive a commission of 20% of the margin on all aircraft
parts sales to American Airlines prior to November 1997, in addition to a $2
monthly retainer which he was paid prior to termination of the contract in
November 1997. Harding claims that James Stoecker, AvEng's principal (who
subsequently became employed by the Company), confirmed and ratified Harding's
claim when Mr. Stoecker was an employee of the Company. Mr. Stoecker and the
Company severed their relationship in November 1997. The Company is vigorously
defending this action. Although the Company can give no assurance, based upon
the available facts, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect upon its financial condition.
On June 24, 1998, Zantop International Airlines, Inc. Aero filed an action
against Aero Corp.-Macon, Inc., one of the Company's subsidiaries (which is now
part of TIMCO), in the Superior Court of Bibb County, Georgia. The suit seeks an
unspecified amount of damages and certain equitable relief arising out of the
July 1997 sale to Aero Corp.-Macon, Inc. (then a subsidiary of Whitehall) of
certain assets used in connection with the operation of Aero Corp.-Macon, Inc.
The nature of the action involves a contractual dispute relative to certain
purchase price adjustments and inventory purchases. The Company is vigorously
defending this action. Although the Company can give no assurance, based upon
the available facts, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect upon its financial condition.
The Company is also 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 these claims and lawsuits will not have a
material adverse effect upon the financial position of the Company.
ENVIRONMENTAL MATTERS
The Company is taking remedial action pursuant to Environmental Protection
Agency and Florida Department of Environmental Protection ("FDEP") regulations
at Aero Corp.-Lake City. 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 testing, remediation and compliance costs for this facility will be
approximately $2,400. Testing and evaluation for all known sites on Aero
Corp.-Lake City's property is substantially complete and the Company has
commenced a remediation program. The Company is currently monitoring the
remediation, which will extend into the future. Subsequently, the Company's
accruals were increased because of this monitoring, which indicated a need for
new equipment and additional monitoring. Based on current testing, technology,
environmental law and clean-up experience to date, the Company believes that it
has established an accrual for a reasonable estimate of the costs associated
with its current remediation strategies.
F-26
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 7--COMMITMENTS AND CONTINGENCIES-(CONTINUED)
To comply with the financial assurances required by the FDEP, the Company has
issued a $1,700 standby letter of credit in favor of the FDEP.
Additionally, there are other areas adjacent to Aero Corp.-Lake City's facility
that could also require remediation. The Company does not believe that it is
responsible for these areas; however, it may be asserted that Whitehall and
other parties are jointly and severally liable and are responsible for the
remediation of those properties. No estimate of any such costs to the Company is
available at this time.
In connection with the sale of Whitehall's electronics business, Whitehall was
required to perform, at its own expense, an environmental site assessment at the
electronics business' facility. Whitehall was also required to remedy all
recognized environmental conditions identified in the assessment to bring such
facility into compliance with all applicable Federal, State, and local
environmental laws. The buyer of this business, subject to the terms and
conditions set forth in the agreement, has the option of requiring Whitehall to
repurchase this property for $300.
Accrued expenses in the accompanying December 31, 1997 and 1998 consolidated
balance sheets include $3,400 and $3,148, respectively, related to obligations
to remediate the environmental matters described above.
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 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.
OTHER MATTERS
The Company has employment agreements with certain of its officers and key
employees which extend from two to four years. The employment agreements provide
that such officers and key 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, certain of these employment
agreements provide for certain severance benefits in the event of a change of
control.
At January 1, 1995, five officers and employees of the Company were granted
options (the "Options") by the partners to purchase an aggregate of 13.5% of the
outstanding limited partnership interests in the Partnership for an aggregate
exercise price of $1,437, which was greater than the fair market value, as
determined by an independent third party, of the interests in the Partnership at
that date. At January 1, 1996, the Options were exercised in full by delivery to
the partners of full recourse promissory notes representing the payment in full
of the exercise price of the Options.
The Company has purchase commitments to various airlines whereby the Company
sells aircraft inventory as agent for such airlines. Pursuant to such
agreements, the Company has commitments to various airlines requiring the
Company to purchase a minimum amount of inventory from such airlines if minimum
sales targets are not met. Such commitments which total approximately $9,646 are
to be fulfilled over the next three years. In the opinion of management, the
Company's commitments will be realized through future sales of aircraft
inventory owned by such airlines.
F-27
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 8--LEASES
On December 17, 1998, the Company entered into an operating lease for its
build-to-suit corporate headquarters and warehouse facility with First Security
Bank, National Association, as trustee of a newly created trust, as lessor. The
lease has an initial term of five years and is a triple net lease with annual
rent as provided in the lease. The lease contains financial covenants regarding
the Company's financial performance and certain other affirmative and negative
covenants which it will be obligated to comply with during the term of the
lease. Substantially all of the Company's subsidiaries have guaranteed its
obligations under the lease. Additionally, the Company has an option to acquire
the new facility at the end of the lease for an option price as determined in
the lease. Alternatively, if the Company does not purchase the new facility at
the end of the lease, it will be obligated to pay certain amounts as provided in
the lease.
The development of the new facility has been financed by the trust through a
$35,500 loan facility provided by a syndicate of financial institutions.
Pursuant to the agreements entered into in connection with this financing, the
Company is obligated to develop the new facility on behalf of the trust and is
responsible for the timely completion thereof within an established construction
budget. The Company and substantially all of its subsidiaries have guaranteed
the repayment of $31,200 of the trust's obligations under the agreements. The
trust's obligations under these agreements are secured by a lien on the real
property and improvements comprising the new facility and on the fixtures
therein. Further, the Company has posted an irrevocable letter of credit in
favor of the trust in the amount of approximately $8,000 to secure both its
obligations under the lease and the trust's obligations under these agreements.
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, 1996, 1997 and 1998, rent expense
under leases amounted to $2,118, $2,582 and $2,423, respectively.
Minimum rental commitments under all leases (excluding the operating lease for
the new facility discussed above) are as follows:
OPERATING LEASES
----------------------------------------
TO RELATED TO THIRD CAPITAL
YEARS ENDING DECEMBER 31, PARTIES PARTIES LEASES
---------- -------- ---------
1999 $ 1,181 $ 3,714 $ 432
2000 941 3,057 432
2001 893 2,805 432
2002 893 2,528 432
2003 893 2,496 432
Thereafter 9,823 24,938 6,228
Amount related to interest - - (4,171)
--------- -------- ---------
$ 14,624 $ 39,538 $ 4,217
========= ======== =========
F-28
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
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, 1998 follows:
1996 1997 1998
--------- --------- ---------
Net Revenue by Geographical Areas:
United States $ 164,381 $ 245,515 $ 409,611
Export Sales:
Europe 40,308 43,318 62,144
Far East 14,907 13,852 10,925
Latin America 12,138 19,853 18,136
--------- --------- ---------
$ 231,734 $ 322,538 $ 500,816
========= ========= =========
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>
DECEMBER 31,
--------------------------------------
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share 10,630 12,261 12,277
Effect of dilutive options 139 189 419
--------- --------- ----------
Weighted average common and common equivalent shares
used in calculating diluted earnings per share
10,769 12,450 12,696
========= ========= ==========
Options outstanding which are not included in the
calculation of diluted earnings per share because
their impact is antidilutive 69 204 55
========= ========= ==========
</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.
F-29
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 10--EARNINGS PER SHARE - (CONTINUED)
PRO FORMA EARNINGS PER SHARE
Prior to June 26, 1996, the operations of ASC were conducted by the Partnership,
a Delaware general partnership and, therefore, the results of operations 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 year ended December 31, 1996:
Historical income before income taxes, equity
income of affiliate and extraordinary item $ 23,039
Pro forma provision for income taxes 8,648
----------
Pro forma income before equity income of affiliate
and extraordinary item 14,391
Equity income of affiliate, net of income taxes 255
----------
Pro forma income before extraordinary item 14,646
Extraordinary item, net of income taxes 1,862
----------
Pro forma net income $ 12,784
==========
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.
NOTE 11--INCOME TAXES
The income tax expense for the years ended December 31, 1996, 1997 and 1998
consists of the following:
1996 1997 1998
---------- --------- ----------
Current
Federal $ 6,288 $ 6,544 $ 15,099
State 708 437 1,493
---------- --------- ----------
6,996 6,981 16,592
---------- --------- ----------
Deferred
Federal (4,689) 142 (1,006)
State (690) 137 (100)
---------- --------- ----------
(5,379) 279 (1,106)
---------- --------- ----------
Total income tax expense $ 1,617 $ 7,260 $ 15,486
========== ========= ==========
F-30
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 11--INCOME TAXES - (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets as of December 31, 1997 and 1998 are as follows:
DECEMBER 31,
-------------------------------
1997 1998
----------- -----------
Deferred tax assets, net:
Allowance for doubtful accounts $ 534 $ 3,827
Accruals 2,166 1,197
Writedown of investment 1,800 1,800
Inventories 1,783 3,151
Property and equipment 1,844 655
Equipment on lease (693) (1,161)
Other 135 (1,415)
----------- -----------
7,569 8,054
Less: valuation allowance (3,027) (2,406)
----------- -----------
Net deferred tax assets $ 4,542 $ 5,648
=========== ===========
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.
The reconciliation of the federal statutory rate and the Company's effective tax
rate is as follows for the year ended December 31:
1996 1997 1998
----- ---- ----
Federal income tax at the statutory rate 35.0% 35.0% 35.0%
Increases (reductions) in tax rate resulting from:
Partnership income not subject to taxation (8.8) - -
Step-up in tax basis resulting from transfer
of J/T's interest (See Note 1) (15.2) - -
Transfer of net assets of the Partnership to
the Company (See Note 1) (5.1) - -
Change in deferred tax allowance (0.7) 20.2 (1.4)
State income taxes, net of federal tax benefit 3.8 4.9 4.4
Other (2.0) (0.8) 0.5
----- ---- ----
Effective income tax rate 7.0% 59.3% 38.5%
===== ==== ====
F-31
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 12--STOCK OPTION PLANS
The Company has two stock option plans (the "Plans"), (i) the 1996 Director
Stock Option Plan (the "Director Plan"), under which options to acquire a
maximum of the greater of 150 shares or 2% of the number of shares of Common
Stock then outstanding may be granted to directors of the Company, and (ii) the
1996 Stock Option Plan (the "1996 Plan"), under which options to acquire a
maximum of the greater of 650 shares of Common Stock or 8% of the number of
shares 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 be exercised at any time up to three months after the person to
whom such options were granted is no longer employed or retained by the Company
or serving on the Company's Board of Directors.
Pursuant to the Plans, unless otherwise determined by the Compensation Committee
of the Company's Board of Directors, 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.
In connection with the merger with Whitehall, outstanding stock options to
purchase shares of Whitehall common stock under the Whitehall stock option plans
were converted into the right to receive that number of shares of the Company's
common stock as the holders would have been entitled to receive had they
exercised their options immediately prior to the merger and participated in the
merger.
F-32
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 12--STOCK OPTION PLANS - (CONTINUED)
The following summarizes outstanding stock options:
WEIGHTED
AVERAGE
EXERCISE
TOTAL PRICE
------- --------
Options outstanding, December 31, 1995 225 $ 13.22
Granted 264 23.19
Cancelled - -
Exercised (33) 12.13
-------
Outstanding at December 31, 1996 456 19.38
Granted 381 25.47
Cancelled (43) 23.01
Exercised (48) 16.51
-------
Outstanding at December 31, 1997 746 23.10
Granted 446 27.93
Cancelled (6) 22.85
Exercised (101) 17.98
-------
Outstanding at December 31, 1998 1,085 24.15
=======
Options exercisable:
At December 31, 1998 697 24.15
Available to grant under Plans at December 31, 1998 415
The following table summarizes information about outstanding and exercisable
stock options at December 31, 1998:
OUTSTANDING EXERCISABLE
------------------------ -----------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE SHARES PRICE
- ----------------------- ----------- ----------- --------- ---------
$ 8.12 - 16.25 123 9.0 123 $ 12.28
16.25 - 24.37 148 7.0 141 19.38
24.37 - 32.50 620 8.6 314 26.52
32.50 - 40.62 194 9.2 119 35.93
----------------- ----------- ---- --------- ---------
$ 8.12 - 40.62 1,085 8.5 697 $ 24.15
================= =========== ==== ========= =========
F-33
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 12--STOCK OPTION PLANS - (CONTINUED)
The Company accounts for the fair value of its option grants 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 1998
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net income $ 18,035 $ 3,346 $ 19,887
Pro forma basic earnings per share $ 1.67 $ 0.27 $ 1.62
Pro forma diluted earnings per share $ 1.67 $ 0.27 $ 1.57
Risk free interest rates 6% 7% 5%
Expected lives 7-10 years 7-10 years 7-10 years
Expected volatility 40% 40% 40%
Weighted average grant date fair value $ 15.81 $ 16.35 $ 16.43
</TABLE>
NOTE 13--SAVINGS PLAN
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
$309, $296 and $810 to the Plan in 1996, 1997 and 1998, respectively. The
Company does not provide retired employees with health or life insurance
benefits.
Whitehall had a voluntary 401(k) savings plan for eligible employees. At its
discretion, Whitehall contributed 50% of employee contributions, up to 1.5% of
the employee's base salary. Contributions totaled approximately $40 in 1996 and
$86 in 1997.
F-34
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(Financial amounts in thousands, except per share data)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Results have been restated for pooling transactions. 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 $ 68,404 $ 77,153 $ 81,360 $ 95,621
Income from operations 7,148 10,634 468 6,748 (a)
Net income (loss) 4,183 5,580 (3,747) (1,172)
Diluted income (loss) before
extraordinary item per share $ 0.34 $ 0.45 $ (0.30) $ (0.10)
Diluted net income (loss) per share $ 0.34 $ 0.45 $ (0.30) $ (0.10)
<FN>
(a) Includes gain on legal settlement with former employee and shareholder of
approximately $2,600.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ------------ -----------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C>
1998:
Operating revenues $ 102,174 $ 109,135 $ 127,469 $ 162,038
Income from operations 10,436 13,420 17,732 19,781
Net income 3,748 5,600 7,921 8,224
Diluted income before extraordinary
item per share $ 0.35 $ 0.44 $ 0.63 $ 0.64
Diluted net income per share $ 0.30 $ 0.44 $ 0.63 $ 0.64
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AVIATION SALES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND (A) (B) END
DESCRIPTION OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
- ------------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
Year Ended December 31-
1996 $ 2,683 $ 1,954 $ - $ 339 $ 4,298
========= ======== ========= ======== =========
1997 $ 4,298 $ 8,157 $ - $ 5,133 $ 7,322
========= ======== ========= ======== =========
1998 $ 7,322 $ 1,692 $ 5,304 $ 1,829 $ 12,489
========= ======== ========= ======== =========
</TABLE>
(A) Represents allowance for doubtful accounts acquired in purchase accounting.
(B) Represents accounts receivable written-off.
F-36
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.3. Memorandum of Purchase and Sale effective as of March 31, 1998
by and between Aviation Properties of Texas and Aviation Sales
Operating Company for Pearland facility
10.4 Lease dated July 22, 1998 by and between Ben Quevedo, Ltd.
and Caribe
10.5 Form of Employment Agreement, dated January 1, 1999, by and
between Dale S. Baker and the Company
10.7 Form of Employment Agreement, dated January 1, 1999, by and
between James D. Innella and the Company
10.9 Form of Employment Agreement, dated January 1, 1999, by and
between Benito Quevedo and the Company
10.13 Form of Aviation Sales Company 1999 EBITDA Plan
10.14 Form of Stock Option Agreement (Non-Plan) by and between the
Company and each of Dale S. Baker, James D. Innella and
Benito Quevedo
10.25 Amendment No. 5 dated as of February 15, 1999 to the Third
Amended and Restated Credit Agreement dated as of October
17, 1997
21.1 List of Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
EXHIBIT 10.3
MEMORANDUM OF PURCHASE AND SALE
(3702 Knapp Rd., Pearland, Texas)
This MEMORANDUM OF PURCHASE AND SALE is executed to be effective as of
March 31, 1998 (the "Effective Date"), by and between AVIATION PROPERTIES OF
TEXAS, a Delaware general partnership ("Seller"), and AVIATION SALES OPERATING
COMPANY, a Delaware corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner of fee simple title to that certain
9.5360-acre tract of land located in Pearland, Brazoria County, Texas, as more
particularly described in EXHIBIT "A" attached hereto and incorporated herein by
this reference (the "Land"), together with all improvements situated thereon
(the "Improvements"), and certain furniture, furnishings, fixtures, appliances,
equipment, machinery and other items of tangible and intangible personal
property situated on or used exclusively in connection with the Land and/or the
Improvements (collectively, the "Personal Property") (the Land, Improvements and
Personal Property shall hereinafter be referred to as the "Facility").
WHEREAS, Purchaser desires to purchase from Seller and Seller desires
to sell to Purchaser, effective as of the Effective Date, all of the interest of
Seller in and to the Facility.
NOW, THEREFORE, for and in consideration, the parties have executed
this memorandum to reflect their agreement and understandings regarding the sale
and purchase of the Facility on the following terms:
1. PURCHASE PRICE. The purchase price (the "Purchase Price") to be paid
by Purchaser to Seller for the Facility has been paid by Purchaser to Seller on
even date herewith by: (i) Purchaser's cancellation and forgiveness of all of
the outstanding principal balance of, and all unpaid accrued interest on, that
certain Unsecured Promissory Note dated as of December 2, 1994, in the original
principal amount of FOUR HUNDRED THIRTY-FOUR THOUSAND TWO HUNDRED FORTY-FOUR AND
NO/100 DOLLARS ($434,244.00), executed by Seller payable to the order of AJT
Capital Partners, a Delaware general partnership and predecessor in interest to
Purchaser, (ii) Purchaser's acceptance of the Facility subject to, but without
Purchaser's assumption of, the existing debt owing by RCP Management L.P.,
Seller's predecessor in interest, to the Estate, which debt is evidenced by a
certain Promissory Note in the original principal amount of $1,300,000.00
executed by RCP Management L.P. and payable to the Estate and secured by a Deed
of Trust and Security Agreement covering the Facility, to Edward W. Engel,
Trustee, for the benefit of the Estate, and recorded in Volume 995, Page 282 of
the Real Property Records of Brazoria County, Texas, and (iii) Purchaser's
delivery to Seller of the cash sum of $10.00.
<PAGE>
2. CLOSING DOCUMENTS. On even date herewith, but to be effective as of
the Effective Date, Seller has delivered to Purchaser executed originals of the
following documents:
a. General Warranty Deed in the form attached hereto as
EXHIBIT "B";
b. Bill of Sale and Assignment in the form attached hereto as
EXHIBIT "C"; and
c. Non-Foreign Status Affidavit in the form attached hereto as
EXHIBIT "D".
3. DISCLAIMER. THE FACILITY IS BEING SOLD BY SELLER TO PURCHASER ON AN
"AS-IS," "WHERE-IS," "WITH ALL FAULTS" BASIS EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES MADE BY THE ESTATE OF HARRY E. BRADLEY WHICH ARE CONTAINED IN THAT
CERTAIN EARNEST MONEY CONTRACT DATED TO BE EFFECTIVE AS OF NOVEMBER 18, 1991,
BETWEEN THE ESTATE OF HARRY E. BRADLEY, AS SELLER, AND AVIATION ROTABLES
ACQUISITION CORP., A TEXAS CORPORATION (ASSIGNED TO RCP MANAGEMENT L.P.), AS
PURCHASER, WHICH REPRESENTATIONS AND WARRANTIES WERE PREVIOUSLY ASSIGNED TO
SELLER HEREIN AND ARE BEING ASSIGNED BY SELLER TO PURCHASER, TO THE EXTENT
ASSIGNABLE AND WITHOUT RECOURSE OR WARRANTY ON SELLER, FOR PURCHASER'S USE AND
BENEFIT. SELLER HAS MADE NO INDEPENDENT REPRESENTATIONS AND WARRANTIES, EITHER
EXPRESS OR IMPLIED, CONCERNING THE FACILITY, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4. NO REAL ESTATE COMMISSION. Purchaser and Seller each represent to
the other that there are no real estate agents or brokers entitled to a
commission in connection with this purchase and sale of the Facility. Purchaser
hereby agrees to indemnify and hold harmless Seller against any and all claims
of any agent, broker, finder, or similar party claiming through Purchaser, and
Seller hereby agrees to indemnify and hold harmless Purchaser against any and
all claims of any agent, broker, finder, or other similar party claiming through
Seller.
5. NOTICE TO PURCHASER. The Texas Real Estate License Act requires that
Seller notify Purchaser that it should either (i) have an attorney examine an
abstract of title to the Land or (ii) obtain a title insurance policy covering
the Land. Notice to that effect is, therefore, hereby given to and acknowledged
by Purchaser.
6. ENTIRE AGREEMENT. This Memorandum of Purchase and Sale (together
with the Exhibits hereto) sets forth the entire agreement between Seller and
Purchaser relative to the Facility, and all prior negotiations or agreements are
merged herein. No modification hereof or subsequent agreement relative to the
subject matter hereof shall be binding unless reduced to a writing by the party
to be bound.
7. GOVERNING LAW. The terms, provisions and conditions of this
Memorandum shall be governed by and construed in accordance with the laws of the
State of Texas.
<PAGE>
EXECUTED to be effective as of the Effective Date.
SELLER:
AVIATION PROPERTIES OF TEXAS, a
Delaware general partnership
By: AVAC Corporation, a Delaware corporation, as
a general partner
By:
---------------------------------------
Robert Alpert, President
PURCHASER:
AVIATION SALES OPERATING COMPANY, a
Delaware corporation
By:
--------------------------------------------
Dale S. Baker, President
EXHIBITS:
"A" - Legal Description of the Property
"B" - General Warranty Deed
"C" - Bill of Sale and Assignment
"D" - Non-Foreign Status Affidavit
Signature Page to
Memorandum of Purchase and Sale
(3702 Knapp Rd., Pearland, Texas)
EXHIBIT 10.4
LANDLORD: BEN QUEVEDO NO. 1, LTD.
301 Costa Brava Court
Coral Gables, Florida 33143
TENANT: CARIBE AVIATION, INC.,
a Florida corporation
2200 N. W. 84th Avenue
Miami, Florida 33122
PREMISES: 30,000 square feet in Beacon Centre
DATE OF EXECUTION: July 22, 1998
- -------------------------------------------------------------------------------
INDUSTRIAL COMMERCIAL LEASE
- -------------------------------------------------------------------------------
June 2, 1998
<PAGE>
LEASE SUMMARY
The following is a summary of basic lease provisions with respect to
the Lease described below. It is an integral part of the Lease, and terms
defined or dollar amounts specified hereon shall have the meanings or amounts
set forth hereon unless other meanings are expressly set forth or expanded upon
in the text of this Lease or the Schedules attached hereto, all of which
Schedules are made a part hereof.
<TABLE>
<S> <C> <C>
1. DATE OF LEASE EXECUTION: July 22, 1998
2. LANDLORD: Ben Quevedo No. 1, Ltd., a Florida limited partnership
3. LANDLORD'S ADDRESS: 301 Costa Brava Court
Coral Gables, Florida 33143
4. TENANT: Caribe Aviation, Inc.
5. TENANT'S ADDRESS: 2200 N.W. 84th Avenue
Miami, Florida 33122
6. GUARANTOR: N/A
7. GUARANTOR'S ADDRESS: N/A
8. PREMISES (SECTION 1.1): As Shown on Schedule "A"
9. GROSS RENTABLE AREA OF
PREMISES (SECTION 1.1): 30,000 rentable square feet
10. PERMITTED USE OF
PREMISES (SECTION 3.1): Maintenance, repair, and wholesale sales of aviation equipment
11. TERM OF LEASE (SECTION L.2): Commencement Date: July 22, 1998
Expiration Date: February 28, 2000
12. OPTION TO RENEW (RIDER 1): One (1) term of five (5) years
13. INITIAL MINIMUM RENT
(SECTION 2.2): Per Square Foot: $8.355
Annual $258,176.66
Monthly $21,514.72
14. PREPAID RENT: $21,514.72 (due upon execution of Lease; to be applied to
first full month Minimum Rent is due).
15. SECURITY DEPOSIT (SECTION 2.7): $32,500 (Due upon execution of Lease)
16. COST PASS THROUGH (SECTION 2.4): Operation Costs (initially estimated at $2,546.39 per month)
</TABLE>
2
<PAGE>
INDEX
PAGE
----
LEASE SUMMARY
DEFINITIONS 4
ARTICLE I TERM 7
1.1 Grant and Premises 7
1.2 Term 7
ARTICLE II RENT 7
2.1 Covenant to Pay 7
2.2 Minimum Rent and CPI Escalation 8
2.3 Payment of Taxes and Business Taxes 8
2.4 Payment of Operating Costs 9
2.5 Rent Past Due 9
2.6 Security Deposit 9
2.7 Net Lease 9
ARTICLE III USE OF PREMISES 9
3.1 Permitted Use 9
3.2 Tenant's Covenants as to Use and Occupancy 9
3.3 Compliance with Laws 10
3.4 Signs 10
3.5 Prohibited Uses 11
3.6 Environmental Provisions 11
ARTICLE IV ACCESS AND ENTRY 11
4.1 Right of Examination 11
4.2 Right to Show Premises 12
4.3 Entry not Forfeiture 12
ARTICLE V MAINTENANCE, REPAIRS, AND
ALTERATIONS 12
5.1 Maintenance and Repairs by Landlord 12
5.2 Maintenance and Repairs by Tenant 12
5.3 Approval of Tenant's Alterations 12
5.4 Removal of Improvements and Fixtures 13
5.5 Liens 13
5.6 Notice by Tenant 13
5.7 Compliance 13
5.8 Emergency Repairs 14
ARTICLE VI UIILITIES/HVAC 14
6.1 Utilities 14
6.2 Heating, Ventilating, and Air Conditioning 14
ARTICLE VII INSURANCE AND INDEMNITY 14
7.1 Tenant's Insurance 14
7.2 Increase in Insurance Premiums 15
7.3 Cancellation of Insurance 15
7.4 Loss or Damage 15
7.5 Landlord's Insurance 15
7.6 Indemnification of the Landlord 16
7.7 Waiver of Subrogation 16
3
<PAGE>
ARTICLE VIII DAMAGE AND DESTRUCTION 16
8.1 Rent Abatement 16
8.2 Damage to Premises 16
ARTICLE IX ASSIGNMENT, SUBLETTING, AND TRANSFERS 17
9.1 Assignments, Subleases, and Transfers 17
9.2 Prior Notice to Landlord 17
9.3 Conditions of Transfer 17
9.4 Change of Control 18
9.5 No Advertisement 18
9.6 Assignment by Landlord 18
ARTICLE X DEFAULT 18
10.1 Defaults 18
10.2 Remedies 18
10.3 Costs 19
10.4 Allocation of Payments 19
10.5 Additional Remedies, Waiver, etc. 20
10.6 Default by Landlord 20
ARTICLE XI ATTORNMENT AND SUBORDINATION 20
11.1 Estoppel Certificate 20
11.2 Subordination 20
11.3 Non-Disturbance 20
11.4 Attornment 21
ARTICLE XII CONDEMNATION 21
12.1 Total Taking 21
12.2 Partial Taking 21
12.3 Taking for Temporary Use 21
12.4 Award 21
ARTICLE XIII GENERAL PROVISIONS 21
13.1 Rules and Regulations 21
13.2 Delay 21
13.3 Holding Over 22
13.4 Waiver 22
13.5 Recording 22
13.6 Notices 22
13.7 Successors 22
13.8 Joint and Several Liability 22
13.9 Captions and Section Numbers 22
13.10 Extended Meanings 22
13.11 Partial Invalidity 22
13.12 Radon Gas 23
13.13 Entire Agreement 23
13.14 Governing Law 23
13.15 Time 23
13.16 No Partnership 23
13.17 Quiet Enjoyment 23
13.18 Trial by Jury 23
13.19 Lease Brokerage 23
13.20 Future Restrictions 23
4
<PAGE>
SCHEDULES
A - Site Plan of Premises
B - Rules and Regulations
C - Legal Description of Building and Land
D - Description of Services
5
<PAGE>
LEASE
THIS LEASE (the "Lease"), dated the 22nd day of July, 1998, is made
between BEN QUEVEDONO. 1, LTD., a Florida limited partnership (the "Landlord")
and CARIBE AVIATION, INC., a Florida corporation (the "Tenant").
DEFINITIONS
In this Lease and in Schedules to this Lease:
"ADDITIONAL RENT" means all sums of money required to be paid by the
Tenant under this Lease (except Minimum Rent) whether or not the same are
designated "Additional Rent" or are payable to the Landlord or otherwise.
"AGREED CURRENT DAMAGES" means the difference between (i) the sum of
Rent and expenses to which Landlord may be put in re-entering the Premises;
repossessing the Premises; making good any default of Tenant; painting;
reasonable altering or dividing of the Premises; putting the Premises in proper
repair; protecting and preserving the Premises by placing watchmen and
caretakers therein; reletting the Premises (including attorneys' fees and
disbursements, marshall's fees, and brokerage fees in so doing); and any
reasonable expenses which Landlord incurs as a result of occupancy by any new
tenant, which expenses would not have been incurred but for Tenant's default
under this Lease; minus (ii) the proceeds of any reletting.
"AGREED FINAL DAMAGES" means the Rent and all of the charges which
would have been payable by Tenant from the date of the election by Landlord to
cancel the Lease to the date when this Lease would have expired if it had not
been so terminated, minus the fair rental value of the Premises for the same
period, both discounted to present worth at an annual interest factor of four
(4%) percent.
"ALTERATIONS" means all repairs, replacements, additions, or
modifications to the Premises by the Tenant.
"BUILDING" means the building and the Land on which same is erected,
and includes all facilities and buildings erected from time to time on the Land
and further includes each and every part of any such building or facilities
whether or not rented or rentable, together with areas and facilities serving
the Building, such as sidewalks, parking facilities, mechanical areas, truck and
receiving areas, loading docks, driveways, and the like, located on the Land.
"CHANGE OF CONTROL" means, in the case of any corporation, trust,
partnership, or other entity, the transfer or issue by sale, assignment,
subscription, transmission on death, mortgage, charge, security interest,
operation of law, or otherwise, of any shares, voting rights, or partnership or
beneficial interest which would result in any change in the effective control of
such corporation, trust, partnership, or other entity unless such change occurs
as a result of trading in the shares of or an acquisition by a corporation
listed on a recognized stock exchange in Canada or the United States.
"COMMENCEMENT DATE" means the date on which the Term commences as
provided in section 1.4.
"CPI" has the meaning set forth in section 2.2.
"EVENT OF INSOLVENCY" means (i) if Tenant or any Guarantor shall make
an assignment for the benefit of creditors; (ii) if Tenant or any Guarantor
shall file or acquiesce to a petition in any court (whether or not pursuant to
any statute of the United States or of any state) in any bankruptcy,
reorganization, composition, extension, arrangement, or insolvency
6
<PAGE>
proceedings; (iii) if Tenant or any Guarantor shall make an application in any
such proceedings for, or acquiesce to, the appointment of a trustee or receiver
for it or all or any portion of its property; (iv) if any petition shall be
filed against Tenant or any Guarantor to which neither of them acquiesce in any
court (whether or not pursuant to any statute of the United States or any State)
in any bankruptcy, reorganization, composition, extension, arrangement, or
insolvency proceedings, and the proceedings shall not be dismissed,
discontinued, or vacated within thirty (30) days; (v) if Tenant or any Guarantor
shall be adjudicated bankrupt, or if any petition referred to above shall be
approved by any court; (vi) if, in any proceeding pursuant to the application of
any person other than Tenant or any Guarantor to which neither of them
acquiesce, a receiver or trustee shall be appointed for Tenant or any Guarantor,
or for all or any portion of the property of either, and the receivership or
trusteeship shall not be set aside within sixty (60) days after such
appointment.
"EXPIRATION DATE" means the date on which the Term expires, as provided
under section 1.2, or any sooner date on which this Lease is terminated pursuant
to the provisions hereof.
"EXPIRATION YEAR" means the calendar year, that number of years
following the year of the Commencement Date, equal to the number of years of the
Term as set forth on the Lease Summary.
"FIRST PARTIAL MONTH" means, in the event the Commencement Date is not
the first day of a month, the period from the Commencement Date to the first day
of the next month.
"GROSS RENTABLE AREA OF THE BUILDING" means the number of square feet
of space in the Building whether above or below grade and shall be calculated to
extend (i) to the exterior of the structural portion of every wall, (ii) to the
exterior face of any other wall or division marking the boundaries of the
Building, (iii) to include all space on the exterior of the Building up to the
lease lines of the Building, and (iv) to include all interior space whether or
not occupied by interior projections, stairways, shafts, ventilation spaces,
columns, pipes, conduits or the like, and other physical features. For purposes
of this Lease, the Gross Rentable Area of the Building is deemed to be thirty
thousand (30,000) rentable square feet.
"GROSS RENTABLE AREA OF THE PREMISES" means, for purposes of this
Lease, the same number of rentable square feet as the Gross Rentable Area of the
Building.
"LAND" means the land situated in Dade County, Florida, on which the
Building and other improvements comprising the Premises are located, as more
particularly described in Schedule "D," or as such lands may be expanded or
reduced from time to time.
"LANDLORD" means Benito Quevedo, his heirs and assigns.
"LEASE SUMMARY" means the outline of basic terms, dollar amounts, and
other information forming a part of this Lease and appearing as the first pages
of this Lease.
"LEASE YEAR" means the twelve (12) full calendar months commencing on
the first day of the month immediately following the month in which the
Commencement Date occurs unless the Commencement Date is the first day of a
month, in which event the first Lease Year shall commence on the Commencement
Date. However, the final Lease Year may contain less than twelve (12) months due
to expiration or sooner termination of the Term. If the Commencement Date is not
on the first day of a month, the period from the Commencement Date to the first
day of the next month is referred to herein as the "First Partial Month" and
shall be deemed included in the first Lease Year.
"LEASEHOLD IMPROVEMENTS" means leasehold improvements in the Premises
determined according to common law, and shall include, without limitation: all
fixtures, improvements, installations, alterations, and additions from time to
time made, erected, or installed in the Premises by or on behalf of the Tenant
or any previous occupant of the Premises, including signs and lettering,
partitions, doors, and hardware however affixed and whether or not
7
<PAGE>
movable; all mechanical, electrical and utility installations and all carpeting
and drapes with the exception only of furniture and equipment not in the nature
of fixtures.
"MORTGAGE" means any and all mortgages, security agreements, or like
instruments resulting from any financing, refinancing, or collateral financing
(including renewals or extensions thereof) made or arranged by the Landlord of
its interest in all or any part of the Premises.
"MORTGAGEE" means the holder of, or secured party under, any Mortgage
and includes any trustee for bondholders.
"OPERATING COSTS" means any amounts paid or payable, if any, (whether
on a cash or on an accrual basis) whether by the Landlord or by others on behalf
of the Landlord, arising out of Landlord's ownership, maintenance, operation,
repair, replacement, and administration of the Premises, including, without
limitation: (i) the cost of insurance which the Landlord is obligated or
permitted to obtain under this Lease and any deductible amount applicable to any
claim made by the Landlord under such insurance; (ii) the cost of security,
janitorial, landscaping, window cleaning, garbage removal, and trash removal
services; (iii) the cost of heating, ventilating, and air conditioning, to the
extent incurred with respect to any shared systems; (iv) the cost of all fuel,
water, electricity, telephone, and other utilities used in the maintenance
operation, or administration of the Premises; (v) salaries, wages, and other
amounts paid or payable for ALL personnel involved in the repair, maintenance,
operation, leasing, security, supervision, or cleaning of the Premises,
including fringe benefits, unemployment, and workmen's compensation insurance
premiums, pension plan contributions and other employment costs, and the cost of
engaging independent contractors to perform any of the foregoing services; (vi)
auditing and accounting fees and costs; (vii) the cost of repairing, replacing,
operating, and maintaining the Premises and the equipment serving the Premises,
except where such costs are attributable to inherent structural defects in the
Premises; and (viii) the cost of the rental of any equipment and signs.
Operating Costs shall exclude (i) income taxes on Landlord's income from the
Premises; (ii) such of the Operating Costs as are recovered by Landlord from
insurance proceeds; and (iii) interest on debt and retirement of debt principal.
Notwithstanding anything to the contrary contained herein, Operating Costs shall
not include any single repair to the Building or any single repair or
replacement of a mechanical system if the cost of such single repair or
replacement exceeds $1,000.
"PERSON" means any person, firm, partnership, or corporation, or any
group or combination of persons, firms, partnerships, or corporations.
"PREMISES" means the premises leased to the Tenant described in section
1.1 and includes Leasehold Improvements in such Premises.
"RENT" means the aggregate of Minimum Rent and Additional Rent.
"RULES AND REGULATIONS" mean the rules and regulations adopted and
promulgated by the Landlord from time to time pursuant to section 14.1. The
Rules and Regulations existing as at the Commencement Date are those set out in
Schedule "B".
"TAXES" means all real estate, personal property and other ad valorem
taxes, and any other levies, charges, local improvement rates, and assessments
whatsoever assessed or charged against the Premises, the equipment and
improvements therein contained, or any part thereof, by any lawful taxing
authority and including any amounts assessed or charged in substitution for or
in lieu of any such taxes, excluding only income or capital gains taxes, to the
extent such taxes are not levied in lieu of any of the foregoing against the
Premises or the Landlord.
"TENANT" means the party so identified on the first page of this Lease,
such party's permitted successors and assigns, and is deemed to include the word
"lessee" and includes every Person mentioned as Tenant in this Lease.
"TERM" means the period set out in section 1.2 and any renewal periods,
if any, except as otherwise noted.
8
<PAGE>
"TRADE FIXTURES" means trade fixtures as determined at common law, but
shall not include: (a) heating, ventilating, or air conditioning systems,
facilities, and equipment in or serving the Premises, except for portable
systems which are not attached or affixed to the Premises or Building in any way
except by electrical plug into a socket; (b) any floor covering affixed to the
floors of the Building; (c) light fixtures; (d) internal stairways and doors;
and (e) any fixtures, facilities, equipment, or installations installed by or at
the expense of the Landlord, all of which are deemed to be Leasehold
Improvements.
"TRANSFER" means an assignment of this Lease in whole or in part; a
sublease of all or any part of the Premises; any transaction whereby the rights
of the Tenant under this Lease or to the Premises are transferred to another;
any transaction by which any right or use or occupancy of all or any part of the
Premises is conferred upon anyone; any mortgage or encumbrance of this Lease or
the Premises or any part thereof or other arrangement under which either this
Lease or the Premises become security for any indebtedness or other obligations
and includes any transaction or occurrence whatsoever (including, but not
limited to, expropriation, receivership proceedings, seizure by legal process,
and transfer by operation of law), which has changed or might change the
identity of the Persons having lawful use or occupancy of any part of the
Premises.
"TRANSFEREE" means the Person or Persons to whom a Transfer is to be
made.
ARTICLE I
TERM
1.1 GRANT AND PREMISES. In consideration of the performance by the
Tenant of its obligations under this Lease, the Landlord leases the Premises to
the Tenant, and the Tenant leases the Premises from the Landlord, for the Term.
The Premises are shown on the site plan attached hereto as Schedule "A." The
Gross Rentable Area of the Premises is as shown on the Lease Summary.
1.2 TERM. The Term of the Lease is the period from the Commencement
Date through the Expiration Date.
ARTICLE II
RENT
2.1 COVENANT TO PAY. The Tenant shall pay to Landlord Rent from the
Commencement Date without prior demand, together with all applicable Florida
sales tax thereon, however, unless otherwise provided in this Lease, Additional
Rent shall be payable by Tenant to Landlord within five (5) days following
demand. All rent or other charges that are required to be paid by Tenant to
Landlord shall be payable at Landlord's address indicated on the Lease Summary.
Minimum Rent and Additional Rent for any Lease Year consisting of less than
twelve (12) months shall be prorated on a per diem basis, based upon a period of
365 days. The Tenant agrees that its covenant to pay Rent is an independent
covenant and that all such amounts are payable without counterclaim, set-off,
deduction, abatement, or reduction whatsoever, except as expressly provided for
in this Lease.
2.2 MINIMUM RENT AND CPI ESCALATION. Subject to any escalation which
may be provided for in this Lease, the Tenant shall pay Minimum Rent for the
Term in the initial amount specified in the Lease Summary, which, except for the
first installment, shall be payable throughout the Term in equal monthly
installments in advance on the first day of each calendar month of each year of
the Term, such monthly installments to be in the amounts (subject to escalation)
specified in the Lease Summary. The first monthly installment of Minimum Rent
shall be due on the Commencement Date. The foregoing Minimum Rent is based on an
annual rate per square foot of Gross Rentable Area of the Premises as specified
in the Lease Summary. The Minimum Rent described above shall be adjusted at the
beginning of the second and each
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succeeding Lease Year during the Term of this Lease (and any renewal hereof) by
multiplying the then current Minimum Rent by a fraction, the numerator of which
shall be the Consumer Price Index - U.S. City average for urban wage earners and
clerical workers all items, (1967 equals 100) ("CPI") for the third month
preceding the month of adjustment, and the denominator of which shall be the CPI
for the fifteenth month preceding the month of adjustment. Anything herein to
the contrary notwithstanding, in no event shall such annual increases in Minimum
Rent be less than three (3%) percent of the prior Lease Year's Minimum Rent or
more than six (6%) percent of the prior Lease Year's Minimum Rent. Should the
CPI become unavailable, a reasonable substitute prepared by the U.S. Department
of Labor or other source, as designated by Landlord, shall be used. Minimum Rent
shall continue to be payable in monthly installments as otherwise described
above until Landlord notifies Tenant of the new monthly Minimum Rent installment
amount. Landlord shall attempt to so notify Tenant prior to commencement of each
new Lease Year. However, failure of Landlord to timely notify Tenant of the new
monthly Minimum Rent installment amount shall not be deemed a waiver by Landlord
of the increased rental; the new monthly amount (or any portion not previously
paid) shall be payable, retroactive to the commencement of the new Lease Year,
upon notification by Landlord to Tenant of the new monthly Minimum Rent
installment amount.
2.3 PAYMENT OF TAXES. The Tenant shall pay when due all Taxes. If the
Tenant's Taxes are paid by the Landlord to the relevant taxing authority, the
Tenant shall pay the amount thereof to the Landlord or as the Landlord directs.
Tenant shall deliver to Landlord, upon request, receipts or other satisfactory
evidence of payment of all Taxes relating to this Lease or Tenant's occupancy of
the Premises.
2.4 PAYMENT OF OPERATING COSTS. The Tenant shall pay to the Landlord
any and all Operating Costs expended by Landlord with respect to the Premises.
The amount of Operating Costs payable to the Landlord may be estimated by the
Landlord for such period as the Landlord determines from time to time (not to
exceed twenty four (24) months), and the Tenant agrees to pay to the Landlord
the amounts so estimated in equal installments in advance, on the first day of
each month during such period. Notwithstanding the foregoing, when bills for all
or any portion of Operating Costs so estimated are actually received by
Landlord, the Landlord may bill the Tenant for such amount, less any amount
previously paid by Tenant to Landlord on account of such item(s) by way of
estimated Operating Costs payments.
Within a reasonable period of time after the end of the period for
which estimated payments have been made, the Landlord shall submit to the Tenant
a statement from the Landlord setting forth the actual amounts payable by the
Tenant based on actual costs. If the amount the Tenant has paid based on
estimates is less than the amount due based on actual costs, the Tenant shall
pay such deficiency within five (5) days after submission of such statement. If
the amount paid by the Tenant is greater than the amount actually due, the
excess may be retained by the Landlord to be credited and applied by the
Landlord to the next due installments of the Operating Costs, or as to the final
Lease Year, provided Tenant is not in default, Landlord will refund such excess
to Tenant.
The Operating Costs for the final estimate period of the Term of this
Lease shall be due and payable even though it may not be finally calculated
until after the expiration of the Term. Accordingly, Landlord shall have the
right to continue to hold Tenant's security deposit for a reasonable period of
time following expiration of the Term until the actual Operating Costs have been
paid.
Notwithstanding anything to the contrary contained in this Lease, if
any of the services stated in Schedule "D" attached hereto or any services for
which Landlord purports to charge to Tenant as Operating Costs are not provided
by Landlord or by or through any applicable property owner's association, or
pursuant to any covenants applicable to the Building, the costs of such services
shall be deleted from the Operating Costs. Landlord agrees that Tenant shall
have the option of providing, at its cost, any such services which cease to be
provided by Landlord or by or through any applicable property owner's
association, or pursuant to any covenants applicable to the Building.
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2.5 RENT PAST DUE. Any payment of Rent not received by Landlord within
five business days after the date such payment is due shall be subject to a late
charge of fifty dollars ($50.00); provided, however, that any payment of Rent
not received by Landlord within five business days after the date such payment
is due shall be subject to an additional late charge in an amount equal to one
and one-half (1-1/2%) percent per month (eighteen (18%) percent per annum) of
the delinquent amount, computed for the entire period for which the Rent payment
is delinquent past the aforesaid fifth business day after the date the Rent is
due; provided further, however, that the additional late charge is in addition
to and not in lieu of the $50.00 late charge or any other remedy available to
Landlord.
2.6 SECURITY DEPOSIT. The Landlord acknowledges receipt of a security
deposit in the amount specified on the Lease Summary to be held by the Landlord,
in a special interest bearing account, as security for the performance by the
Tenant of all its obligations under this Lease. All interest earned on this
security deposit shall be retained in the interest bearing account and shall be
considered as additional security, until such time as, in accordance with the
terms of this Lease, the Landlord has the right to utilize said security deposit
or the Tenant becomes entitled to the security deposit. In the event of default
by the Tenant of any of its obligations under this Lease, the Landlord may at
its option, but without prejudice to any other rights which the Landlord may
have, apply all or part of the security deposit to compensate the Landlord for
any loss, damage, or expense sustained by the Landlord as a result of such
default. If all or any part of the security deposit is so applied, the Tenant
shall restore the security deposit to its original principal amount on demand of
the Landlord. Subject to the provisions of section 2.4, within thirty (30) days
following termination of this Lease, if the Tenant is not then in default, the
security deposit (including interest earned thereon) will be returned by the
Landlord to the Tenant. If the Landlord sells its interest in the Premises, it
may, upon receipt from the purchaser and delivery to the Tenant of written
acknowledgement from the purchaser of (i) the amount of the security deposit
(plus interest as reported on the most recent account statement) and (ii) the
purchaser's obligations to Tenant with regard to the security deposit under this
Lease, deliver the security deposit to the purchaser (and the interest earned
thereon) and the Landlord will thereupon be released from any further liability
with respect to the security deposit or its return to the Tenant and the
purchaser shall become directly responsible to Tenant.
2.7 NET LEASE. This Lease is a completely net lease to the Landlord,
except as otherwise expressly herein stated. The Landlord is not responsible for
any expenses or outlays of any nature arising from or relating to the Premises,
the use or occupancy thereof, the contents thereof, or the business carried on
therein. The Tenant shall pay all charges, impositions, and outlays of every
nature and kind relating to the Premises except as expressly herein stated.
ARTICLE III
USE OF PREMISES
3.1 PERMITTED USE. The Premises shall be used and occupied only for the
use specified in the Lease Summary.
3.2 TENANT'S COVENANTS AS TO USE AND OCCUPANCY
(A) Tenant shall carry on its business on the Premises in a
reputable manner and shall not do, omit, permit, or suffer to be done or exist
upon the Premises anything which shall result in a nuisance, hazard, or bring
about a breach of any provision of this Lease or any applicable municipal or
other governments law or regulation.
(B) Tenant shall not use in the Premises any traveling or flashing
lights or signs or any loudspeaker, television, phonographs, radio, or other
audio-visual or mechanical devices in a manner so that they can be heard or seen
outside the Premises without in each case having obtained the prior written
consent of the Landlord. If the Tenant uses any such equipment without receiving
the prior written consent of the Landlord, the Landlord shall be entitled to
remove such equipment without notice at any time and at the cost of the Tenant
payable as Additional Rent forthwith on demand.
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(C) The Tenant shall not burn any trash or garbage in or about the
Premises, nor cause, permit, or suffer upon the Premises any unusual or
objectionable noises or odors or anything which, in Landlord's reasonable
judgment, may disturb any other tenants or occupants of Beacon Centre, provided,
however, that Landlord acknowledges the type and nature of Tenant's existing
business and agrees that nothing relating to such business is prohibited under
this section 3.2(C).
(D) The Tenant shall not overload any floor in the Premises, or any
utility or service, or commit any act of waste or damage any part of the
Premises.
(E) The Tenant shall ship and receive supplies, fixtures,
equipment, furnishings, wares, and merchandise only through the appropriate
service and delivery facilities of the Premises; and shall not park its trucks
or other delivery vehicles or allow suppliers or others making deliveries to or
receiving shipments from the Premises to park in the parking areas, except in
those parts thereof as are so shown in the Plans and Specifications for the
Premises or as may from time to time be allocated by the Landlord for such
purpose.
(F) Except to the extent normally utilized in business operations
similar to Tenant's, the Tenant shall not store or bring on the Premises any
articles of any combustible, toxic, or dangerous nature. Tenant shall at all
times keep the Premises in such condition as to comply with the regulations and
requirements of any appropriate fire underwriter's association, any fire
department of competent jurisdiction, and all applicable environmental laws and
regulations. The Tenant shall keep and maintain on the Premises all safety
appliances required by the use of the Premises. The Tenant shall not do or
permit to be done or omit or permit to be omitted upon the Premises anything
which shall cause the rate of insurance on the Premises and/or Building or any
part thereof to be cancelled, or its premiums to be unreasonably increased.
(G) No aspect of Tenant's business operation shall feature the
display of any nude body parts or pornographic material.
(H) Tenant shall not install in, on, or over the exterior of the
Building or anywhere on the Premises any lights, shades, awnings, or similar
items without the prior written consent of Landlord.
(I) Tenant shall observe all reasonable rules and regulations
established by Landlord from time to time and shall comply with and observe any
applicable restrictive covenants relating to the Premises or Building.
3.3 COMPLIANCE WITH LAWS. The Premises shall be used and occupied in a
safe, careful, and proper manner so as not to contravene any present or future
governmental or quasigovernmental laws, regulations, or orders, or the
reasonable requirements of the Landlord's or Tenant's insurers. If due to the
Tenant's use of the Premises, repairs, improvements, or alterations to the
Premises are necessary to comply with any of the foregoing, the Tenant shall pay
the entire cost thereof. Tenant shall not, however, be responsible for repairs,
improvements, or alterations to the Premises which are necessary to comply with
such laws, regulations, or orders, or requirements of insurers, or for damages
or liability arising therefrom, if such repairs, improvements or alterations are
required, or if damages or liability arises as a result of acts or omissions of
Landlord occurring prior to the beginning of the Term or during the Term.
3.4 SIGNS. Tenant shall not, without the prior written consent of the
Landlord, erect, install, display, inscribe, paint, or affix any signs,
lettering, or advertising medium anywhere on the Premises, including, without
limitation, upon or above any exterior portion of the Building including the
front and any and all interior as well as exterior glass surfaces thereof.
3.5 PROHIBITED USES. Notwithstanding any other provisions of this
Lease, the Tenant shall not use the Premises nor permit them to be used for any
of the following purposes: (A) for the retail sale by the Tenant of any
merchandise; (B) a business primarily used for an order office, mail order
office, or catalogue store; or (C) any business in which the Tenant is engaged
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in intentionally deceptive or fraudulent advertising or selling practices or any
other act or business practice contrary to honest business practices.
3.6 ENVIRONMENTAL PROVISIONS
(A) Landlord acknowledges that Tenant is a small quantity generator
of hazardous waste and that Tenant uses hazardous materials in conducting its
business operations. Landlord agrees that so long as Tenant remains a small
quantity generator and complies with the provisions of this section 3.6 and with
the provisions of all applicable federal, state, and local laws, that Tenant's
use of, generation of, or disposal of hazardous materials, substances, or waste
shall not be deemed to be a default under this Lease.
(B) Except as set forth in paragraph (A) above, Tenant warrants and
represents that it will not utilize or dispose of any hazardous materials,
substances, or waste in violation of any federal, state, or local laws and that
all hazardous materials, substances, or waste generated on or otherwise located
on the Premises shall be disposed of by Tenant, at Tenant's expense, on a
periodic basis by removal of such hazardous waste from the Premises by a
licensed hazardous waste disposal company.
(C) Tenant agrees to defend, indemnify, and hold harmless the
Landlord against any and all Claims which Landlord may hereafter be liable for,
suffer, incur, or pay arising under any applicable laws and resulting from or
arising out of the breach of the representations and warranties contained in
this section 3.6 or out of any act, activity, or violation of any applicable
laws on the part of Tenant, its agents or employees, and against any and all
Claims which Landlord may hereafter be liable for, suffer, incur, or pay
resulting from or arising out of any handling, storage, treatment,
transportation, disposal, release, or threat of release of hazardous waste or
hazardous substances from or on the Premises, caused by Tenant or its agents or
employees during the Term of this Lease, unless such Claims arise out of or
result from the negligent affirmative acts, grossly negligent omissions, or
willful misconduct of Landlord or its agents or employees.
(D) Any violation or breach by Tenant or its agents or employees of
the provisions of this section 3.6 shall be considered a default pursuant to
Section 10.1 of this Lease.
(E) For purposes of this section 3.6, "Claims" shall include and
mean all actions, causes of action, whether common law or statutory, remedies,
demands, out-of-pocket costs, liability, charges, suits, judgments, expense,
damage, personal injuries, property damage, incidental or consequential damages,
clean up costs, civil penalties, attorneys' fees, litigation expenses, abatement
costs, abatement and corrective injunctive relief, injunctive relief requiring
removal and/or remedial action, all costs of removal or remedial action, and
damages to natural resources.
(F) Tenant's liability under this section 3.6 shall survive the
expiration or any termination of this Lease; provided, however, that if this
Lease is assigned by Tenant in accordance with Article IX of this Lease, Tenant
shall only remain liable for violations of this section 3.6 which occurred while
Tenant was in possession of the Premises and which occurred as a result of any
act or omission by Tenant or its agents or employees.
ARTICLE IV
ACCESS AND ENTRY
4.1 RIGHT OF EXAMINATION. The Landlord shall be entitled at all
reasonable times, and upon reasonable notice to Tenant, to enter the Premises to
examine them; to make at Landlord's expense, unless expressly the obligation of
Tenant under this Lease, such repairs, alterations, or improvements thereto as
the Landlord considers necessary or desirable; to have access to underfloor
facilities and access panels to mechanical shafts and to check, calibrate,
adjust, and balance controls and other parts of the heating, air conditioning,
ventilating, and climate control systems. If any excavation is made in the
vicinity of the Premises, the person making such excavation may, upon reasonable
advance notice to Tenant, enter the Premises (including the
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Building) to support them by proper foundations. Rent will not abate or be
reduced while the repairs, alterations, or improvements are being made, unless
Tenant's business is disrupted to the point where it is effectively stopped, in
which event Rent shall, so long as such repairs, alterations, or improvements
are not being made as the result of Tenant's negligence or at Tenant's written
request or due to any act or omission of Tenant, be abated for such business
days as Tenant's business is effectively stopped.
4.2 RIGHT TO SHOW PREMISES. The Landlord and its agents have the right,
upon reasonable advance notice to Tenant, to enter the Premises at all
reasonable times to show them to prospective purchasers or Mortgagees and,
during the last six months of the Term (or the last six (6) months of any
renewal term if this Lease is renewed), to show them to prospective tenants.
4.3 ENTRY NOT FORFEITURE. No entry into the Premises by the Landlord
pursuant to a right granted by this Lease shall constitute a breach of any
covenant for quiet enjoyment, or (except where expressed by the Landlord in
writing) shall constitute a retaking of possession by Landlord or forfeiture of
Tenant's rights hereunder.
ARTICLE V
MAINTENANCE, REPAIRS, AND ALTERATIONS
5.l MAINTENANCE AND REPAIRS BY LANDLORD. Except as expressly agreed to
by Landlord, the Landlord shall have no repair or maintenance obligations with
respect to the Premises or the Building. The cost of any such maintenance and
repairs done by Landlord shall be included in Operating Costs. Landlord shall be
responsible for any capital improvements or structural repairs to the Building
which are not expressly the responsibility of Tenant under this Lease.
5.2 MAINTENANCE AND REPAIRS BY TENANT. The Tenant shall, at its sole
cost, repair and maintain the Premises, including, but not limited to, the
exterior walls and roofs, the entrances, sidewalks, corridors, parking areas and
other facilities serving the Premises (excluding areas or facilities which are
not within the Land), but shall not be responsible for capital improvements or
structural repairs to the Building, except to the extent Tenant receives or is
entitled to receive insurance proceeds for damage to the Building; and the
mechanical, electrical, and plumbing systems, all to a standard consistent with
a first class building, with the exception only of those repairs, if any, which
are the obligation of the Landlord pursuant to this Lease. Landlord shall be
responsible for all repairs to the HVAC systems of the Building which are not
covered by the HVAC maintenance contract(s) in effect as of the Commencement
Date. Without limiting the generality of the foregoing, Tenant is specifically
required to make repairs (i) to the portion of any pipes, lines, ducts, wires,
or conduits contained within the Premises; (ii) to windows, plate glass, doors,
and any fixtures or appurtenances composed of glass; (iii) to Tenant's sign;
(iv) to any heating or air conditioning equipment installed in the Building; (v)
to the Premises or the Building when repairs to the same are necessitated by any
act or omission of Tenant, or the failure of Tenant to perform its obligations
under this Lease. All repair and maintenance performed by the Tenant in the
Premises shall be performed by qualified and licensed contractors or workmen as
are approved by Landlord, with such approval not to be unreasonably withheld or
delayed. At the expiration or earlier termination of the Term, the Tenant shall
surrender the Premises to the Landlord in as good condition and repair as the
Tenant is required to maintain the Premises throughout the Term, giving
consideration to normal wear and tear. In addition to the foregoing, Tenant
shall furnish, maintain, and replace all electric light bulbs, tubes, and tube
casings located within or serving the Premises and Tenant's signage, all at
Tenant's sole cost and expense. Landlord will assign to Tenant the benefit of
any manufacturers' warranties with respect to mechanical, electrical, and
plumbing systems.
5.3 APPROVAL OF TENANT'S ALTERATIONS. No Alterations (other than minor
or cosmetic Alterations which are interior and nonstructural) shall be made to
the Premises without the Landlord's written approval. Alterations to the
interior of the Building which are nonstructural shall only be made upon
approval of the Landlord, which approval shall not be unreasonably withheld or
delayed. Alterations to the interior which are structural or to the exterior of
the
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Building or to the Premises outside of the Building, shall only be made upon
approval by the Landlord, which may be granted or withheld in its sole
discretion. The Tenant shall submit to the Landlord details of the proposed work
including drawings and specifications prepared by qualified architects or
engineers conforming to good engineering practice. All Alterations (whether or
not Landlord's approval is required hereunder, except as hereinafter provided)
shall be performed: (i) at the sole cost of the Tenant; (ii) by contractors and
workmen approved in writing by Landlord (if Landlord's consent is required
hereunder); (iii) in a good and workmanlike manner; (iv) in accordance with
drawings and specifications approved in writing by the Landlord (if Landlord's
approval is required hereunder); (v) in accordance with all applicable laws and
regulations; (vi) subject to the reasonable regulations, coordination, control,
and inspection of the Landlord (if Landlord's approval is required hereunder);
and (vii) subject to such indemnification against liens and expenses as the
Landlord reasonably requires (if Landlord's approval is required hereunder).
5.4 REMOVAL OF IMPROVEMENTS AND FIXTURES. All Leasehold Improvements
(other than Trade Fixtures) shall immediately upon their placement in the
Premises become the Landlord's property without compensation to the Tenant.
Except as otherwise agreed by the Landlord in writing, no Leasehold Improvements
shall be removed from the Premises by the Tenant either during or at the
expiration or sooner termination of the Term except that: (i) the Tenant may,
during the Term, in the usual course of its business, remove its Trade Fixtures,
provided that the Tenant is not in default under this Lease; and (ii) the Tenant
shall, at the expiration or earlier termination of the Term, at its sole cost,
remove such of the Trade Fixtures in the Premises as the Landlord shall require
to be removed and restore the Premises, at Tenant's option, to be exercised in
its reasonable discretion, to the original condition of the Premises, less
normal wear and tear. The Tenant shall at its own expense repair any damage
caused to the Premises by such removal. If the Tenant does not remove its Trade
Fixtures at the expiration or earlier termination of the Term, the Trade
Fixtures shall, at the option of the Landlord, become the property of the
Landlord and may be removed from the Premises and sold or disposed of by the
Landlord in such manner as it deems advisable without any accounting to Tenant.
5.5 LIENS.
(A) The Tenant shall promptly pay for all materials supplied and
work done in respect of the Premises so as to ensure that no lien is recorded
against any portion of the Land or Building or against the Landlord's or
Tenant's interest therein. If a lien is so recorded, the Tenant shall discharge
it promptly by payment or bonding. If any such lien against the Land, Building,
or Landlord's interest therein is recorded and not discharged by Tenant as above
required within thirty (30) days following recording, the Landlord shall have
the right to remove such lien by bonding or payment and the cost thereof shall
be paid immediately from Tenant to Landlord.
(B) Landlord and Tenant expressly agree and acknowledge that no
interest of Landlord in the Premises or the Building shall be subject to any
lien for improvements made by Tenant in or for the Premises, and the Landlord
shall not be liable for any lien for any improvements made by Tenant, such
liability being expressly prohibited by the terms of this Lease. In accordance
with applicable laws of the State of Florida, Landlord has fled in the public
records of Dade County, Florida, a public notice containing a true and correct
copy of this paragraph, and Tenant hereby agrees to inform all contractors and
materialmen performing work in or for or supplying materials to the Premises of
the existence of said notice.
5.6 NOTICE BY TENANT. The Tenant shall notify the Landlord of any
accident, defect, damage, or deficiency in any part of the Premises or the
Building, which comes to the attention of the Tenant, its employees, or
contractors notwithstanding that the Landlord may have no obligation in respect
thereof.
5.7 COMPLIANCE. Tenant shall observe and comply promptly with all
present and future legal requirements and the insurance requirements provided in
this Lease relating to or affecting the Premises or any sign of Tenant, or the
use and occupancy of the Premises.
5.8 EMERGENCY REPAIRS. If, in an emergency, it shall become necessary
to make promptly any repairs or replacements required to be made by Tenant,
Landlord may reenter the
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Premises and proceed forthwith to have the repairs or replacements made and pay
the costs thereof. Upon demand, Tenant shall reimburse Landlord for the cost
of making the repairs.
ARTICLE VI
UTILITIES/HVAC
6.1 UTILITIES. The Tenant shall pay all gas, electricity, water, and
other utility charges applicable to the Premises. Landlord shall utilize his
reasonable best efforts to ensure the continued availability of such service(s)
to the Premises.
6.2 HEATING, VENTILATING, AND AIR CONDITIONING. Subject to the
provisions of Section 5.2, at the Tenant's expense, the Tenant shall maintain
and operate heating, ventilating, and air conditioning equipment installed for
the Building including the replacement thereof when necessary, in such manner as
to maintain comfortable conditions of temperature and humidity within the
Building, subject only to force majeure.
ARTICLE VII
INSURANCE AND INDEMNITY
7.1 TENANT'S INSURANCE. The Tenant shall, subject to the provisions of
paragraph E of this Section 7.1, throughout the Term (and any other period when
Tenant is in possession of the Premises), maintain at its sole cost the
following insurance:
(A) All risks (including flood) property insurance, naming the
Landlord and any mortgagees as additional insureds. Such insurance shall insure
the Leasehold Improvements, in an amount not less than the full replacement cost
thereof (new), with such cost to be adjusted no less than annually. Such policy
or policies shall provide that loss thereon shall be adjusted and payable to the
Landlord, with the proceeds to be held in trust to be used for repair and
replacement of the property so insured.
(B) COMPREHENSIVE GENERAL LIABILITY INSURANCE. Such policy shall
contain inclusive limits of not less than $l,000,000 per occurrence/$2,000,000
aggregate, and include the Landlord and Mortgagee as additional insureds. The
liability insurance shall protect Landlord, Tenant, and any designee of Landlord
against any liability which arises from any occurrence on or about the Premises,
or which arises from any claims against which Tenant is required to indemnify
Landlord.
(C) Worker's compensation and employer's liability insurance in
compliance with applicable legal requirements.
(D) Any other insurance reasonably required by Landlord or
Mortgagee. All policies referred to above shall: (i) be taken out with insurers
licensed to do business in Florida and reasonably acceptable to the Landlord;
(ii) be in a form reasonably satisfactory to the Landlord; (iii) be
non-contributing with, and shall apply only as primary and not as excess to any
other insurance available to the Landlord or the Mortgagee; (iv) contain an
undertaking by the insurers to notify the Landlord by certified mail not less
than thirty (30) days prior to any material change, cancellation, or
termination, and (v) contain a replacement cost endorsement. Certificates of
insurance or, if required by the Mortgagee, copies of such insurance policies
certified by an authorized officer of Tenant's insurer as being complete and
current, shall be delivered to the Landlord promptly upon request If a) the
Tenant fails to take out or to keep in force any insurance referred to in this
section 7.1, or should any such insurance not be reasonably approved by the
Landlord or Mortgagee, and b) the Tenant does not commence and continue to
diligently cure such default within forty-eight (48) hours after written notice
by the Landlord to the Tenant specifying the nature of such default, then the
Landlord has the right, without
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assuming any obligation in connection therewith, to effect such insurance at the
sole cost of the Tenant and all outlays by the Landlord shall be paid by the
Tenant to the Landlord without prejudice to any other rights or remedies of the
Landlord under this Lease.
(E) At Tenant's option, which shall be exercised by written notice
to Landlord, Landlord will obtain the insurance required under paragraph (A) of
this Section 7.1, the cost of which shall be paid by Tenant as an Operating
Cost.
7.2 INCREASE IN INSURANCE PREMIUMS. The Tenant shall not keep or use in
the Premises any article which may be prohibited by any fire or casualty
insurance policy in force from time to time covering the Premises or the
Building. The Tenant will comply promptly with the reasonable requirements of
Tenant's or Landlord's insurer, as applicable, pertaining to the Premises or the
Building. If: (i) the conduct of business in the Premises; or (ii) any acts or
omissions of the Tenant in the Premises or the Building or any part thereof,
cause or result in any increase in premiums for the insurance reasonably carried
from time to time by the Landlord with respect to the Premises, if Landlord
allows such act or omission to continue, the Tenant shall pay any such increase
in premium. In determining whether increased premiums are caused by or result
from the use or occupancy of the Premises, a schedule issued by the organization
computing the insurance rate on the Premises showing the various components of
such rate, shall be conclusive evidence of the several items and charges which
make up such rate.
7.3 CANCELLATION OF INSURANCE. If any insurance policy required to be
maintained by Tenant upon the Premises or any part thereof shall be cancelled or
shall be threatened by the insurer to be cancelled or the coverage thereunder
reduced in any way by the insurer by reason of the use of the Premises by the
Tenant or any assignee or subtenant of the Tenant, or by anyone permitted by the
Tenant to be upon the Premises, and if the Tenant fails to remedy such condition
within two (2) business days after receipt of notice thereof by the Landlord,
Tenant shall be deemed to have committed a material default of this Lease, in
which event in addition to any other remedies available to Landlord, Landlord
may enter upon the Premises and remedy the condition giving rise to such
cancellation, threatened cancellation, or reduction, including removing of any
offending article, and the Tenant shall pay the cost of such remedy to the
Landlord.
7.4 LOSS OR DAMAGE. The Landlord shall not be liable for any death or
injury arising from or out of any occurrence in, upon, at, or relating to the
Premises or damage to property of the Tenant or of others located on the
Premises, nor shall it be responsible for any loss of or damage to any property
of the Tenant or others from any cause, UNLESS SUCH DEATH, INJURY, LOSS, OR
DAMAGE RESULTS FROM OMISSIONS WHICH CONSTITUTE GROSS NEGLIGENCE, AFFIRMATIVE
ACTS WHICH CONSTITUTE NEGLIGENCE, OR WILFUL MISCONDUCT OF THE LANDLORD OR HIS
EMPLOYEES OR AGENTS. Without limiting the generality of the foregoing, the
Landlord shall not be liable for any injury or damage to Persons or property
resulting from fire, explosion, falling plaster, falling ceiling tile, falling
fixtures, steam, gas, electricity, water, rain, flood, or leaks from any part of
the Premises or from the pipes, sprinklers, appliances, plumbing works, roof,
windows, or subsurface of any floor or ceiling of or about the Premises or from
the street or any other place or by dampness, or by any other cause whatsoever,
unless resulting from omissions which constitute gross negligence, affirmative
acts which constitute negligence, or willful misconduct of Landlord, or its
employees or agents. The Landlord shall not be liable for any such damage caused
by other tenants or persons in or about the Premises or by occupants of adjacent
property thereto, or the public, or caused by construction or by any private,
public, or quasi-public work. All property of the Tenant kept or stored on the
Premises shall be so kept or stored at the risk of the Tenant only and, provided
that Landlord has not committed omissions which constitute gross negligence,
affirmative acts which constitute negligence, or willful misconduct, the Tenant
releases and agrees to indemnify the Landlord and save it harmless from any
claims or liability arising out of any damage to the same including, without
limitation, any subrogation claims by the Tenant's insurers. Tenant covenants
with Landlord that Tenant shall not bring or abet any claim or action based on
any item for which Tenant has above agreed Landlord shall not be responsible or
liable.
7.5 LANDLORD'S INSURANCE. The Landlord may, but shall not be obligated
to (unless and to the extent Landlord is obligated pursuant to Tenant's exercise
of its option under paragraph (E)
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of Section 7.1), throughout the Term carry: (i) "all risks" insurance on the
Building and the machinery and equipment contained therein or servicing the
Building and owned by the Landlord (excluding any property with respect to which
the Tenant is obliged to insure pursuant to section 7.1); (ii) public liability
and property damage insurance with respect to the Landlord's operations with
respect to the Premises, if any; and (iii) such other forms of insurance as the
Landlord or the Mortgagee reasonably considers advisable, and the costs of such
insurance shall, to the extent it does not duplicate or overlap insurance
carried by Tenant, be part of the Operating Costs. Such insurance shall be in
such reasonable amounts and with such reasonable deductions as would be carried
by a prudent owner of a similar building, having regard to size, age, and
location. Notwithstanding the Landlord's right to obtain any such insurance
pursuant to this section 7.5 and notwithstanding any contribution by the Tenant
to the cost of insurance premiums provided herein, the Tenant acknowledges and
agrees that: (i) the Tenant is not relieved of any liability arising from or
contributed to by its negligence or its willful act or omissions, (ii) no
insurable interest is conferred upon the Tenant under any policies of insurance
carried by the Landlord, and (iii) the Tenant has no right to receive any
proceeds of any such insurance policies carried by the Landlord.
7.6 INDEMNIFICATION OF THE LANDLORD. Notwithstanding any other
provision of this Lease, the Tenant agrees to indemnify the Landlord and hold it
harmless from and against any and all loss (including loss of Minimum Rent and
Additional Rent payable in respect to the Premises) claims, actions, damages,
liability, and expense of any kind whatsoever (including attorney's fees and
costs at all tribunal levels), UNLESS CAUSED BY OMISSIONS WHICH CONSTITUTE GROSS
NEGLIGENCE, AFFIRMATIVE ACTS WHICH CONSTITUTE NEGLIGENCE, OR WILFUL MISCONDUCT
OF LANDLORD OR HIS EMPLOYEES OR AGENTS, arising from any occurrence in, upon, or
at the Premises, or the occupancy, use, or improvement by the Tenant or its
agents or invitees of the Premises or any part thereof, or occasioned wholly or
in part by any act or omission of the Tenant its agents, employees, and invitees
or by anyone permitted to be on the Premises by the Tenant. Landlord may, at its
option and at Tenant's expense, if the indemnity provisions herein are
applicable to Tenant, participate in or assume carriage of all or any part of
any litigation or settlement discussions relating to the foregoing or any other
matter for which Tenant is required to indemnify Landlord hereunder, provided,
however, that in such event, Landlord shall act in a reasonable manner and
Tenant shall only be liable for reasonable expenses.
7.7 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any
and all rights of recovery against the other, or against the officers,
directors, employees, and agents of the other for loss of or damage to such
waiving party or its property or the property of the others under its control,
where such loss or damage is insured against under any insurance policy required
to be carried hereunder or actively in force at the time of such loss or damage.
Landlord and Tenant shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier(s) that the foregoing mutual
waiver of subrogation is contained in this Lease. In the event recognition of
this mutual waiver is not automatically contained in the policy forms, such
policies shall include special endorsements formally waiving subrogation by and
between Landlord and Tenant.
ARTICLE VIII
DAMAGE AND DESTRUCTION
8.1 RENT ABATEMENT. If the Premises (including the Building and any
other improvements thereon) are damaged or destroyed in whole or part by fire or
any other occurrence, this Lease shall continue in full force and effect and
there shall be no abatement, reduction, or diminution of Rent, unless such
damage or destruction is a result of omissions which constitute gross
negligence, affirmative acts which constitute negligence, or willful misconduct
of Landlord or its employees or agents, in which event rent shall abate until
the Premises are repaired and rendered useable.
8.2 DAMAGE TO PREMISES. If the Premises (including the Building and any
other improvements thereon) are at any time destroyed or damaged in whole or in
part as a result of fire or any other casualty then the Tenant shall, at its
expense, diligently repair the Premises to
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the condition existing prior to such casualty, provided, however, that if the
destruction or damage is caused by omissions which constitute gross negligence,
affirmative acts which constitute negligence, or willful misconduct of Landlord,
or its employees or agents, then such repair shall be at Landlord's expense. If
the repair of the Premises is reasonably estimated to take longer than three (3)
months from the date of damage, Tenant shall have the option of terminating this
Lease and be released from its obligation to repair the Premises if, at least 45
days prior to the end of the three (3) month period following the date of
damage, Tenant (i) gives written notice to Landlord of its desire to terminate,
(ii) assigns to Landlord all of Tenant's rights to receive the proceeds of
policies covering the Premises (including the Building and any other
improvements thereon), (iii) pays all Rent due through the end of the said three
month period, and (iv) vacates the Premises.
ARTICLE IX
ASSIGNMENT, SUBLETTING, AND TRANSFERS
9.1 ASSIGNMENTS, SUBLEASES, AND TRANSFERS. The Tenant shall not enter
into, consent to, or permit any Transfer without the prior written consent of
the Landlord in each instance, which consent shall not be unreasonably withheld
or delayed, but shall be subject to the Landlord's rights under sections 9.2 and
9.3. It shall not be considered unreasonable for the Landlord to take into
account whether, in the Landlord's reasonable opinion, the financial background,
business history, and capability of the proposed Transferee is satisfactory.
Consent by the Landlord to any Transfer, if granted, shall not constitute a
waiver of the necessity for such consent to any subsequent Transfer. This
prohibition against Transfer shall include a prohibition against any Transfer by
operation of law. Notwithstanding anything to the contrary contained herein,
Tenant shall have the right to assign this Lease and/or to sublet all or any
portion of the Premises to, and none of the provisions of this Section 9.1 shall
apply to an assignment or subletting to (i) any corporation, entity or person
which controls, is controlled by or is under common control of Tenant or in
which Tenant directly or indirectly owns at least a 50% interest or to (ii) any
corporation, entity or person into which Tenant is merged or which acquires
Tenant or all or substantially all of its assets; provided that any such
transferee has, to Landlord's reasonable satisfaction, the financial wherewithal
to comply with the remaining obligations under this Lease. Tenant shall not be
released from its obligations under this Lease, unless Landlord has so consented
in writing, which consent will not be unreasonably withheld or delayed.
9.2 PRIOR NOTICE TO LANDLORD. If the Tenant intends to effect a
Transfer, the Tenant shall give prior notice to the Landlord of such intent
specifying the identity of the Transferee and providing such financial,
business, or other information relating to the Transfer, the proposed
Transferee, and its principals as the Landlord or any Mortgagee reasonably
requires, together with copies of sufficient documents to reasonably evidence
the particulars of the proposed Transfer, including the total consideration to
be paid by the Transferee. The Landlord shall, within thirty (30) days after
having received such notice and all requested information, notify the Tenant
either that it consents or does not consent to the Transfer in accordance with
the provisions and qualifications of this Article IX. If Landlord fails to so
notify Tenant within such thirty-day period, then Landlord shall be deemed to
have consented to such Transfer.
9.3 CONDITIONS OF TRANSFER.
(A) If there is a permitted Transfer, the Landlord may collect Rent
from the Transferee and apply the net amount collected to the Rent required to
be paid pursuant to this Lease but no acceptance by the Landlord of any payments
by a Transferee shall be deemed a waiver of any provisions hereof regarding
Tenant. Any consent by the Landlord shall be subject to the Tenant and
Transferee executing an agreement with the Landlord agreeing (i) that the
Transferee will be bound by all of the terms of this Lease as if such Transferee
had originally executed this Lease as tenant and (ii) to any other reasonable
conditions imposed by Landlord.
(B) Upon a permitted Transfer, the Tenant shall thereby be released
of all obligations accruing under this Lease after the date of Landlord's
consent to such Transfer.
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(C) The Landlord's consent to any Transfer shall be subject to the
further condition that if the Minimum Rent and Additional Rent pursuant to such
Transfer exceeds the Minimum Rent and Additional Rent payable under this Lease,
the amount of such excess shall be paid to the Landlord. If, pursuant to a
permitted Transfer, the Tenant receives from the Transferee, either directly or
indirectly, any consideration other than Minimum Rent and Additional Rent for
such Transfer, either in the form of cash, goods, or services, the Tenant shall,
upon receipt thereof, pay to the Landlord an amount equivalent to such
consideration. The Tenant and the Transferee shall execute any agreement
reasonably required by the Landlord to effect the foregoing provisions.
(D) Notwithstanding the effective date of any permitted Transfer as
between the Tenant and the Transferee, all Minimum Rent and Additional Rent for
the month in which such effective date occurs shall be paid by the Tenant so
that the Landlord will not be required to accept partial payments of Minimum
Rent and Additional Rent for such month from either the Tenant or Transferee.
(E) Any document evidencing any Transfer permitted by the Landlord,
or setting out any terms applicable to such Transfer or the rights and
obligations of the Tenant or Transferee thereunder, shall be prepared by the
Landlord or its attorneys and all reasonable legal costs with respect thereto
shall be paid by the Tenant.
9.4 CHANGE OF CONTROL. If the Tenant is at any time a corporation,
partnership, trustee, or other entity, any actual or proposed Change of Control
in such corporation, partnership, trust, or other entity shall be deemed to be a
Transfer and subject to all of the provisions of this Article IX. The Tenant
shall make available to the Landlord or its representatives such of its
corporate, partnership, or other such records, as the case may be, as is
reasonably necessary for Landlord to review in order to ascertain whether there
has been any Change of Control of the Tenant.
9.5 NO ADVERTISEMENT. The Tenant shall not advertise the whole or any
part of the Premises for the purposes of a Transfer and shall not permit any
broker or other person to do so unless the complete text and format of any such
advertisement is first approved in writing by the Landlord, which approval shall
not be unreasonably withheld or delayed.
9.6 ASSIGNMENT BY LANDLORD. The Landlord shall have the unrestricted
right to sell, lease, convey, or otherwise dispose of the Premises or any part
thereof and this Lease or any interest of the Landlord in this Lease, provided,
however, that such sale, lease, conveyance or other disposal shall be subject to
the terms of this Lease and the Purchase Option referenced herein. To the extent
that the purchaser or assignee from the Landlord assumes the obligations of the
Landlord under this Lease, the Landlord shall thereupon and without further
agreement be released of all liability under this Lease. Any security deposit or
other security given by Tenant to secure the performance of Tenant's obligations
hereunder shall be assigned or transferred by Landlord to such purchaser or
assignee and, upon receipt of Landlord and delivery to Tenant of written
acknowledgement that the transferee or assignee accepts such deposits under the
terms of this Lease and agrees to abide by the terms of this Lease, Landlord
shall thereby be discharged of any further obligation relating thereto. In the
event of any breach or default by Landlord of any term or provisions of this
Lease, Tenant agrees to look solely to the equity or interest then-owned by
Landlord in the Land and improvements which constitute the Premises, and in no
event shall any deficiency judgment or any money judgment of any kind be sought
or obtained against Landlord.
ARTICLE X
DEFAULT
10.1 DEFAULTS. A default by Tenant shall be deemed to have occurred
hereunder, if and whenever: (i) any Minimum Rent or Operating Costs is not paid
within five (5) business days of when due whether or not notice or demand is
made by Landlord; (ii) any other Additional Rent is in arrears and is not paid
within five (5) days after written demand by the Landlord; (iii) the Tenant has
breached any of its obligations in this Lease (other than the payment of Rent)
and the Tenant fails to remedy such breach within fifteen (15) days (or such
shorter period as may be
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provided in this Lease), or if such breach cannot be remedied within fifteen
(15) days (or such shorter period), then if the Tenant fails to immediately
commence to remedy and thereafter proceed diligently to remedy such breach, in
each case after notice in writing from the Landlord; (iv) an Event of Insolvency
should occur; (v) the Tenant makes a Transfer other than in compliance with the
provisions of this Lease; (vi) the Tenant abandons the Premises or the Premises
become vacant or unoccupied for a period of five (5) consecutive days or more
without the consent of the Landlord; (vii) the Tenant has breached any of its
obligations in this Lease with regard to the maintenance of insurance, and
Tenant fails to remedy such breach within five (5) business days or if any
insurance policy required or permitted to be maintained by Landlord is cancelled
as a result of the acts or omissions of Tenant and Tenant fails to timely
correct such act or omission; or (viii) the business operated by Tenant in the
Premises shall be closed for more than five (5) days by governmental or court
order for any reason including, but not limited to, failure to pay sales tax.
10.2 REMEDIES. In the event of any default hereunder by Tenant, then
without prejudice to any other rights which it has pursuant to this Lease or at
law or in equity, the Landlord shall have the following rights and remedies
which are cumulative and not alternative:
(A) Landlord may cancel this Lease by notice to the Tenant and
retake possession of the Premises for Landlord's account. Tenant shall then quit
and surrender the Premises to Landlord. Tenant's liability under all of the
provisions of this Lease shall continue notwithstanding any expiration and
surrender, or any reentry, repossession, or disposition hereunder.
(B) Landlord may enter the Premises as agent of the Tenant to take
possession of any property of the Tenant on the Premises, to store such property
at the expense and risk of the Tenant or to sell or otherwise dispose of such
property in such manner as the Landlord may see fit without notice to Tenant.
Reentry and removal may be effectuated by any suitable action or proceeding, or
otherwise, all as permitted by law. Landlord shall not be liable in any way in
connection with its actions pursuant to this section, to the extent that its
actions are in accordance with law.
(C) If this Lease is cancelled under subsection (A) above, Tenant
shall remain liable (in addition to accrued liabilities) to the extent legally
permissible for all Rent and all of the charges Tenant would have been required
to pay until the date this Lease would have expired had such cancellation not
occurred. Tenant's liability for Rent shall continue notwithstanding reentry or
repossession of the Premises by Landlord. Tenant's liability for Rent shall be
in amounts equal to the Agreed Current Damages. At the end of each month, Tenant
shall pay Agreed Current Damages for that month. Any suit brought by Landlord to
enforce collection of Agreed Current Damages for any one (1) month shall not
prejudice Landlord's right to enforce the collection of Agreed Current Damages
for any subsequent month. In addition to the foregoing, Tenant shall pay to
Landlord such sums as the court which has jurisdiction thereover may adjudge as
reasonable attorneys' fees with respect to any successful lawsuit or action
instituted by Landlord to enforce the provisions of this Lease.
(D) Landlord may relet all or any part of the Premises for all or
any part of the unexpired portion of the Term of this Lease or for any longer
period, and may accept any Rent then attainable; grant any concessions of Rent,
and agree to paint or make any special repairs, alterations, and decorations for
any new tenant as it may reasonably deem advisable in its sole and absolute
discretion. Landlord shall make a good faith effort to relet the Premises and to
mitigate its damages.
(E) If this Lease is cancelled in accordance with subsection (A)
above, and Landlord so elects, the Rent hereunder shall be accelerated and
Tenant shall pay Landlord liquidated damages in the amount of Agreed Final
Damages.
(F) Landlord may remedy or attempt to remedy any default of the
Tenant under this Lease for the account of the Tenant and, after expiration of
the applicable grace period, if any, may enter upon the Premises for such
purposes. No notice of the Landlord's intention to perform such covenants need
be given the Tenant unless expressly required by this Lease. The
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Landlord shall not be liable to the Tenant for any loss or damage caused by
non-negligent acts of the Landlord in remedying or attempting to remedy such
default and the Tenant shall pay to the Landlord all expenses reasonably
incurred by the Landlord in connection with remedying or attempting to remedy
such default. Any expenses properly incurred by Landlord shall accrue interest
from the date of submission of all bills and invoices therefor to Tenant at the
highest rate permitted by law.
10.3 COSTS. The Tenant shall pay to the Landlord on demand all
reasonable costs incurred by the Landlord, including reasonable attorneys' fees
and costs at all tribunal levels, incurred by the Landlord in enforcing any of
the obligations of the Tenant under this Lease.
10.4 ALLOCATION OF PAYMENTS. The Landlord may at its option apply any
sums received from the Tenant against any amounts due and payable by the Tenant
under this Lease in such manner as the Landlord sees fit and regardless of the
express purpose for which the tender was made and regardless of any endorsement
placed on the check by which payment is made.
10.5 ADDITIONAL REMEDIES, WAIVER, ETC.
(A) The rights and remedies of Landlord set forth herein shall be
in addition to any other right and remedy now and hereinafter provided by law.
All rights and remedies shall be cumulative and non-exclusive of each other.
Landlord may exercise its rights and remedies at any times, in any order, to any
extent, and as often as Landlord deems it advisable without regard to whether
the exercise of any one right or remedy, precedes, concurs with, or succeeds the
exercise of another.
(B) A single or partial exercise of a right or remedy shall not
preclude a further exercise thereof, or the exercise of another right or remedy
from time to time.
(C) No delay or omission by Landlord in exercising a right or
remedy shall exhaust or impair the same or constitute a waiver of, or
acquiescence to, a default.
(D) No waiver of a default shall extend to or effect any other
default or impair any right or remedy with respect thereto.
10.6 DEFAULT BY LANDLORD. In the event of any default by Landlord which
does not render the Premises unuseable by Tenant or does not prevent Tenant from
substantially carrying on its business operation, Tenant's exclusive remedy
shall be an action for damages, but prior to any such action Tenant will give
Landlord written notice specifying such default with particularity, and Landlord
shall have a period of thirty (30) days following the date of such notice in
which to commence the appropriate cure of such default. Unless and until
Landlord fails to commence and diligently pursue the appropriate cure of such
default after such notice or complete same within a reasonable period of time,
Tenant shall not have any remedy or cause of action by reason thereof. If any
default by Landlord results in the Premises being unuseable or prevents Tenant
from substantially carrying on its business operation, then for such time,
Tenant shall have the remedy of an action for damages or injunctive relief.
ARTICLE XI
ATTORNMENT AND SUBORDINATION
11.1 ESTOPPEL CERTIFICATE. Within ten (10) days after written request
by the Landlord, the Tenant shall deliver in a form supplied by the Landlord, an
estoppel certificate to the Landlord as to the status of this Lease, including
whether this Lease is unmodified and in full force and effect (or, if there have
bean modifications, that this Lease is in full force and effect as modified and
identifying the modification agreements); the amount of Minimum Rent and
Additional Rent then being paid and the dates to which same have been paid;
whether or not there is any existing or alleged default by either party with
respect to which a notice of default has been served and if there is any such
default, specifying the nature and extent thereof, and any other reasonable
matters pertaining to this Lease as to which the Landlord shall request such
certificate.
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11.2 SUBORDINATION. Subject to the provisions of Section 11.3 herein,
this Lease and all rights of the Tenant shall be subject and subordinate to any
and all Mortgages from time to time in existence against the Premises, whether
now existing or hereafter created. On request the Tenant shall further evidence
its agreement to subordinate this Lease and its rights under this Lease to any
and all Mortgages and to all advances made under such Mortgages. The form of
such subordination shall be made as reasonably required by the Landlord or any
Mortgagee.
11.3 NON-DISTURBANCE. Landlord agrees that it shall obtain and deliver
to Tenant, as to any existing Mortgage and as to any future Mortgages, including
any renewals, modifications, consolidations, extensions, or replacements
thereof, a written nondisturbance agreement from the Mortgagee, providing in
substance that provided no default, or event which, with the passing of time or
giving of notice would constitute a default, exists under this Lease, its
possession of the Premises will not be disturbed during the term hereof, and
further, that in the event of any foreclosure of any such mortgage, Tenant will
not be named as a party defendant.
11.4 ATTORNMENT. The Tenant shall promptly on request attorn to any
Mortgagee, or to the future owner(s) of the Premises, or the purchaser at any
foreclosure or sale under proceedings taken under any Mortgage, and shall
recognize such Mortgagee, owner, or purchaser as the Landlord under this Lease.
ARTICLE XII
CONDEMNATION
12.1 TOTAL TAKING. If the whole of the Premises shall be taken by any
public authority under the power of eminent domain or sold to public authority
under threat or in lieu of such taking, the Term shall cease as of the day
possession or title shall be taken by such public authority, whichever is
earlier ("Taking Date"), whereupon the Rent shall be paid up to the Taking Date
with a proportionate refund by Landlord of any Rent paid for a period subsequent
to the Taking Date.
12.2 PARTIAL TAKING. If less than the whole of the Premises shall be so
taken and such taking does not have a substantial adverse affect on Tenant's
business operation or Tenant's use of the Premises, then the Term shall cease
only as to the part so taken as of the Taking Date, and Tenant shall pay Rent
and other charges up to the Taking Date, with appropriate credit by Landlord
(toward the next installment of Rent due from Tenant) of any Rent or charges
paid for a period subsequent to the Taking Date. Tenant agrees, in such event,
to make reasonable repairs and/or alterations to the remaining Premises to
restore it to the condition existing prior to such taking. Minimum Rent and
other charges payable to Landlord shall be reduced in proportion to the amount
of the Premises taken. If less than the whole of the Premises is taken and such
taking has a substantial adverse effect on Tenant's business operation or upon
Tenant's use of the Premises, then Tenant shall have the right to have the Term
cease (i) as of the day possession or title shall be taken by such public
authority, whichever is earlier; or (ii) on the first day of any succeeding
month thereafter, upon not less than sixty (60) days prior written notice to
Landlord.
12.3 TAKING FOR TEMPORARY USE. If there is a taking of the Premises for
temporary use, which does not substantially and adversely affect Tenant's
business operation or Tenant's use of the Premises, then this Lease shall
continue in full force and effect, and Tenant shall continue to comply with
Tenant's obligations under this Lease, except to the extent compliance shall be
rendered impossible or impracticable by reason of the taking. If such temporary
taking does substantially and adversely affect Tenant's business operation or
Tenant's use of the Premises, then rent due under this Lease shall abate until
such situation is corrected.
12.4 AWARD. In the event of any taking, whether whole or partial,
Landlord and Tenant shall each be entitled to receive and retain such separate
awards and portions of lump sum awards as may be allocated to their respective
interests in any condemnation proceedings, or as may be otherwise agreed; except
that if the Premises shall be restored as herein provided, Tenant shall first be
entitled to recover the costs and expenses incurred in such restoration out of
any
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such award, and the balance shall be allocated as aforesaid. Termination of
this Lease shall not affect the right of the respective parties to such awards.
ARTICLE XIII
GENERAL PROVISIONS
13.1 RULES AND REGULATIONS. The Tenant shall comply with all Rules and
Regulations, as set out in Schedule "B," and such additional reasonable Rules
and Regulations adopted by Landlord from time to time, which do not unreasonably
interfere with Tenant's use of the Premises, and so long as such Rules and
Regulations are not inconsistent with and do not contradict this Lease. Defined
terms in the Rules and Regulations shall have the meanings set forth in this
Lease.
13.2 DELAY. Except as expressly provided in this Lease, whenever the
Landlord or Tenant is delayed in the fulfillment of any obligation under this
Lease, other than the payment of Rent, by an unavoidable occurrence which is not
the fault of the party delayed in performing such obligation, then the time for
fulfillment of such obligation shall be extended during the period in which such
circumstances operate to delay the fulfillment of such obligation.
13.3 HOLDING OVER. If the Tenant remains in possession of the Premises
after the end of the Term with the consent of the Landlord but without having
executed and delivered a new lease or an agreement extending the Term, there
shall be no tacit renewal of this Lease or the Term, and the Tenant shall be
deemed to be occupying the Premises as a Tenant from month to month at a monthly
Minimum Rent payable in advance on the first day of each month equal to twice
the monthly amount of Minimum Rent payable during the last month of the Term,
and otherwise upon the same terms as are set forth in this Lease, so far as they
are applicable to a monthly tenancy.
13.4 WAIVER. If either the Landlord or Tenant excuses or condones any
default by the other of any obligation under this Lease, this shall not be a
waiver of such obligation in respect of any continuing or subsequent default and
no such waiver shall be implied.
13.5 RECORD. Neither the Tenant nor anyone claiming under the Tenant
shall record this Lease or any memorandum hereof in any public records without
the prior written consent of the Landlord, except that Landlord and Tenant agree
that a Memorandum of Lease, in the form as provided in Schedule D hereto shall
be executed by Landlord and Tenant and recorded at Tenant's expense after the
date of execution of this Lease.
13.6 NOTICES. Any notice, consent, or other instrument required or
permitted to be given under this Lease shall be in writing and shall be
delivered in person or sent by certified mail, return receipt requested, or
Federal Express, postage prepaid, addressed (i) if to Landlord, at the addresses
set forth on the Lease Summary; and (ii) if to the Tenant, at the Premises or,
prior to Tenant's occupancy of the Premises, at the address set forth on the
Lease Summary. Any such notice or other instruments shall be deemed to have been
given and received on the day upon which personal delivery is made or, if
mailed, then after two (2) business days following the date of mailing. Either
party may give notice to the other of any change of address and after the giving
of such notice, the address therein specified is deemed to be the address of
such party for the giving of notices. If postal service is interrupted or
substantially delayed, all notices or other instruments shall be delivered in
person or by Federal Express.
13.7 SUCCESSORS. The rights and liabilities created by this Lease
extend to and bind the successors and assigns of the Landlord and the heirs,
executors, administrators, and permitted successors and assigns of the Tenant.
No rights, however, shall inure to the benefit of any Transferee unless such
Transferee complies with the provisions of Article IX.
13.8 JOINT AND SEVERAL LIABILITY. If there is at any time more than one
Tenant or more than one person constituting the Tenant, than covenants shall be
considered to be joint and several and shall apply to each and every one of
them.
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13.9 CAPTIONS AND SECTION NUMBERS. The captions, section numbers,
article numbers, and table of contents appearing in this Lease are inserted only
as a matter of convenience and in no way affect the substance of this Lease.
13.10 EXTENDED MEANINGS. The words "hereof," "hereto," "hereunder," and
similar expressions used in this Lease relate to the whole of this Lease and not
only to the provisions in which such expressions appear. This Lease shall be
read with all changes in number and gender as may be appropriate or required by
the context. Any reference to the Tenant includes, when the context allows, the
employees, agents, invitees, and licensees of the Tenant and all others over
whom the Tenant might reasonably be expected to exercise control. This Lease has
been fully reviewed and negotiated by each party and their counsel and shall not
be more strictly construed against either party.
13.11 PARTIAL INVALIDITY. All of the provisions of this Lease are to be
construed as covenants even though not expressed as such. If any such provision
is held or rendered illegal or unenforceable it shall be considered separate and
severable from this Lease and the remaining Provisions of this Lease shall
remain in force and bind the parties as though the illegal or unenforceable
provision had never been included in this Lease.
13.12 RADON GAS. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
your county public health unit.
13.13 ENTIRE AGREEMENT. This Lease and the Schedules and Riders, if
any, attached hereto are incorporated herein and set forth the entire agreement
between the Landlord and Tenant concerning the Premises and there are no other
agreements or understandings between them. This Lease and its Schedules and
Riders may not be modified except by agreement in writing executed by the
Landlord and Tenant.
13.14 GOVERNING LAW. This Lease shall be construed in accordance with
and governed by the laws of the State of Florida.
13.15 TIME. Time is of the essence of this Lease. Any time period
herein specified of five (5) days or less shall mean business days; any period
in excess of five (5) days shall mean calendar days.
13.16 NO PARTNERSHIP. Nothing in this Lease creates any relationship
between the parties other than that of lessor and lessee and nothing in this
Lease constitutes the Landlord a partner of the Tenant or a joint venturer or
member of a common enterprise with the Tenant.
13.17 QUIET ENJOYMENT. If the Tenant pays Rent and fully observes and
performs all of its obligations under this Lease, the Tenant shall be entitled
to peaceful and quiet enjoyment of the Premises for the Term without
interruption or interference by the Landlord or any person claiming through the
Landlord.
13.18 TRIAL BY JURY. Landlord and Tenant hereby waive their right to a
jury trial of any issue or controversy arising under this Lease.
13.19 LEASE BROKERAGE. Landlord and Tenant each represent and warrant
one to the other that except as may be hereinafter set forth, neither of them
has employed any broker in connection with the negotiations of the terms of this
Lease or the execution thereof. Landlord and Tenant hereby agree to indemnify
and to hold each other harmless against any loss, expense, or liability with
respect to any claims for commissions or brokerage fees arising from or out of
any breach of the foregoing representation and warranty. Landlord recognizes
Bush Klein Realty, Inc. and Hopkins-Easton and Associates as the sole brokers
with whom Landlord has dealt in this transaction and agrees to pay any
commissions determined to be due said brokers.
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13.20 FUTURE RESTRICTIONS. Tenant hereby agrees to be bound by the
provisions of any conditions, covenants, easements, restrictions, and the like
promulgated by Landlord from time to time with respect to the Premises, which do
not adversely affect Tenant's rights under this Lease or Tenant's ability to
operate its business.
EXECUTED as of the day and year first above written.
Witnesses: LANDLORD:
Ben Quevedo No. 1, Ltd., a Florida limited
partnership
/s/ By: Ben Quevedo, Inc., a Florida corporation
- -----------------------------
/s/ By: /s/ BENITO QUEVEDO
- ----------------------------- -------------------------------------
BENITO QUEVEDO, President
TENANT:
Caribe Aviation, Inc., a Florida
corporation
/s/ By: /s/ JOSEPH CIVILETTO
- ---------------------------- --------------------------------------
JOSEPH CIVILETTO
/s/ Vice President
- ----------------------------
26
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") dated January 1, 1999, is
entered into by and between Dale S. Baker ("Employee") and Aviation Sales
Company, a Delaware corporation ("ASC").
PRELIMINARY STATEMENTS
A. ASC desires to employ the Employee on the terms set forth in this
Agreement.
B. The Employee desires to serve ASC as an employee on the terms set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT. ASC hereby agrees to employ Employee on the terms and
conditions set forth below commencing on the date hereof and Employee hereby
accepts such employment effective on such date. Subject to the terms and
conditions set forth herein and unless sooner terminated as hereinafter
provided, ASC shall employ Employee and Employee agrees to serve as an employee
of ASC from the date hereof to and including the third anniversary of the date
of this Agreement (the "Employment Term"). For purposes of this Agreement, the
Employment Term and any renewal term thereof are collectively referred to herein
as the "Term."
2. POSITION. During the Term, Employee shall perform all duties and
services incident to such position and such other duties and services of an
executive nature as may from time to time be assigned to him by the Board of
Directors of ASC (the "Board"), including without limitation services as an
officer or other executive of any Affiliate (as defined in Section 9 below) of
ASC. Employee shall be subject to the control and direction of the Board.
3. LOYALTY. Employee agrees that during the Term, he will devote his full
time and attention during regular business hours to the business and affairs of
ASC and its Affiliates (as defined herein) and will not, without the prior
permission of the Board, engage in any other business enterprise which requires
the personal time or attention of Employee. The foregoing shall not prevent (a)
the purchase, ownership or sale by Employee of investments or securities of any
business which is not competitive and does not have any business relations with
ASC or any of its Affiliates; and (b) the passive ownership of up to one percent
(1%) of the issued capital stock of any publicly traded company by itself,
whether such company is a competitor of ASC or not; provided the time or
attention devoted to each of such activities listed in subparagraphs (a) and (b)
above does not materially interfere with the performance of his duties
hereunder. Employee further agrees that during the Term, he will accept such
directorships, executive offices and committee memberships
<PAGE>
in ASC and its Affiliates to which he may from time to time be elected and will
perform and render the duties and the services incidental thereto.
4. COMPENSATION. For the full, prompt and faithful performance of all of
the duties and services to be performed by Employee hereunder during the
Employment Term, ASC agrees to pay, and Employee agrees to accept, the amounts
set forth below:
(a) BASE SALARY. As compensation for all services rendered by
Employee in performance of his duties or obligations under this Agreement,
Employer shall pay Employee an annual base salary of Five-Hundred and Fifty
Thousand dollars ($550,000) (the "Base Salary"), payable in equal semi-monthly
installments or in the manner and on the timetable which Employer's payroll is
customarily handled or at such intervals as Employer and Employee may hereafter
agree to from time to time. Employer and Employee agree that the Base Salary
shall be adjusted annually on January 1 of each year, commencing January 1,
2000, to reflect the increase, if any, in the cost of living. The adjustment
shall be made by adding to such Base Salary an amount obtained by multiplying
the Base Salary by the percentage by which the level of the Consumer Price Index
for the Miami, Florida Metropolitan Area as of the last day of the preceding
calendar year by the Bureau of Labor Statistics of the United States Department
of Labor, has increased over its level as of the Effective Date of this
Agreement. Following the end of each calendar year during the Term, and within
thirty (30) days after the release by the Bureau of Labor Statistics of the
figures for the preceding year, Employer shall pay to Employee the amount of
additional compensation to which he is entitled on account of the cost-of-living
adjustment made to the Employee's salary. In no event shall the Base Salary ever
be decreased as a result of a decrease in the cost-of-living.
(b) BENEFIT PLANS. In addition to receiving the Base Salary
provided for in Section 4(a), Employee shall be entitled during the Term, upon
satisfaction of all eligibility requirements, if any, to participate in all
health, dental, disability, life insurance and other benefit programs now or
hereafter established by Employer which cover substantially all other of
Employer's employees and shall receive such other benefits as may be approved
from time to time by Employer.
(c) VACATION. Employee shall be entitled to receive three (3)
weeks of paid vacation for each year during the Term and shall be entitled to
receive paid holidays as enjoyed by all other employees of ASC.
(d) EXPENSES. ASC agrees to reimburse Employee for all reasonable
expenses incurred by him in providing services under this Agreement in
accordance with its policies and practices regarding expense reimbursement then
in effect.
(e) AUTOMOBILE ALLOWANCE. Employee shall be entitled to receive an
automobile allowance of $750 per month, payable on the first day of each month
during the Term. Employee shall be responsible for paying all costs related to
ownership of his vehicle, including maintenance and repairs, insurance and fuel.
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(f) EBITDA INCENTIVE COMPENSATION PLAN. Employee shall be
entitled to participate in ASC's 1999 EBITDA Plan, as described in that certain
document entitled "AVIATION SALES COMPANY 1999 EBITDA PLAN," as amended from
time to time, whereby Employee shall have the opportunity to earn an incentive
bonus of up to 125% of his Base Salary.
(g) STOCK OPTIONS. Employee shall receive stock option grants for
shares of ASC's common stock in an amount equal to 350,000 shares, such grant to
be effective on the date hereof at a price equal to the closing price of a share
of ASC's stock on the New York Stock Exchange on the last trading day before the
effective date of grant. Such options shall vest over a three-year period, with
one-third of such options vesting on the first, second and third anniversaries
of this Agreement. Employee may receive such additional stock option grants as
are determined by the Compensation Committee of the Board, in accordance with
its policies regarding stock option grants to executive employees generally.
(h) CLUB MEMBERSHIP. ASC will provide Employee with a corporate
membership to a country club mutually acceptable to Employee and to ASC,
including initiation fees and monthly dues.
(i) LIFE INSURANCE. ASC shall pay the sum of $5,000 per year for
insurance premiums to maintain a whole life insurance policy insuring the life
of Employee currently maintained by Employee through Northwestern Mutual Life
Insurance Company. Employee shall retain ownership of the foregoing policy and
any cash value relating thereto.
5. TERMINATION FOR DEATH, DISABILITY OR CAUSE. ASC may terminate this
Agreement, the remainder of the Term and Employee's employment hereunder as
follows:
(a) DEATH. In the event of the death of Employee, this Agreement
shall automatically terminate as of the date of death, and ASC's sole obligation
will be to pay to Employee's estate the sum of (i) one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
Employee's death, plus (ii) the product of the incentive bonus, if any, which
would have been earned by the Employee for the year during which the Employee
dies pursuant to the incentive plan referred to section 4(f) of this Agreement
if the Employee had rendered services pursuant to this Agreement for the entire
year, multiplied by a fraction, the numerator of which is the number of days
elapsed between (and including) the first day of such year and the last date on
which the Employee rendered services pursuant to this Agreement, and the
denominator of which is the total number of days during such year. The payment
of the Base Salary pursuant to clause (i) above shall be made by ASC either in a
lump sum, or in a series of payments in accordance with ASC's payroll practices;
the payment of the incentive bonus pursuant to clause (ii) above shall be made
at such time as such bonus would have been paid had Employee survived in
accordance with ASC's payroll practices (or an earlier date, as determined in
the sole discretion of the Board).
3
<PAGE>
(b) DISABILITY. In the event that Employee shall, because of
physical or mental illness or incapacity, be unable to perform the duties and
services to be performed by him under this Agreement for a consecutive period of
three months or such shorter periods aggregating three months in any 12-month
period ("Disability"), ASC shall not be obligated to pay to Employee any
compensation or benefits beyond the date of Disability and may, in its sole
discretion, terminate this Agreement without any further obligation; provided,
however, that in the case of a termination of this Agreement by ASC on account
of Disability, ASC will be obligated to pay to Employee one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
Employee's termination under this paragraph. The payment of such Base Salary
shall be made by ASC either in a lump sum, or in a series of payments in
accordance with ASC's payroll practices.
(c) TERMINATION FOR CAUSE. ASC may terminate Employee's employment
at any time for Cause. In the event ASC elects to terminate Employee's
employment for Cause, ASC will pay Employee only his then current Base Salary
then unpaid, computed to the last day worked. "Cause" shall mean any of the
following: (i) any embezzlement or wrongful diversion of funds of ASC or any
affiliate of Company by Employee; (ii) gross malfeasance by Employee in the
conduct of his duties; (iii) material breach of Sections 8, 9 or 10 of this
Agreement; and (iv) gross neglect by Employee in carrying out his duties.
(d) OTHER TERMINATION. In the event ASC terminates Employee for
reasons other than death, Disability or Cause, and such termination is not
related to a Change in Control (as defined below), ASC shall pay Employee an
aggregate amount equal to two full year's Base Salary as in effect at such time.
ASC shall pay such amount in 12 equal monthly installments beginning on the
first day of the calendar month immediately after the date of such termination
and on the first day of each of the next eleven calendar months thereafter.
6. VOLUNTARY TERMINATION BY EMPLOYEE. Employee may voluntarily terminate
his employment hereunder (i) during the 12 month period commencing on the date
on which a Change in Control (as defined below) occurs, or (ii) for Good Reason
(as defined below). Except as provided in the preceding sentence, Employee may
not voluntarily terminate his employment hereunder during the Term.
7. TERMINATION RELATING TO A CHANGE IN CONTROL AND FOR GOOD REASON. If
(i) Employee's employment is terminated by ASC within 12 months after a Change
in Control (as defined below), (ii) Employee terminates his employment within 12
months after a Change in Control, in his sole discretion, or (iii) Employee
terminates his employment for Good Reason (as defined below), ASC shall pay
Employee the Special Termination Payment (as defined below).
(a) TERMINATION FOR GOOD REASON. Termination by Employee of his
employment for "Good Reason" shall mean a termination by Employee (i) upon a
significant demotion or material adverse change in his duties and
responsibilities; or (ii) a material breach or violation by ASC of any provision
of this Agreement after Employee has given ASC at least thirty (30) days prior
written
4
<PAGE>
notice together with an opportunity to cure said breach or violation during such
thirty (30) day period.
(b) CHANGE IN CONTROL. For purposes of this Agreement, a "Change
in Control" shall mean the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the securities Exchange Act of
1934, as amended (the "Exchange Act")) (collectively, a "person") of
Beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of twenty (20%) percent
or more of the then outstanding shares of common stock of ASC
(collectively, the "Outstanding Common Stock"); provided, however, that
the following shall not constitute a Change of Control:
(A) Any acquisition directly from ASC (excluding an
acquisition by virtue of the exercise of a conversion privilege);
(B) Any acquisition by an Underwriter (as such term is
defined in Section 2(11) of the Securities Act of 1933, as
amended) for the purpose of making a public offering;
(C) Any acquisition by ASC, whether or not the threshold
set forth above is exceeded in such acquisition; or
(D) Any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by ASC or any corporation
controlled by ASC;
(ii) The liquidation of all or substantially all of the assets of
ASC where this Agreement is not assumed by a successor or assign of the
foregoing; or
(iii) If within two (2) years after:
(A) The completion of a tender offer or exchange offer
for the voting stock of ASC (other than a tender offer or exchange
offer by ASC) or a proxy contest in connection with the election
of members of the Board;
(B) A merger, consolidation, transfer or sale of twenty
percent (20%) of the book value of the gross assets of ASC
measured at the time of such merger, consolidation, transfer or
sale in one (1) or more transactions;
(C) The acquisition by any person, directly or
indirectly, of the Beneficial Ownership of securities of ASC
representing twenty percent (20%) of the Outstanding Common Stock;
or
5
<PAGE>
(D) Any combination of the foregoing;
A majority of the Board shall not consist
of:
(I) Persons who were directors of ASC on
the date hereof; or
(II) Persons who were elected or nominated
for election as directors with the approval of a
majority of the persons referred to in paragraph
7(b)(iii)(D)(I) above or persons theretofore elected in
accordance with this paragraph 7(b)(iii)(D)(II).
(c) SPECIAL TERMINATION PAYMENT. The "Special Termination Payment"
shall mean an aggregate amount equal to two full year's Base Salary as in effect
at the time of the termination giving rise to the Special Termination Payment.
ASC shall pay such amount in 12 equal monthly installments beginning on the
first day of the calendar month immediately after the date of such termination
and on the first day of each of the next eleven calendar months thereafter.
(d) NO MITIGATION. Employee shall not be required to mitigate the
amount of any payment contemplated by this Section 7 (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(e) EQUALIZATION PAYMENT. If any of the Special Termination
Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax
that may hereafter be imposed), ASC shall pay to the Employee in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee after deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Special Termination Payment and any federal, state
and local income tax and Excise Tax imposed upon the Gross-Up Payment shall be
equal to the original amount of the Special Termination Payment, prior to
deduction of any Excise Tax imposed with respect to the Special Termination
Payment. Nothing in this Agreement shall be construed as requiring ASC to
include in the Gross-Up Payment any amount relating to any federal income or
other taxes on the Special Termination Payment (other than Excise Taxes)
provided for under this Agreement, other than federal income or other taxes on
any Gross-Up Payment. The Gross-Up Payment shall be paid to the Employee at such
times as the Special Termination Payment is paid to the Employee, in the same
proportions as any partial payments of the Special Termination Payment bear to
the total Special Termination Payment.
(f) TAX COMPUTATION. For purposes of determining whether any of
the Special Termination Payment will be subject to the Excise Tax and the
amounts of such Excise Tax:
(i) Any payments or benefits received or to be received by the
Employee as a result of a Change in Control of ASC shall be treated as
"parachute payments" within the meaning of
6
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Section 280G(b)(2) of the Code, except to the extent that, in the opinion of
ASC's tax counsel, such payments or benefits do not constitute parachute
payments, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the excise tax, except to the extent
that, in the opinion of ASC's tax counsel, such excess parachute payments are
not subject to the Excise Tax;
(ii) The value of any noncash benefits or any deferred payment or
benefit shall be determined by ASC's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code; and
(iii) For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Employee's residence
on the date of termination, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes.
(g) SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service imposes an Excise Tax with respect to the Special Termination Payment
that is greater than the Excise Tax calculated hereunder, ASC shall reimburse
the Employee for the full amount necessary to make the Employee whole in
accordance with the principles set forth above, plus an appropriate market rate
of interest, as determined by ASC's independent auditors.
8. NON-SOLICITATION. Employee agrees that during the Term and for a
period of 12 months after the termination of Employee's employment with ASC, he
will not, directly or indirectly:
(i) Employ, hire, engage or be associated with any employee or
other person then or during any part of the preceding 12 months connected
with ASC or any of its Affiliates;
(ii) Induce any person connected with or employed by ASC or any of
its Affiliates to leave the employ of such entities; or
(iii) Solicit the employment of any such person on his own behalf
or on behalf of any other business enterprise.
The provisions of this Section shall survive the termination or
expiration of this Agreement.
9. NON-COMPETITION. In consideration of ASC entering into this Agreement,
including, without limitation, the provisions relating to Special Termination
Payments contained in Sections 5(d) and 7(c) hereof, Employee agrees that from
and after the date hereof and continuing for the lesser of (i) the longest
period of time permitted by applicable law, or (ii) 12 months after
7
<PAGE>
termination of Employee's employment with ASC for any reason whatsoever
(other than termination by reason of the expiration of the Term) (the
"Restrictive Period"), Employee shall not do any one or more of the following,
directly or indirectly:
(A) anywhere in the United States, its territories or
possessions or any other country in the world where ASC or its
Affiliates has sold products or performed services within the 12
month period prior to the date hereof, engage or participate in,
or assist, advise or be connected with (including as an owner,
partner, shareholder, consultant, director, officer or employee or
(without limitation by the specific enumeration of the foregoing)
otherwise) any person, entity or business enterprise involved in a
business that is competitive with any business of ASC or its
Affiliates; provided, however, that the ownership of up to one
percent (1%) of the issued capital stock of any publicly traded
company by itself shall not constitute a violation of any
provision of this Section 11; or
(B) solicit, attempt to solicit or aid in the
solicitation of any customer of ASC or its Affiliates which has
been a customer of ASC or its Affiliates during the Restrictive
Period or within the 12 month period prior to the date hereof, to
purchase from any source other than ASC or its Affiliates any
product or service which could be supplied or performed, as the
case may be, by ASC or any of its Affiliates.
As used in this Agreement, an "Affiliate" shall mean and include any person or
entity which controls a party, which such party controls or which is under
common control with such party. "Control" means the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise. The provisions of this
Section shall survive the termination of this Agreement.
Additionally, ASC, at its option, may require that the Employee,
directly or indirectly, not compete with ASC in the manner set forth in
Subsections 9(A) and 9(B) above for six months after the end of the Term by
written notice to Employee (given at least six months prior to the end of the
Term) of its intent to exercise this right and by paying Employee a special
termination payment equal to one year's Base Salary as in effect during the last
year of the Term, which special termination payment shall be paid in a lump sum
on the last day of the Term.
10. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that
various kinds of confidential and proprietary information and trade secrets,
including but not limited to ASC's and its Affiliate's sales, marketing and
operating methods and lists of ASC's and its Affiliate's customers and vendors,
as they may exist from time to time, are valuable, special and unique assets of
ASC's and its Affiliates respective businesses. Employee will not, during or
after his employment, except in accordance with his employment by ASC, disclose
or cause or permit to be disclosed any confidential or proprietary information
or trade secrets of ASC or its Affiliates to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever without the
prior written consent of ASC or as otherwise be required by law or legal
process. The provisions of this section shall survive the termination and
expiration of this Agreement.
11. REMEDIES. In the event that Employee shall violate any provision of
Sections 8, 9 or 10 above, then Employee hereby agrees that ASC shall be
entitled to a temporary or permanent injunction against him by any court of
competent jurisdiction prohibiting him from violating such provision. In any
proceeding for an injunction and upon any motion for a temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or interposed as a defense to the granting of such temporary or permanent
injunction against Employee. Employee
8
<PAGE>
further agrees that ASC will not have an adequate remedy at law in the event of
any breach by Employee hereunder and that ASC will suffer irreparable damage and
injury if Employee breaches any of the provisions of Sections 8, 9 or 10 above.
The provisions of this Section shall survive the termination or expiration of
this Agreement.
12. NOTICES. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
received at the address specified herein. In the case of Employee, notices shall
be delivered to him at the home address which he has most recently communicated
to ASC in writing. In the case of ASC, notices shall be delivered to ASC's
corporate headquarters, and all notices shall be directed to the attention of
ASC's Chief Executive Officer, with a copy to ASC's General Counsel.
13. MODIFICATION AND WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by Employee and by an authorized officer of ASC
(other than Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
14. COMPLETE AGREEMENT. This Agreement supersedes all previous agreements
entered into by Employee and ASC. No agreements, representations or
understandings (whether oral or written and whether expressed or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
15. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
16. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with and subject to, the laws of the State of Florida
applicable to Agreements made and to be performed entirely within such State, as
to all matters governed by state law or, if controlling, by applicable federal
law.
17. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
18. LITIGATION; VENUE. Any action at law or in equity under this
Agreement shall be brought in the courts of Dade or Broward County, Florida, and
in no other court (whether or not jurisdiction can be established in another
court). Each party hereto waives the right to argue that venue is not
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appropriate in the courts of Dade or Broward County, Florida. THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A
TRIAL BY JURY, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING
INTO THIS AGREEMENT.
19. WITHHOLDING. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes, unless specifically set forth herein
to the contrary.
20. COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
21. TERMINATION OF PREVIOUS EMPLOYMENT AGREEMENT. Upon the effectiveness
of this Agreement, the current employment agreement between Employee and a
subsidiary of the Company shall terminate and shall be of no further force and
effect.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
AVIATION SALES COMPANY
By: _______________________________ _______________________________
Title: _____________________________ DALE S. BAKER
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated January 1, 1999, is
entered into by and between James D. Innella ("Employee") and Aviation Sales
Company, a Delaware corporation ("ASC").
PRELIMINARY STATEMENTS
A. ASC desires to employ the Employee on the terms set forth in this
Agreement.
B. The Employee desires to serve ASC as an employee on the terms set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT. ASC hereby agrees to employ Employee on the terms and
conditions set forth below commencing on the date hereof and Employee hereby
accepts such employment effective on such date. Subject to the terms and
conditions set forth herein and unless sooner terminated as hereinafter
provided, ASC shall employ Employee and Employee agrees to serve as an employee
of ASC for a four year period, from the date hereof to and including the fourth
anniversary of the date of this Agreement (the "Employment Term"). For purposes
of this Agreement, the Employment Term is collectively referred to herein as the
"Term."
2. POSITION. During the Term, Employee shall perform all duties and
services incident to such position and such other duties and services of an
executive nature as may from time to time be assigned to him by the Board of
Directors of ASC (the "Board") or by the Chief Executive Officer of ASC (the
"CEO"), including without limitation services as an officer or other executive
of any subsidiary or Affiliate (as defined in Section 9 below) of ASC. Employee
shall be subject to the control and direction of the Board and the CEO.
3. LOYALTY. Employee agrees that during the Term, he will devote his full
time and attention during regular business hours to the business and affairs of
ASC and its Affiliates (as defined herein) and will not, without the prior
permission of the Board, engage in any other business enterprise which requires
the personal time or attention of Employee. The foregoing shall not prevent (a)
the purchase, ownership or sale by Employee of investments or securities of any
business which is not competitive and does not have any business relations with
ASC or any of its Affiliates; and (b) the passive ownership of up to one percent
(1%) of the issued capital stock of any publicly traded company by itself,
whether such company is a competitor of ASC or not; provided the time or
attention devoted to each of such activities listed in subparagraphs (a) and (b)
above does not materially interfere with the performance of his duties
hereunder. Employee further agrees that
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during the Term, he will accept such directorships, executive offices and
committee memberships in ASC and its Affiliates to which he may from time to
time be elected and will perform and render the duties and the services
incidental thereto.
4. COMPENSATION. For the full, prompt and faithful performance of all of
the duties and services to be performed by Employee hereunder during the
Employment Term, ASC agrees to pay, and Employee agrees to accept, the amounts
set forth below:
(a) BASE SALARY. As compensation for all services rendered by
Employee in performance of his duties or obligations under this Agreement,
Employer shall pay Employee an annual base salary of Three Hundred Fifty
Thousand Dollars ($350,000) (the "Base Salary"), payable in equal semi-monthly
installments or in the manner and on the timetable which Employer's payroll is
customarily handled or at such intervals as Employer and Employee may hereafter
agree to from time to time. Employer and Employee agree that the Base Salary
shall be adjusted annually on January 1 of each year, commencing January 1,
2000, to reflect the increase, if any, in the cost of living. The adjustment
shall be made by adding to such Base Salary an amount obtained by multiplying
the Base Salary by the percentage by which the level of the Consumer Price Index
for the Miami, Florida Metropolitan Area as of the last day of the preceding
calendar year by the Bureau of Labor Statistics of the United States Department
of Labor, has increased over its level as of the Effective Date of this
Agreement. Following the end of each calendar year during the Term, and within
thirty (30) days after the release by the Bureau of Labor Statistics of the
figures for the preceding year, Employer shall pay to Employee the amount of
additional compensation to which he is entitled on account of the cost-of-living
adjustment made to the Employee's salary. In no event shall the Base Salary ever
be decreased as a result of a decrease in the cost-of-living.
(b) BENEFIT PLANS. In addition to receiving the Base Salary
provided for in Section 4(a), Employee shall be entitled during the Term, upon
satisfaction of all eligibility requirements, if any, to participate in all
health, dental, disability, life insurance and other benefit programs now or
hereafter established by Employer which cover substantially all other of
Employer's employees and shall receive such other benefits as may be approved
from time to time by Employer.
(c) VACATION. Employee shall be entitled to receive three (3)
weeks of paid vacation for each year during the Term and shall be entitled to
receive paid holidays as enjoyed by all other employees of ASC.
(d) EXPENSES. ASC agrees to reimburse Employee for all reasonable
expenses incurred by him in providing services under this Agreement in
accordance with its policies and practices regarding expense reimbursement then
in effect.
(e) AUTOMOBILE ALLOWANCE. Employee shall be entitled to receive an
automobile allowance of $500 per month, payable on the first day of each month
during the Term. Employee shall be responsible for paying all costs related to
ownership of his vehicle, including maintenance and repairs, insurance and fuel.
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(f) EBITDA INCENTIVE COMPENSATION PLAN. Employee shall be
entitled to participate in ASC's 1999 EBITDA Plan, as described in that certain
document entitled "AVIATION SALES COMPANY 1999 EBITDA PLAN," as amended from
time to time, whereby Employee shall have the opportunity to earn an incentive
bonus of up to 125% of his Base Salary.
(g) STOCK OPTIONS. Employee shall receive stock option grants for
shares of ASC's common stock in an amount equal to 175,000 shares, such grant to
be effective on the date hereof at a price equal to the closing price of a share
of ASC's stock on the New York Stock Exchange on the last trading day before the
effective date of grant. Such options shall vest over a three-year period, with
one-third of such options vesting on the first, second, and third anniversaries
of this Agreement. Employee may receive such additional stock option grants as
are determined by the Compensation Committee of the Board, in accordance with
its policies regarding stock option grants to executive employees generally.
5. TERMINATION FOR DEATH, DISABILITY OR CAUSE. ASC may terminate this
Agreement, the remainder of the Term and Employee's employment hereunder as
follows:
(a) DEATH. In the event of the death of Employee, this Agreement
shall automatically terminate as of the date of death, and ASC's sole obligation
will be to pay to Employee's estate the sum of (i) one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
Employee's death, plus (ii) the product of the incentive bonus, if any, which
would have been earned by the Employee for the year during which the Employee
dies pursuant to the incentive plan referred to section 4(f) of this Agreement
if the Employee had rendered services pursuant to this Agreement for the entire
year, multiplied by a fraction, the numerator of which is the number of days
elapsed between (and including) the first day of such year and the last date on
which the Employee rendered services pursuant to this Agreement, and the
denominator of which is the total number of days during such year. The payment
of the Base Salary pursuant to clause (i) above shall be made by ASC either in a
lump sum, or in a series of payments in accordance with ASC's payroll practices;
the payment of the incentive bonus pursuant to clause (ii) above shall be made
at such time as such bonus would have been paid had Employee survived in
accordance with ASC's payroll practices (or an earlier date, as determined in
the sole discretion of the Board).
(b) DISABILITY. In the event that Employee shall, because of
physical or mental illness or incapacity, be unable to perform the duties and
services to be performed by him under this Agreement for a consecutive period of
three months or such shorter periods aggregating three months in any 12-month
period ("Disability"), ASC shall not be obligated to pay to Employee any
compensation or benefits beyond the date of Disability and may, in its sole
discretion, terminate this Agreement without any further obligation; provided,
however, that in the case of a termination of this Agreement by ASC on account
of Disability, ASC will be obligated to pay to Employee one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
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Employee's termination under this paragraph. The payment of such Base Salary
shall be made by ASC either in a lump sum, or in a series of payments in
accordance with ASC's payroll practices.
(c) TERMINATION FOR CAUSE. ASC may terminate Employee's employment
at any time for Cause. In the event ASC elects to terminate Employee's
employment for Cause, ASC will pay Employee only his then current Base Salary
then unpaid, computed to the last day worked. "Cause" shall mean any of the
following: (i) any embezzlement or wrongful diversion of funds of ASC or any
affiliate of Company by Employee; (ii) gross malfeasance by Employee in the
conduct of his duties; (iii) material breach of Sections 8, 9 or 10 of this
Agreement; and (iv) gross neglect by Employee in carrying out his duties.
(d) OTHER TERMINATION. In the event ASC terminates Employee for
reasons other than death, Disability or Cause, and such termination is not
related to a Change in Control (as defined below), ASC shall pay Employee an
aggregate amount equal to one full year's Base Salary as in effect at such time.
ASC shall pay such amount in 12 equal monthly installments beginning on the
first day of the calendar month immediately after the date of such termination
and on the first day of each of the next eleven calendar months thereafter.
6. VOLUNTARY TERMINATION BY EMPLOYEE. Employee may not voluntarily
terminate this Agreement during the Term.
7. TERMINATION RELATING TO A CHANGE IN CONTROL AND FOR GOOD REASON. In
the event that Employee's employment is terminated by ASC within 12 months after
a Change in Control (as defined below), or if Employee terminates his employment
for Good Reason (as defined below), ASC shall pay Employee the Special
Termination Payment (as defined below).
(a) TERMINATION FOR GOOD REASON. Termination by Employee of his
employment for "Good Reason" shall mean a termination by Employee (i) upon a
significant demotion or material adverse change in his duties and
responsibilities; (ii) a material breach or violation by ASC of any provision of
this Agreement after Employee has given ASC at least thirty (30) days prior
written notice together with an opportunity to cure said breach or violation
during such thirty (30) day period; or (iii) within twelve (12) months after a
Change in Control, based on the occurrence, without Employee's express written
consent, of any of the following events:
(A) Any reduction by ASC in Employee's Base Salary as in effect
immediately prior to the Change in Control;
(B) The failure by ASC to continue in effect any bonus, benefit or
compensation plan or arrangement, stock ownership plan, stock purchase
plan, stock option plan, life insurance plan, medical, health, dental,
accident and disability plan in which Employee is participating at the
time of the Change in Control, or plans providing Employee with
substantially similar benefits, whether pursuant to this Agreement or
otherwise (collectively, the "Benefit Plans"), or the taking of any
action by ASC which would adversely affect
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Employee's participation in or materially reduce Employee's benefits
under any of such Benefit Plans; provided, however, that the amendment,
modification or termination of any Benefit Plan as in effect at the time
of a Change in Control on a basis which does not discriminate against
Employee, or a class of employees of which Employee is a member (as
opposed to all participants in such Benefit Plan), shall not constitute
"Good Reason" for the termination by Employee of his employment pursuant
to the terms of this paragraph;
(C) Any material breach by ASC of any provision of this Agreement;
or
(D) The failure by ASC to obtain the assumption of this Agreement
by any successor or assign of ASC.
(b) CHANGE IN CONTROL. For purposes of this Agreement, a "Change
in Control" shall mean the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the securities Exchange Act of
1934, as amended (the "Exchange Act")) (collectively, a "person") of
Beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of twenty (20%) percent
or more of the then outstanding shares of common stock of ASC
(collectively, the "Outstanding Common Stock"); provided, however, that
the following shall not constitute a Change of Control:
(A) Any acquisition directly from ASC (excluding an
acquisition by virtue of the exercise of a conversion privilege);
(B) Any acquisition by an Underwriter (as such term is
defined in Section 2(11) of the Securities Act of 1933, as
amended) for the purpose of making a public offering;
(C) Any acquisition by ASC, whether or not the threshold
set forth above is exceeded in such acquisition; or
(D) Any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by ASC or any corporation
controlled by ASC;
(ii) The liquidation of all or substantially all of the assets of
ASC where this Agreement is not assumed by a successor or assign of the
foregoing; or
(iii) If within two (2) years after:
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(A) The completion of a tender offer or exchange offer
for the voting stock of ASC (other than a tender offer or exchange
offer by ASC) or a proxy contest in connection with the election
of members of the Board;
(B) A merger, consolidation, transfer or sale of twenty
percent (20%) of the book value of the gross assets of ASC
measured at the time of such merger, consolidation, transfer or
sale in one (1) or more transactions;
(C) The acquisition by any person, directly or
indirectly, of the Beneficial Ownership of securities of ASC
representing twenty percent (20%) of the Outstanding Common Stock;
or
(D) Any combination of the foregoing;
A majority of the Board shall not consist
of:
(I) Persons who were directors of ASC on
the date hereof; or
(II) Persons who were elected or nominated
for election as directors with the approval of a
majority of the persons referred to in paragraph
7(b)(iii)(D)(I) above or persons theretofore elected in
accordance with this paragraph 7(b)(iii)(D)(II).
(c) SPECIAL TERMINATION PAYMENT. If Employee's employment shall be
terminated by ASC (other than for Cause, Disability, or death) within 12 months
after a Change in Control or if Employee terminates his employment for Good
Reason, ASC shall pay Employee an aggregate amount equal to one full year's Base
Salary as in effect at such time (the "Special Termination Payment"). ASC shall
pay such amount in 12 equal monthly installments beginning on the first day of
the calendar month immediately after the date of such termination and on the
first day of each of the next eleven calendar months thereafter.
(d) NO MITIGATION. Employee shall not be required to mitigate the
amount of any payment contemplated by this Section 7 (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(e) EQUALIZATION PAYMENT. If any of the Special Termination
Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax
that may hereafter be imposed), ASC shall pay to the Employee in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee after deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Special Termination Payment and any federal, state
and local income tax and Excise Tax imposed upon the Gross-Up Payment shall be
equal to the original amount of the Special
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Termination Payment, prior to deduction of any Excise Tax imposed with respect
to the Special Termination Payment. Nothing in this Agreement shall be construed
as requiring ASC to include in the Gross-Up Payment any amount relating to any
federal income or other taxes on the Special Termination Payment (other than
Excise Taxes) provided for under this Agreement, other than federal income or
other taxes on any Gross-Up Payment. The Gross-Up Payment shall be paid to the
Employee at such times as the Special Termination Payment is paid to the
Employee, in the same proportions as any partial payments of the Special
Termination Payment bear to the total Special Termination Payment.
(f) TAX COMPUTATION. For purposes of determining whether any of
the Special Termination Payment will be subject to the Excise Tax and the
amounts of such Excise Tax:
(i) Any payments or benefits received or to be received by the
Employee as a result of a Change in Control of ASC shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code,
except to the extent that, in the opinion of ASC's tax counsel, such payments or
benefits do not constitute parachute payments, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated as subject
to the excise tax, except to the extent that, in the opinion of ASC's tax
counsel, such excess parachute payments are not subject to the Excise Tax;
(ii) The value of any noncash benefits or any deferred payment or
benefit shall be determined by ASC's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code; and
(iii) For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Employee's residence
on the date of termination, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes.
(g) SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service imposes an Excise Tax with respect to the Special Termination Payment
that is greater than the Excise Tax calculated hereunder, ASC shall reimburse
the Employee for the full amount necessary to make the Employee whole in
accordance with the principles set forth above, plus an appropriate market rate
of interest, as determined by ASC's independent auditors.
8. NON-SOLICITATION. Employee agrees that during the Term and for a
period of 12 months after the termination of Employee's employment with ASC, he
will not, directly or indirectly:
(i) Employ, hire, engage or be associated with any employee or
other person then or during any part of the preceding 12 months connected
with ASC or any of its Affiliates;
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(ii) Induce any person connected with or employed by ASC or any of
its Affiliates to leave the employ of such entities; or
(iii) Solicit the employment of any such person on his own behalf
or on behalf of any other business enterprise.
The provisions of this Section shall survive the termination or
expiration of this Agreement.
9. NON-COMPETITION. In consideration of ASC entering into this Agreement,
including, without limitation, the provisions relating to Special Termination
Payments contained in Sections 5(d) and 7(c) hereof, Employee agrees that from
and after the date hereof and continuing for the lesser of (i) the longest
period of time permitted by applicable law, or (ii) 12 months after termination
of Employee's employment with ASC for any reason whatsoever (other than
termination by reason of the expiration of the Term) (the "Restrictive
Period"), Employee shall not do any one or more of the following, directly or
indirectly:
(A) anywhere in the United States, its territories or
possessions or any other country in the world where ASC or its
Affiliates has sold products or performed services within the 12
month period prior to the date hereof, engage or participate in,
or assist, advise or be connected with (including as an owner,
partner, shareholder, consultant, director, officer or employee or
(without limitation by the specific enumeration of the foregoing)
otherwise) any person, entity or business enterprise involved in a
business that is competitive with any business of ASC or its
Affiliates; provided, however, that the ownership of up to one
percent (1%) of the issued capital stock of any publicly traded
company by itself shall not constitute a violation of any
provision of this Section 11; or
(B) solicit, attempt to solicit or aid in the
solicitation of any customer of ASC or its Affiliates which has
been a customer of ASC or its Affiliates during the Restrictive
Period or within the 12 month period prior to the date hereof, to
purchase from any source other than ASC or its Affiliates any
product or service which could be supplied or performed, as the
case may be, by ASC or any of its Affiliates.
As used in this Agreement, an "Affiliate" shall mean and include any person or
entity which controls a party, which such party controls or which is under
common control with such party. "Control" means the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise. The provisions of this
Section shall survive the termination of this Agreement.
Additionally, ASC, at its option, may require that the Employee, directly or
indirectly, not compete with ASC in the manner set forth in Subsection 9(A)
and 9(B) above for six months after the end of the Term by written notice
to Employee (given at least six months prior to the end of the Term) of its
intent to exercise this right and by paying Employee a special termination
payment equal to one year's Base Salary as in effect during the last year of
the Term, which special termination payment shall be paid in a lump sum on the
last day of the Term.
10. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that
various kinds of confidential and proprietary information and trade secrets,
including but not limited to ASC's and its Affiliate's sales, marketing and
operating methods and lists of ASC's and its Affiliate's customers and vendors,
as they may exist from time to time, are valuable, special and unique assets of
ASC's
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and its Affiliates respective businesses. Employee will not, during or after his
employment, except in accordance with his employment by ASC, disclose or cause
or permit to be disclosed any confidential or proprietary information or trade
secrets of ASC or its Affiliates to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever without the prior written
consent of ASC or as otherwise be required by law or legal process. The
provisions of this section shall survive the termination and expiration of this
Agreement.
11. REMEDIES. In the event that Employee shall violate any provision of
Sections 8, 9 or 10 above, then Employee hereby agrees that ASC shall be
entitled to a temporary or permanent injunction against him by any court of
competent jurisdiction prohibiting him from violating such provision. In any
proceeding for an injunction and upon any motion for a temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or interposed as a defense to the granting of such temporary or permanent
injunction against Employee. Employee further agrees that ASC will not have an
adequate remedy at law in the event of any breach by Employee hereunder and that
ASC will suffer irreparable damage and injury if Employee breaches any of the
provisions of Sections 8, 9 or 10 above. The provisions of this Section shall
survive the termination or expiration of this Agreement.
12. NOTICES. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
received at the address specified herein. In the case of Employee, notices shall
be delivered to him at the home address which he has most recently communicated
to ASC in writing. In the case of ASC, notices shall be delivered to ASC's
corporate headquarters, and all notices shall be directed to the attention of
ASC's Chief Executive Officer, with a copy to ASC's General Counsel.
13. MODIFICATION AND WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by Employee and by an authorized officer of ASC
(other than Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
14. COMPLETE AGREEMENT. This Agreement supersedes all previous agreements
entered into by Employee and ASC. No agreements, representations or
understandings (whether oral or written and whether expressed or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
15. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
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16. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with and subject to, the laws of the State of Florida
applicable to Agreements made and to be performed entirely within such State, as
to all matters governed by state law or, if controlling, by applicable federal
law.
17. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
18. LITIGATION; VENUE. Any action at law or in equity under this
Agreement shall be brought in the courts of Dade or Broward County, Florida, and
in no other court (whether or not jurisdiction can be established in another
court). Each party hereto waives the right to argue that venue is not
appropriate in the courts of Dade or Broward County, Florida. THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A
TRIAL BY JURY, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING
INTO THIS AGREEMENT.
19. WITHHOLDING. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes, unless specifically set forth herein
to the contrary.
20. COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
21. TERMINATION OF PREVIOUS EMPLOYMENT AGREEMENT. Upon the effectiveness
of this Agreement, the current employment agreement between Employee and a
subsidiary of the Company shall terminate and shall be of no further force and
effect.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
AVIATION SALES COMPANY
By: _______________________________ ________________________________
Dale S. Baker, President JAMES D. INNELLA
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated January 1, 1999, is
entered into by and between Benito Quevedo ("Employee") and Aviation Sales
Company, a Delaware corporation ("ASC").
PRELIMINARY STATEMENTS
A. ASC desires to employ the Employee on the terms set forth in this
Agreement.
B. The Employee desires to serve ASC as an employee on the terms set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT. ASC hereby agrees to employ Employee on the terms and
conditions set forth below commencing on the date hereof and Employee hereby
accepts such employment effective on such date. Subject to the terms and
conditions set forth herein and unless sooner terminated as hereinafter
provided, ASC shall employ Employee and Employee agrees to serve as an employee
of ASC for a three year period, from the date hereof to and including the third
anniversary of the date of this Agreement (the "Employment Term"). For purposes
of this Agreement, the Employment Term is collectively referred to herein as the
"Term."
2. POSITION. During the Term, Employee shall perform all duties and
services incident to such position and such other duties and services of an
executive nature as may from time to time be assigned to him by the Board of
Directors of ASC (the "Board") or by the Chief Executive Officer of ASC (the
"CEO"), including without limitation services as an officer or other executive
of any subsidiary or Affiliate (as defined in Section 9 below) of ASC. Employee
shall be subject to the control and direction of the Board and the CEO.
3. LOYALTY. Employee agrees that during the Term, he will devote his full
time and attention during regular business hours to the business and affairs of
ASC and its Affiliates (as defined herein) and will not, without the prior
permission of the Board, engage in any other business enterprise which requires
the personal time or attention of Employee. The foregoing shall not prevent (a)
the purchase, ownership or sale by Employee of investments or securities of any
business which is not competitive and does not have any business relations with
ASC or any of its Affiliates; and (b) the passive ownership of up to one percent
(1%) of the issued capital stock of any publicly traded company by itself,
whether such company is a competitor of ASC or not; provided the time or
attention devoted to each of such activities listed in subparagraphs (a) and (b)
above does not materially interfere with the performance of his duties
hereunder. Employee further agrees that
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during the Term, he will accept such directorships, executive offices and
committee memberships in ASC and its Affiliates to which he may from time to
time be elected and will perform and render the duties and the services
incidental thereto.
4. COMPENSATION. For the full, prompt and faithful performance of all of
the duties and services to be performed by Employee hereunder during the
Employment Term, ASC agrees to pay, and Employee agrees to accept, the amounts
set forth below:
(a) BASE SALARY. As compensation for all services rendered by
Employee in performance of his duties or obligations under this Agreement,
Employer shall pay Employee an annual base salary of Three Hundred Fifty
Thousand Dollars ($350,000) (the "Base Salary"), payable in equal semi-monthly
installments or in the manner and on the timetable which Employer's payroll is
customarily handled or at such intervals as Employer and Employee may hereafter
agree to from time to time. Employer and Employee agree that the Base Salary
shall be adjusted annually on January 1 of each year, commencing January 1,
2000, to reflect the increase, if any, in the cost of living. The adjustment
shall be made by adding to such Base Salary an amount obtained by multiplying
the Base Salary by the percentage by which the level of the Consumer Price Index
for the Miami, Florida Metropolitan Area as of the last day of the preceding
calendar year by the Bureau of Labor Statistics of the United States Department
of Labor, has increased over its level as of the Effective Date of this
Agreement. Following the end of each calendar year during the Term, and within
thirty (30) days after the release by the Bureau of Labor Statistics of the
figures for the preceding year, Employer shall pay to Employee the amount of
additional compensation to which he is entitled on account of the cost-of-living
adjustment made to the Employee's salary. In no event shall the Base Salary ever
be decreased as a result of a decrease in the cost-of-living.
(b) BENEFIT PLANS. In addition to receiving the Base Salary
provided for in Section 4(a), Employee shall be entitled during the Term, upon
satisfaction of all eligibility requirements, if any, to participate in all
health, dental, disability, life insurance and other benefit programs now or
hereafter established by Employer which cover substantially all other of
Employer's employees and shall receive such other benefits as may be approved
from time to time by Employer.
(c) VACATION. Employee shall be entitled to receive three (3)
weeks of paid vacation for each year during the Term and shall be entitled to
receive paid holidays as enjoyed by all other employees of ASC.
(d) EXPENSES. ASC agrees to reimburse Employee for all reasonable
expenses incurred by him in providing services under this Agreement in
accordance with its policies and practices regarding expense reimbursement then
in effect.
(e) AUTOMOBILE ALLOWANCE. Employee shall be entitled to receive an
automobile allowance of $500 per month, payable on the first day of each month
during the Term. Employee shall be responsible for paying all costs related to
ownership of his vehicle, including maintenance and repairs, insurance and fuel.
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(f) EBITDA INCENTIVE COMPENSATION PLAN. Employee shall be entitled
to participate in ASC's 1999 EBITDA Plan, as described in that certain document
entitled "AVIATION SALES COMPANY 1999 EBITDA PLAN," as amended from time to
time, whereby Employee shall have the opportunity to earn an incentive bonus of
up to 125% of his Base Salary.
(g) STOCK OPTIONS. Employee shall receive stock option grants for
shares of ASC's common stock in an amount equal to 175,000 shares, such grant to
be effective on the date hereof at a price equal to the closing price of a share
of ASC's stock on the New York Stock Exchange on the last trading day before the
effective date of grant. Such options shall vest over a three-year period, with
one-third of such options vesting on the first, second, and third anniversaries
of this Agreement. Employee may receive such additional stock option grants as
are determined by the Compensation Committee of the Board, in accordance with
its policies regarding stock option grants to executive employees generally.
5. TERMINATION FOR DEATH, DISABILITY OR CAUSE. ASC may terminate this
Agreement, the remainder of the Term and Employee's employment hereunder as
follows:
(a) DEATH. In the event of the death of Employee, this Agreement
shall automatically terminate as of the date of death, and ASC's sole obligation
will be to pay to Employee's estate the sum of (i) one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
Employee's death, plus (ii) the product of the incentive bonus, if any, which
would have been earned by the Employee for the year during which the Employee
dies pursuant to the incentive plan referred to section 4(f) of this Agreement
if the Employee had rendered services pursuant to this Agreement for the entire
year, multiplied by a fraction, the numerator of which is the number of days
elapsed between (and including) the first day of such year and the last date on
which the Employee rendered services pursuant to this Agreement, and the
denominator of which is the total number of days during such year. The payment
of the Base Salary pursuant to clause (i) above shall be made by ASC either in a
lump sum, or in a series of payments in accordance with ASC's payroll practices;
the payment of the incentive bonus pursuant to clause (ii) above shall be made
at such time as such bonus would have been paid had Employee survived in
accordance with ASC's payroll practices (or an earlier date, as determined in
the sole discretion of the Board).
(b) DISABILITY. In the event that Employee shall, because of
physical or mental illness or incapacity, be unable to perform the duties and
services to be performed by him under this Agreement for a consecutive period of
three months or such shorter periods aggregating three months in any 12-month
period ("Disability"), ASC shall not be obligated to pay to Employee any
compensation or benefits beyond the date of Disability and may, in its sole
discretion, terminate this Agreement without any further obligation; provided,
however, that in the case of a termination of this Agreement by ASC on account
of Disability, ASC will be obligated to pay to Employee one year's Base Salary,
determined by reference to Employee's Base Salary as in effect on the date of
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Employee's termination under this paragraph. The payment of such Base Salary
shall be made by ASC either in a lump sum, or in a series of payments in
accordance with ASC's payroll practices.
(c) TERMINATION FOR CAUSE. ASC may terminate Employee's employment
at any time for Cause. In the event ASC elects to terminate Employee's
employment for Cause, ASC will pay Employee only his then current Base Salary
then unpaid, computed to the last day worked. "Cause" shall mean any of the
following: (i) any embezzlement or wrongful diversion of funds of ASC or any
affiliate of Company by Employee; (ii) gross malfeasance by Employee in the
conduct of his duties; (iii) material breach of Sections 8, 9 or 10 of this
Agreement; and (iv) gross neglect by Employee in carrying out his duties.
(d) OTHER TERMINATION. In the event ASC terminates Employee for
reasons other than death, Disability or Cause, and such termination is not
related to a Change in Control (as defined below), ASC shall pay Employee an
aggregate amount equal to one full year's Base Salary as in effect at such time.
ASC shall pay such amount in 12 equal monthly installments beginning on the
first day of the calendar month immediately after the date of such termination
and on the first day of each of the next eleven calendar months thereafter.
6. VOLUNTARY TERMINATION BY EMPLOYEE. Employee may not voluntarily
terminate this Agreement during the Term.
7. TERMINATION RELATING TO A CHANGE IN CONTROL AND FOR GOOD REASON. In
the event that Employee's employment is terminated by ASC within 12 months after
a Change in Control (as defined below), or if Employee terminates his employment
for Good Reason (as defined below), ASC shall pay Employee the Special
Termination Payment (as defined below).
(a) TERMINATION FOR GOOD REASON. Termination by Employee of his
employment for "Good Reason" shall mean a termination by Employee (i) upon a
significant demotion or material adverse change in his duties and
responsibilities; (ii) a material breach or violation by ASC of any provision of
this Agreement after Employee has given ASC at least thirty (30) days prior
written notice together with an opportunity to cure said breach or violation
during such thirty (30) day period; or (iii) within twelve (12) months after a
Change in Control, based on the occurrence, without Employee's express written
consent, of any of the following events:
(A) Any reduction by ASC in Employee's Base Salary as in effect
immediately prior to the Change in Control;
(B) The failure by ASC to continue in effect any bonus, benefit or
compensation plan or arrangement, stock ownership plan, stock purchase
plan, stock option plan, life insurance plan, medical, health, dental,
accident and disability plan in which Employee is participating at the
time of the Change in Control, or plans providing Employee with
substantially similar benefits, whether pursuant to this Agreement or
otherwise (collectively, the "Benefit Plans"), or the taking of any
action by ASC which would adversely affect
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Employee's participation in or materially reduce Employee's benefits
under any of such Benefit Plans; provided, however, that the amendment,
modification or termination of any Benefit Plan as in effect at the time
of a Change in Control on a basis which does not discriminate against
Employee, or a class of employees of which Employee is a member (as
opposed to all participants in such Benefit Plan), shall not constitute
"Good Reason" for the termination by Employee of his employment pursuant
to the terms of this paragraph;
(C) Any material breach by ASC of any provision of this Agreement;
or
(D) The failure by ASC to obtain the assumption of this Agreement
by any successor or assign of ASC.
(b) CHANGE IN CONTROL. For purposes of this Agreement, a "Change
in Control" shall mean the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the securities Exchange Act of
1934, as amended (the "Exchange Act")) (collectively, a "person") of
Beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of twenty (20%) percent
or more of the then outstanding shares of common stock of ASC
(collectively, the "Outstanding Common Stock"); provided, however, that
the following shall not constitute a Change of Control:
(A) Any acquisition directly from ASC (excluding an
acquisition by virtue of the exercise of a conversion privilege);
(B) Any acquisition by an Underwriter (as such term is
defined in Section 2(11) of the Securities Act of 1933, as
amended) for the purpose of making a public offering;
(C) Any acquisition by ASC, whether or not the threshold
set forth above is exceeded in such acquisition; or
(D) Any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by ASC or any corporation
controlled by ASC;
(ii) The liquidation of all or substantially all of the assets of
ASC where this Agreement is not assumed by a successor or assign of the
foregoing; or
(iii) If within two (2) years after:
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(A) The completion of a tender offer or exchange offer
for the voting stock of ASC (other than a tender offer or exchange
offer by ASC) or a proxy contest in connection with the election
of members of the Board;
(B) A merger, consolidation, transfer or sale of twenty
percent (20%) of the book value of the gross assets of ASC
measured at the time of such merger, consolidation, transfer or
sale in one (1) or more transactions;
(C) The acquisition by any person, directly or
indirectly, of the Beneficial Ownership of securities of ASC
representing twenty percent (20%) of the Outstanding Common Stock;
or
(D) Any combination of the foregoing;
A majority of the Board shall not consist
of:
(I) Persons who were directors of ASC on
the date hereof; or
(II) Persons who were elected or nominated
for election as directors with the approval of a
majority of the persons referred to in paragraph
7(b)(iii)(D)(I) above or persons theretofore elected in
accordance with this paragraph 7(b)(iii)(D)(II).
(c) SPECIAL TERMINATION PAYMENT. If Employee's employment shall be
terminated by ASC (other than for Cause, Disability, or death) within 12 months
after a Change in Control or if Employee terminates his employment for Good
Reason, ASC shall pay Employee an aggregate amount equal to one full year's Base
Salary as in effect at such time (the "Special Termination Payment"). ASC shall
pay such amount in 12 equal monthly installments beginning on the first day of
the calendar month immediately after the date of such termination and on the
first day of each of the next eleven calendar months thereafter.
(d) NO MITIGATION. Employee shall not be required to mitigate the
amount of any payment contemplated by this Section 7 (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(e) EQUALIZATION PAYMENT. If any of the Special Termination
Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax
that may hereafter be imposed), ASC shall pay to the Employee in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee after deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Special Termination Payment and any federal, state
and local income tax and Excise Tax imposed upon the Gross-Up Payment shall be
equal to the original amount of the Special
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Termination Payment, prior to deduction of any Excise Tax imposed with respect
to the Special Termination Payment. Nothing in this Agreement shall be construed
as requiring ASC to include in the Gross-Up Payment any amount relating to any
federal income or other taxes on the Special Termination Payment (other than
Excise Taxes) provided for under this Agreement, other than federal income or
other taxes on any Gross-Up Payment. The Gross-Up Payment shall be paid to the
Employee at such times as the Special Termination Payment is paid to the
Employee, in the same proportions as any partial payments of the Special
Termination Payment bear to the total Special Termination Payment.
(f) TAX COMPUTATION. For purposes of determining whether any of
the Special Termination Payment will be subject to the Excise Tax and the
amounts of such Excise Tax:
(i) Any payments or benefits received or to be received by the
Employee as a result of a Change in Control of ASC shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code,
except to the extent that, in the opinion of ASC's tax counsel, such payments or
benefits do not constitute parachute payments, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated as subject
to the excise tax, except to the extent that, in the opinion of ASC's tax
counsel, such excess parachute payments are not subject to the Excise Tax;
(ii) The value of any noncash benefits or any deferred payment or
benefit shall be determined by ASC's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code; and
(iii) For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Employee's residence
on the date of termination, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes.
(g) SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service imposes an Excise Tax with respect to the Special Termination Payment
that is greater than the Excise Tax calculated hereunder, ASC shall reimburse
the Employee for the full amount necessary to make the Employee whole in
accordance with the principles set forth above, plus an appropriate market rate
of interest, as determined by ASC's independent auditors.
8. NON-SOLICITATION. Employee agrees that during the Term and for a
period of 12 months after the termination of Employee's employment with ASC, he
will not, directly or indirectly:
(i) Employ, hire, engage or be associated with any employee or
other person then or during any part of the preceding 12 months connected
with ASC or any of its Affiliates;
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(ii) Induce any person connected with or employed by ASC or any of
its Affiliates to leave the employ of such entities; or
(iii) Solicit the employment of any such person on his own behalf
or on behalf of any other business enterprise.
The provisions of this Section shall survive the termination or
expiration of this Agreement.
9. NON-COMPETITION. In consideration of ASC entering into this Agreement,
including, without limitation, the provisions relating to Special Termination
Payments contained in Sections 5(d) and 7(c) hereof, Employee agrees that from
and after the date hereof and continuing for the lesser of (i) the longest
period of time permitted by applicable law, or (ii) 12 months after termination
of Employee's employment with ASC for any reason whatsoever (other than
termination by reason of the expiration of the Term) (the "Restrictive
Period"), Employee shall not do any one or more of the following, directly or
indirectly:
(A) anywhere in the United States, its territories or
possessions or any other country in the world where ASC or its
Affiliates has sold products or performed services within the 12
month period prior to the date hereof, engage or participate in,
or assist, advise or be connected with (including as an owner,
partner, shareholder, consultant, director, officer or employee or
(without limitation by the specific enumeration of the foregoing)
otherwise) any person, entity or business enterprise involved in a
business that is competitive with any business of ASC or its
Affiliates; provided, however, that the ownership of up to one
percent (1%) of the issued capital stock of any publicly traded
company by itself shall not constitute a violation of any
provision of this Section 11; or
(B) solicit, attempt to solicit or aid in the
solicitation of any customer of ASC or its Affiliates which has
been a customer of ASC or its Affiliates during the Restrictive
Period or within the 12 month period prior to the date hereof, to
purchase from any source other than ASC or its Affiliates any
product or service which could be supplied or performed, as the
case may be, by ASC or any of its Affiliates.
As used in this Agreement, an "Affiliate" shall mean and include any person or
entity which controls a party, which such party controls or which is under
common control with such party. "Control" means the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise. The provisions of this
Section shall survive the termination of this Agreement.
Additionally, ASC, at its option, may require that the Employee,
directly or indirectly, not compete with ASC in the manner set forth in
Subsection 9(A) and 9(B) above for six months after the end of the Term by
written notice to Employee (given at least six months prior to the end of the
Term) of its intend to exercise this right and by paying Employee a special
termination payment equal to one year's Base Salary as in effect during the last
year of the Term, which special termination payment shall be paid in a lump sum
on the last day of the Term.
10. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that
various kinds of confidential and proprietary information and trade secrets,
including but not limited to ASC's and its Affiliate's sales, marketing and
operating methods and lists of ASC's and its Affiliate's customers and vendors,
as they may exist from time to time, are valuable, special and unique assets of
ASC's
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and its Affiliates respective businesses. Employee will not, during or after his
employment, except in accordance with his employment by ASC, disclose or cause
or permit to be disclosed any confidential or proprietary information or trade
secrets of ASC or its Affiliates to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever without the prior written
consent of ASC or as otherwise be required by law or legal process. The
provisions of this section shall survive the termination and expiration of this
Agreement.
11. REMEDIES. In the event that Employee shall violate any provision of
Sections 8, 9 or 10 above, then Employee hereby agrees that ASC shall be
entitled to a temporary or permanent injunction against him by any court of
competent jurisdiction prohibiting him from violating such provision. In any
proceeding for an injunction and upon any motion for a temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or interposed as a defense to the granting of such temporary or permanent
injunction against Employee. Employee further agrees that ASC will not have an
adequate remedy at law in the event of any breach by Employee hereunder and that
ASC will suffer irreparable damage and injury if Employee breaches any of the
provisions of Sections 8, 9 or 10 above. The provisions of this Section shall
survive the termination or expiration of this Agreement.
12. NOTICES. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
received at the address specified herein. In the case of Employee, notices shall
be delivered to him at the home address which he has most recently communicated
to ASC in writing. In the case of ASC, notices shall be delivered to ASC's
corporate headquarters, and all notices shall be directed to the attention of
ASC's Chief Executive Officer, with a copy to ASC's General Counsel.
13. MODIFICATION AND WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by Employee and by an authorized officer of ASC
(other than Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
14. COMPLETE AGREEMENT. This Agreement supersedes all previous agreements
entered into by Employee and ASC. No agreements, representations or
understandings (whether oral or written and whether expressed or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
15. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
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16. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with and subject to, the laws of the State of Florida
applicable to Agreements made and to be performed entirely within such State, as
to all matters governed by state law or, if controlling, by applicable federal
law.
17. SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
18. LITIGATION; VENUE. Any action at law or in equity under this
Agreement shall be brought in the courts of Dade or Broward County, Florida, and
in no other court (whether or not jurisdiction can be established in another
court). Each party hereto waives the right to argue that venue is not
appropriate in the courts of Dade or Broward County, Florida. THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A
TRIAL BY JURY, THIS WAIVER BEING A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING
INTO THIS AGREEMENT.
19. WITHHOLDING. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes, unless specifically set forth herein
to the contrary.
20. COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
21. TERMINATION OF PREVIOUS EMPLOYMENT AGREEMENT. Upon the effectiveness
of this Agreement, the current employment agreement between Employee and a
subsidiary of the Company shall terminate and shall be of no further force and
effect.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
AVIATION SALES COMPANY
By: _______________________________ ________________________________
Dale S. Baker, President BENITO QUEVEDO
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EXHIBIT 10.13
AVIATION SALES COMPANY
FORM OF AVIATION SALES COMPANY 1999 EBITDA PLAN
1. PURPOSES. This Aviation Sales Company 1999 EBITDA Plan (the "Plan")
is intended to provide an incentive for certain senior management employees of
Aviation Sales Company, a Delaware corporation, and its subsidiaries
(collectively, the "Company").
2. ELIGIBILITY. The Employees identified on SCHEDULE 2 attached hereto
shall be eligible to participate in the Plan, so long as they are employed
actively and continuously during the entirety of a calendar twelve (12)-month
period (a "Period"), in respect of which a cash payment hereunder (a "Payment"
or "Payments") is calculated as provided herein (each such Employee is referred
to herein as a "Participant"). Notwithstanding the foregoing, any Employee who
is a participant in the Plan who dies or whose employment with Employer is
terminated by Employer without cause during any Period shall be entitled to the
pro rata payments described in Section 4(c). Additional Participants may be
added to the Plan by the Committee in accordance with Section 6(a).
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or if there is no
Compensation Committee, by the Board of Directors of the Company (the
"Committee"). The interpretation and construction by the Committee of the Plan,
the calculation by the Committee of Payments and any other determinations or
calculations made by the Committee hereunder, shall be conclusive, final and
binding, except as otherwise provided herein. The Committee may delegate the
administration of this Plan and such other aspects of the Plan (which may
include any or all of the determinations and calculations required by this Plan)
to such officer(s) of the Company as the Committee shall deem appropriate, and
no such officer, no member of the Committee, and no member of the Board of
Directors of the Company shall be liable to any person for any action,
determination or calculation in connection with this Plan made in good faith.
Each such officer and member of the Committee or Board of Directors shall be
fully protected in taking any action hereunder in reliance in good faith upon
the books and records of the Company or upon such information, opinions, reports
or statements presented to the Company by any person as to matters such officer
or member of the Committee or Board of Directors reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company.
4. TERMS AND CONDITIONS.
(a) GENERAL. Payments under the Plan shall be calculated on a
cumulative basis with respect to each calendar year Period as described below,
beginning January 1, 1999, and shall be paid, subject to the restrictions on
such payment contained in this Plan and subject to applicable federal and local
income tax and other payroll withholding requirements, as follows: eighty
percent (80%) of the amount payable with respect to each Participant shall be
paid on or before January 31st of the following year, and the balance shall be
paid on the earlier of May 31st or 15 days after the date on which the audited
financial statements for the Company for the applicable calendar year are
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issued by the Company's independent auditors. All amounts payable under the Plan
shall be paid directly to the Participant.
(b) AMOUNT OF PAYMENTS; CALCULATIONS. The Payments with
respect to each calendar year (the "Period Payment") shall be a percentage (the
"Allocable Percentage") of each Participant's Base Salary for such year
determined in accordance with the level (the "Applicable Earnings Level"), of
earnings (without taking into account Payments made hereunder) before interest,
taxes, depreciation and amortization ("EBITDA") of the Company for such Period.
The Applicable Earnings Level shall be a percentage of the management case level
of EBITDA during any Period (the "Management Case EBITDA"), as listed on
SCHEDULE 4(B) attached hereto, and the corresponding Allocable Percentage for
each Applicable Earnings Level shall be as listed on SCHEDULE 4(B). The
Management Case EBITDA shall be determined by the Committee as provided in
Section 6(a). If the Company's EBITDA for any Period is between Applicable
Earnings Levels, the Allocable Percentage for such Period shall be determined in
accordance with SCHEDULE 4(B). Actual EBITDA with respect to any Period shall be
determined by the Committee based on the audited financial statements of the
Company; PROVIDED, HOWEVER, that if the methodology employed in producing the
actual audited financial statements for the Company for a period employ
different assumptions than those employed by the Committee in establishing
Management Case EBITDA for that Period, the Management Case EBITDA will be
adjusted accordingly to reflect the same assumptions as those used in preparing
the actual audited financial statements.
(c) BASE SALARY DEFINED. For purposes of the Plan, a
Participant's Base Salary is such person's base salary (not including, among
other amounts, Payments hereunder, commissions, benefits, car allowances, mobile
telephones, overtime payments or Company contributions (other than salary
reduction contributions) to the Company's 401(k) plan or any other deferred
compensation program) on January 1st of each year with respect to which Payments
are being calculated (or if such Participant was not employed by the Company or
a wholly owned subsidiary of the Company on such date, at the initial date of
such person's employment during such fiscal year), as determined by the
Committee. Subject to the provisions and limitations of this Plan, each
Participant shall be paid a Period Payment hereunder in respect of any Period in
the amount determined in accordance with Section 4. If a Participant ceases to
be employed by the Company or a wholly owned subsidiary of the Company for any
reason other than death or termination of employment by the Company without
cause, such person shall not receive a Period Payment with respect to such
Period. If a Participant dies or is terminated as an employee without cause
during a Period, the deceased Participant's estate or the terminated Employee,
as the case may be, shall be entitled to receive a pro rata Period Payment based
on the portion of the calendar year during which the deceased Participant or
terminated Employee was employed by the Company.
5. CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, no Payments shall be payable hereunder so long as the payment thereof
would (i) result in a breach of, or a default or acceleration of payments under,
any agreement (including any loan agreement) to which the Company or any of its
subsidiaries is a party, or (ii) cause the Company or any subsidiary to be
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required to meet more restrictive covenants under the Company's charter or any
agreement (including any credit or loan agreement) to which the Company or any
of its subsidiaries is a party than the Company or any such subsidiary was
required to meet prior to the payment (or accrual for payment) thereof.
If for any reason the Company is unable to make any Period Payments due
under the Plan (a "Deferred Payment"), such Deferred Payment will be carried as
an account payable on the books of the Company, will bear interest at eight
percent (8%) per annum, compounded quarterly, from the date due until paid, and
shall be payable out of the first available cash of the Company.
6. MISCELLANEOUS.
(a) COMMITTEE ACTION. Other than as set forth in the next
sentence below, not later than 90 days after the commencement of any calendar
year of the Company, the Committee shall determine (i) with respect to such
calendar year the Allocable Percentage for each Eligible Employee, and (ii)
after consultation with management and taking into account current market
conditions, with respect to such calendar year, the Management Case EBITDA for
such Period. Eligible Employees who were not Employees as of the first day of a
calendar year shall be assigned an Allocable Percentage by the Committee as soon
as practicable after such Eligible Employee becomes an Employee. For purposes of
the Plan, the Committee shall, as promptly as practicable after adoption of this
Plan by the Board of Directors of the Company, make the determinations set forth
in the previous sentence with respect to such calendar year. The determinations
described above in this Section 6(a) with respect to the Allocable Percentage
and the Management Case EBITDA shall be set forth on SCHEDULE 4(B) and SCHEDULE
6(A) attached hereto.
(b) AMENDMENT AND TERMINATION. Notwithstanding anything to the
contrary contained herein, the Committee may amend this Plan (including any
Schedule hereto or any amount determined pursuant hereto or thereto) in any
manner (including an amendment to effect the exclusion of any Employee or
category of Employees from participation herein) or may suspend or terminate
this Plan; PROVIDED, HOWEVER, that no amendment or modification to this Plan
shall be made that (i) provides for this Plan to terminate or expire prior to
January 1, 2003, (ii) deprives any of the Participants designated as such on
SCHEDULE 4(B) attached hereto as of January 1, 1999 (the "1999 Participants") of
the right to continue as Participants, or (iii) reduces the Allocable
Percentages applicable to the 1999 Participants to less than those stipulated on
SCHEDULE 4(B) as of January 1, 1999. Notice shall be given to all Participants
affected by such Committee action. No such amendment, suspension or termination
shall deprive any Participant of any right to receive a Payment otherwise
payable pursuant to the terms of the Plan in respect of any Period which has
ended prior to the date of such amendment, suspension or termination.
Notwithstanding the foregoing, the Committee may, in its sole discretion,
increase the Management Case EBITDA for any year in which the Company acquires
any new business, directly or indirectly through one or more subsidiaries, by
any means, including by a stock purchase, asset purchase or merger, in order to
account for such acquisition, and such increase may be effected during the
course of such year or afterwards.
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(c) RIGHTS OF EMPLOYEES. A Participant's participation in this
Plan does not create any obligation whatsoever by the Company or any of its
subsidiaries to continue such Participant's employment or otherwise effect the
Company's right to terminate such Participant's employment at will, with or
without cause in the sole discretion of the Company or any of the Company's
subsidiaries which is an employer of such Participant; PROVIDED, HOWEVER, that
nothing contained in this Section 6(c) shall be construed to amend or modify in
any respect any written employment agreements between the Company and any
Participant. No person shall solely as a result of the existence of this Plan or
such person's participation herein be entitled to review or have access to the
books and records of the Company or any of its subsidiaries. The Company shall
provide each Participant with a copy of the Company's annual audited financial
statements, along with a schedule showing how such Participant's Period Payment
was calculated.
7. EFFECTIVE DATE OF PLAN. The Plan shall be effective January 1, 1999.
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SCHEDULE 2
LIST OF PARTICIPANTS
PARTICIPANT BASE SALARY(1)
- ----------- --------------
Dale S. Baker ................. $
James D. Innella ..............
Benito Quevedo.................
- ------------
(1) Base Salary is subject to annual cost-of-living adjustments.
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SCHEDULE 4(B)
APPLICABLE EARNING LEVELS AND ALLOCABLE PERCENTAGES
APPLICABLE EARNING LEVELS ALLOCABLE PERCENTAGE
- -------------------------------------------------------------
90% of Management Case EBITDA 50%
100% of Management Case EBITDA 100%
115% of Management Case EBITDA 125%
If the Company's actual EBITDA for any Period is between two Applicable
Earning Levels, then the Allocable Percentage for the Period Payments for
such Period shall be determined through linear interpolation in the following
manner. The Allocable Percentage shall be equal to the sum of (i) the
Allocable Percentage pertaining to the lower of the two Applicable Earning
Levels, plus (ii) the product of the difference between the Allocable
Percentages pertaining to the two Applicable Earning Levels, multipled by a
fraction, the numerator of which is the Company's actual EBITDA minus the lower
of the two Applicable Earning Levels, and the denominator of which the
difference between the two Applicable Earning Levels. For example, for the
fiscal year 1999, if the Company's actual EBITDA is 95% of the Management Case
EBITDA, then the corresponding Allocable Percentage shall be 75%. Alternatively,
for the fiscal year 1999, if the Company's actual EBITDA is 110% of the
Management Case EBITDA, then the corresponding Allocable Percentage shall be
116.6667%. In no event shall the Allocable Percentage exceed the highest
Allocable Percentage set forth in the table above.
6
EXHIBIT 10.14
FORM OF STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), dated January 1, 1999, by and between
Aviation Sales Company, a Delaware corporation (the "Company") and _____________
(the "Optionee"). Unless otherwise defined herein, capitalized terms shall have
the meanings given to them in the Employment Agreement (as defined below).
WHEREAS, Optionee and the Company have on the date hereof entered into
an Employment Agreement (the "Employment Agreement") pursuant to which Optionee
shall be employed by the Company; and
WHEREAS, Optionee would not have entered into the Employment Agreement
but for, among other things, the Company entering into this Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereby
agree as follows:
1. GRANT OF STOCK OPTION
Subject to the terms and conditions of this Agreement, the Company
hereby grants to the Optionee the option to purchase, at any time prior to 5:00
p.m. on December 31, 2008 (the "Option Expiration Date"), an aggregate of ______
shares of the authorized but unissued common stock (the "Common Stock") of the
Company (the "Options").
2. EXERCISE PRICE.
The Options shall be exercisable at an exercise price of $_____ per
share of Common Stock (the "Exercise Price"). The Optionee shall pay all
transfer taxes, if any, upon the exercise of the Options. The Exercise Price
shall be subject to adjustment in the event of changes in the capitalization of
the Company, as set forth in SECTION 5 hereto.
3. EXERCISABILITY OF OPTIONS.
a. VESTING OF RIGHT TO EXERCISE. The right to exercise the Options
shall vest over a three-year period, with one-third of the Options vesting on
the first, second and third anniversaries of this Agreement. If, however, the
employment of the Optionee is terminated by the Company for Cause or in case of
the death or Disability of the Optionee pursuant to the Employment Agreement,
then all Options which have not vested on or prior to the date of such
termination shall not vest and shall be automatically forfeited by the Optionee
without any further action. Vested options shall be exercisable, in whole or in
part, until the Option Expiration Date, regardless of whether the Optionee
remains an employee, officer or director of the Company during that period.
Notwithstanding the foregoing, the Options shall automatically vest: (i) upon a
Change in Control, and (ii) if Optionee's employment with the Company is
terminated by Optionee for Good Reason.
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"Change in Control" and "Good Reason" shall have the meanings given to them in
the Employment Agreement.
b. MANNER OF EXERCISE. The Options granted hereunder as to which the
right to exercise has vested may be exercised by the delivery by the holder
thereof to the Company at its principal office (to the attention of the
Secretary of the Company) of written notice of the number of full shares of
Common Stock with respect to which the Option is being exercised, accompanied by
payment in full of the price for such shares of Common Stock: (i) in cash or by
certified or bank check payable to the order of the Company, (ii) by delivery of
shares of Common Stock already owned by the Optionee and having a fair market
value equal to the Exercise Price, or (iii) by a combination of cash and Common
Stock.
c. TERMINATION. Subject to the vesting provisions in subparagraph 3(a)
above, Optionee shall have the right to exercise the Options until the Option
Expiration Date, regardless of whether Optionee is an employee, officer or
director of the Company at the time that he seeks to exercise the Options.
d. DEATH. Upon the death of the Optionee, the personal representatives,
heirs, legatees or distributees of the Optionee, as appropriate, shall have the
right to exercise all of the Options then exercisable under this Agreement at
any time prior to the Option Expiration Date.
e. EXERCISE OF VESTED OPTIONS. An Option may not be exercised pursuant
to this SECTION 3 unless the holder was entitled to exercise the Option at the
time of such exercise.
f. TRANSFER OF OPTIONS. Options granted hereunder which have become
vested pursuant to subparagraph 3(a) above, shall be transferable, so long as
the transferee of the Options agrees in writing to be bound by the terms of this
Agreement.
4. THE OPTIONEE'S INVESTMENT REPRESENTATIONS.
The Optionee hereby agrees, acknowledges, represents and warrants to
the Company the following:
a. The Optionee is acquiring the Options hereunder for investment
purposes only and without the intent toward the further sale and/or distribution
thereof. In addition, the Optionee hereby agrees, acknowledges, represents and
warrants, that in the event of the exercise of any of the Options hereunder, the
shares of Common Stock issuable upon exercise of the Options (the "Option
Shares") shall be acquired for investment purposes only and without the intent
toward the further sale and/or distribution thereof.
b. Unless the shares of Common Stock underlying the Options are
registered in compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Act"), and with other applicable securities laws,
the certificates evidencing the Option Shares
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will bear a restrictive legend with respect to the sale or transfer thereof. Any
subsequent sale, transfer, assignment or disposition of the Option Shares, must
be made in compliance with the registration requirements of the Act, and with
other applicable securities laws or pursuant to an applicable exemption from
such registration requirements, in the opinion of counsel reasonably
satisfactory to the Company.
c. The Optionee is familiar with the business and financial condition
of the Company, and the Optionee has been afforded the opportunity to ask all
relevant questions of the Company's management with respect to the business and
financial condition of the Company. The Optionee further agrees to re-assert any
of said representations and warranties and to make any other representations and
warranties, as reasonably requested by the Company, as of the date of exercise
of any of said Options.
d. The Optionee hereby further acknowledges, agrees, represents and
warrants that the issuance of the Option Shares upon the exercise of the Options
is conditioned, in part, upon the compliance with applicable securities laws.
The Optionee agrees to deliver to the Company any reasonable documentation
requested with respect thereto and further acknowledges and agrees that any said
exercise of the Options and the issuance of the Option Shares may only be
effectuated provided said exercise is in compliance with applicable laws and
regulations. In addition, the Optionee further acknowledges that the Company is
relying upon the representations and warranties of the Optionee hereunder with
respect to compliance by the Company with applicable securities laws and
regulations.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
a. In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or other change in corporate
structure affecting the shares of Common Stock of the Company, such adjustment
shall be made in the number of Option Shares, and the Exercise Price shall be
correspondingly adjusted to equitably reflect such change.
b. Any adjustment in the number of Option Shares shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of an Option Share would result from any such
adjustment, the adjustment shall be revised to the next lower whole number of
Option Shares.
6. NO RIGHTS AS A SHAREHOLDER.
The Optionee shall have no rights as a shareholder of the Company with
respect to the Option Shares issuable upon the exercise of Options granted
hereunder that have not been exercised and for which payment in full of the
applicable Exercise Price has not been made as provided herein.
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<PAGE>
7. REGISTRATION.
a. FORM S-8 REGISTRATION. The Company hereby agrees to file a Form S-8
Registration Statement to register the Option Shares for public sale. Such
registration statement will be filed within 6 months after the date of this
Option Agreement. The Company hereby agrees to use its best efforts to keep such
registration statement current until all of the Option Shares are resold in
public market.
8. FURTHER CONDITIONS OF EXERCISE.
a. DELIVERY OF SHARES BY COMPANY. The Company shall not be obligated to
deliver any shares of Common Stock until they have been listed on each
securities exchange on which the shares of Common Stock may then be listed or
until there has been qualification under or compliance with such state or
federal laws, rules or regulations as the Company may deem applicable. The
Company shall use its best efforts to obtain such listing, qualification and
compliance.
b. WITHHOLDINGS. The Company may make such provisions and take such
steps as it may deem necessary or appropriate for the withholding of any taxes
that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not limited to, (i)
the withholding of delivery of shares of Common Stock upon exercise of Options
until the holder reimburses the Company for the amount the Company is required
to withhold with respect to such taxes, (ii) the canceling of any number of
shares of Common Stock issuable upon exercise of such Options in an amount
sufficient to reimburse the Company for the amount it is required to so
withhold, or (iii) withholding the amount due from any such person's wages or
compensation due such person.
9. MISCELLANEOUS.
a. INDULGENCES, ETC. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
b. CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Florida, without
application to the principles of conflict of laws.
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<PAGE>
c. NOTICES. All notices, requests, claims, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been given or made upon the earliest to occur of: (a) receipt, if made by
personal service, (b) to (2) days after dispatch if made by reputable overnight
courier service, (c) upon the delivering party's receipt of a written
confirmation of a transmission made by cable, by telecopy, by facsimile, by
telegram or by telex, or (d) seven (7) days after being mailed by registered
mail (postage prepaid, return receipt requested) to the respective parties at
the addresses on the face of this Agreement.
d. BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that no party
may assign or transfer its rights under this Agreement without the prior written
consent of the other parties hereto.
e. PROVISIONS SEPARABLE. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
f. SECTION HEADINGS. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
g. NUMBER OF DAYS. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
PROVIDED, HOWEVER that if the final day of any time period falls on a Saturday,
Sunday or holiday on which federal banks are or may elect to be closed, then the
final day shall be deemed to be the next day which is not a Saturday, Sunday or
such holiday.
h. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
i. ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including the
Employment Agreement referred to herein) constitutes the entire agreement among
the parties and supersedes any prior understandings, agreements, or
representations by or among the parties, written or oral, that may have related
in any way to the subject matter hereof. This Agreement may not be amended,
supplemented or modified in whole or in part except by an instrument in writing
signed by the party or parties against whom enforcement of any such amendment,
supplement or modification is sought.
j. CONSTRUCTION. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and
thereof strict construction shall be applied against any party. Any reference to
any federal, state, local or foreign statute or law
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<PAGE>
shall be deemed also to refer to the rules and regulations promulgated
thereunder, unless the context requires otherwise. The parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant. This Agreement shall be
neither construed against nor in favor of any of the parties hereto, but rather
in accordance with the fair meaning of its content.
k. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AVIATION SALES COMPANY
By:___________________________________
Name (print):
Title:
OPTIONEE:
_______________________________________
6
EXHIBIT 10.25
AMENDMENT NO. 5
Dated as of February 19, 1999
to
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 17, 1997
This Amendment No. 5 ("Amendment") dated as of February 19, 1999 is
entered into among AVIATION SALES DISTRIBUTION SERVICES COMPANY, a Delaware
corporation ("ASOC"), AEROCELL STRUCTURES, INC., an Arkansas corporation
("Aerocell"), AVS/KRATZ-WILDE MACHINE COMPANY, a Delaware corporation
("Kratz-Wilde"), WHITEHALL CORPORATION, a Delaware corporation ("Whitehall"),
TRIAD INTERNATIONAL MAINTENANCE CORPORATION, a Delaware corporation ("TIMCO"),
APEX MANUFACTURING, INC., an Arizona corporation ("Apex"), CARIBE AVIATION,
INC., a Florida corporation ("Caribe"),and AIRCRAFT INTERIOR DESIGN, INC., a
Florida corporation ("Design")(ASOC, Aerocell, Kratz-Wilde, Whitehall, TIMCO,
Apex, Caribe, and Design being collectively referred to as the "Existing
Borrowers"), AVIATION SALES LEASING COMPANY, a Delaware corporation, and the
"Lenders" (as defined in the Credit Agreement identified below). Capitalized
terms used herein without definition are used herein as defined in the Credit
Agreement.
PRELIMINARY STATEMENT:
WHEREAS, the Existing Borrowers, Citicorp USA, Inc., as Agent, and
certain financial institutions, as Lenders and Issuing Bank, are parties to that
certain Third Amended and Restated Credit Agreement dated as of October 17,
1997, as heretofore amended (the "Credit Agreement");
WHEREAS, the Existing Borrowers have requested that certain Inventory
of ASOC be designated as Eligible Inventory and become part of the Borrowing
Base under the Credit Agreement;
WHEREAS, the Existing Borrowers have requested that Leasing Affiliate
become a "Borrower" under the Credit Agreement so that certain Inventory of
Leasing Affiliate could be designated as Eligible Inventory and become part of
the Borrowing Base under the Credit Agreement;
WHEREAS, Parent has heretofore effected certain changes in the
corporate structure of its Subsidiaries as permitted by certain consents
heretofore delivered under the terms of the Credit Agreement, including, without
limitation, the merger of Aero Corporation and Aero Corp Macon Inc., each of
which have heretofore been "Borrowers" under the Credit Agreement, with and into
TIMCO, and certain provisions of, and Exhibits and Schedules to, the Credit
Agreement require modification to reflect such changes and to update the
disclosures made in such Schedules;
<PAGE>
WHEREAS, Parent and the Existing Borrowers have requested that the
Credit Agreement be amended to include Leasing Affiliate as a "Borrower" and to
effect the foregoing modifications to the Borrowing Base, other provisions of
the Credit Agreement, and the Exhibits and Schedules to the Credit Agreement;
WHEREAS, the parties hereto have agreed to amend the Credit Agreement
as set forth below in SECTION 1, subject to the terms and conditions stated
herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. Effective as of February
19, 1999, subject to the satisfaction of the conditions precedent set forth in
SECTION 2 hereof, the Credit Agreement is hereby amended as follows:
1.1 SECTION 1.01 is amended to (a) delete the definitions of
"Aircraft Parts Lease Agreement", "Apex", "Borrowing Base", "Borrowers",
"Eligible Inventory", "Guarantor", "Kratz-Wilde", "Leased Inventory", "Net Cash
Proceeds of Issuance of Equity Securities or Indebtedness", "Net Cash Proceeds
of Sale", and "Parent" and substitute the following definitions therefor:
"AIRCRAFT PARTS LEASE AGREEMENT" means an agreement, which is
subject to a collateral assignment in favor of the Agent for the benefit of the
Holders in form and substance satisfactory to the Agent, between ASOC or Leasing
Affiliate, as lessor, and a Person which is not an Affiliate of ASOC or Leasing
Affiliate, as lessee, pursuant to which Inventory of ASOC or Leasing Affiliate,
as applicable, is leased to such Person and includes, as of February 19, 1999,
those agreements identified on SCHEDULE 1.01.1 attached hereto.
"APEX" means Apex Manufacturing, Inc., an Arizona corporation
and wholly-owned Subsidiary of Manufacturing.
"BORROWING BASE" means, as of any date of determination, an
amount equal to the sum of
(a) seventy-five percent (75%) of the face amount of Eligible
Receivables of ASOC, Aerocell, Kratz-Wilde, Distribution, and Apex (net of
maximum discounts, allowances, retainage and any other amounts deferred with
respect thereto), PLUS
(b) eighty-five percent (85%) of the face amount of Eligible
Receivables of Caribe and TIMCO (net of maximum discounts, allowances, retainage
and any other amounts deferred with respect thereto), PLUS
(c) fifty percent (50%) of the face amount of earned, but
unbilled for periods less than ninety-one (91) days, Receivables of TIMCO (net
of maximum discounts, allowances, retainage and any other amounts deferred with
respect thereto), PLUS
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(d) up to forty percent (40%) of the value of Eligible
Inventory of Aerocell, Kratz-Wilde, Caribe, Apex, and TIMCO, in each case as set
forth on the Borrowing Base Certificate, PLUS
(e) to the extent not otherwise provided for in CLAUSES (VIII)
- - (X) below, (a) during the period commencing on September 22, 1998 and ending
on March 21, 1999, up to the respective percentages of the value of Eligible
Inventory included in Inventory Asset Group A, Inventory Asset Group B, and
Inventory Asset Group C, in each case as set forth on the Borrowing Base
Certificate, or (b) from and after March 22, 1999, the lesser of (1) up to the
respective percentages of the value of Eligible Inventory included in Inventory
Asset Group A, Inventory Asset Group B, and Inventory Asset Group C, in each
case as set forth on the Borrowing Base Certificate, or (2) seventy percent
(70%) of the appraised value of Eligible Inventory included in Inventory Asset
Group A, Inventory Asset Group B and Inventory Asset Group C, in each case as
set forth in appraisals prepared in form and substance and by appraisers
satisfactory to the Requisite Lenders on an orderly liquidation basis consistent
with that methodology used in preparation of the Appraisals, PLUS
(f) fifty percent (50%) of the appraised fair market value of
Kratz-Wilde's owned Real Property, PLUS
(g) sixty percent (60%) of the appraised orderly liquidation
value of Kratz-Wilde's owned Equipment, PLUS
(h) with respect to Eligible Inventory of Leasing Affiliate
consisting of Airbus Series A300B4-200 and Airbus Series A300B4-100 aircraft,
(a) thirty percent (30%) of the book value of such Eligible Inventory prior to
commencement of its conversion from passenger aircraft to cargo aircraft, PLUS
(b) forty percent (40%) of the book value of such Eligible Inventory during its
conversion from passenger aircraft to cargo aircraft, PLUS (c) sixty-five
percent (65%) of the book value of such Eligible Inventory from and after the
30th day after completion of such conversion, PLUS
(i) with respect to Eligible Inventory of Leasing Affiliate or
ASOC consisting of engines, forty percent (40%) of the book value, net of
maintenance reserves, of such Eligible Inventory, PLUS
(j) with respect to Eligible Inventory of ASOC and Leasing
Affiliate consisting of landing gear, sixty percent (60%) of the book value of
such Eligible Inventory.
For purposes of this definition, (1) Eligible Receivables and Eligible
Inventory, in each case and as of any date of determination, shall be determined
after deduction of all Eligibility Reserves then effective with respect to such
items, (2) the value referenced in CLAUSES (IV) and (V) shall be determined on
the bases described in the Borrowing Base Certificate as reflected on the books
and records of the Borrowers or Distribution, as applicable, (3) the advance
rates applicable under CLAUSE (I) with respect to Eligible Receivables of Apex
and Caribe, CLAUSE (II), CLAUSE (III), and CLAUSE (IV) with respect to Eligible
Inventory of Caribe, Apex, and TIMCO, (and the related provisions of the
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<PAGE>
form of Borrowing Base Certificate) shall be subject to adjustment
(increase/decrease but in no event in the case of CLAUSES (I) or (II) below 75%)
and modification by the Agent on or before March 22, 1999 by written notice to
the Borrowers and Lenders dependent upon the results of the Agent's audit of the
Receivables and Inventory of Caribe, Apex, and TIMCO, and (4) that portion of
the Borrowing Base determined based on aircraft and Leased Inventory shall in no
event exceed, at any time, $40,000,000 in the aggregate. In each instance, the
amounts described hereinabove shall be designated as such on the Borrowing Base
Certificate dated as of such date of determination.
"BORROWER" means, individually, any of Aviation Sales
Distribution Services Company, a Delaware corporation; Aviation Sales Leasing
Company, a Delaware corporation; Aerocell Structures, Inc., an Arkansas
corporation; Apex Manufacturing, Inc., an Arizona corporation; Caribe Aviation,
Inc., a Florida corporation; AVS/Kratz-Wilde Machine Company, a Delaware
corporation; Aircraft Interior Design, Inc., a Florida corporation; Triad
International Maintenance Corporation, a Delaware corporation; and Whitehall
Corporation, a Delaware corporation; and "BORROWERS" means, collectively, all of
such Persons.
"ELIGIBLE INVENTORY" means, as of the date of determination
therefor, all Inventory of the Borrowers and Distribution consisting of
commercial aircraft or commercial aircraft spare parts which, when scheduled to
the Agent on a Borrowing Base Certificate and at all times thereafter, (i) is
included in Inventory Asset Group A, Inventory Asset Group B, or Inventory Asset
Group C or (without duplication) is identified, or of a type identified and
accepted by the Agent, on SCHEDULE 1.01.11 attached hereto and made a part
hereof, (ii) is in the required quantity and in the required condition as set
forth on such Borrowing Base Certificate, and (iii) is (a) not Leased Inventory
and is located at a Borrower's or Distribution's owned or leased warehouses in
the United States or is (b) Leased Inventory and:
(a) is stored and maintained in an identifiable, segregated
area disclosed to the Agent in the United States or in a
location and on terms satisfactory to the Agent or (A) if the
subject Inventory is an engine identified, or of a type
identified and accepted by the Agent, on SCHEDULE 1.01.11, the
same bears a plate identifying Leasing Affiliate or ASOC, as
applicable, as the owner thereof, (B) if the subject Inventory
is an aircraft identified, or of a type identified and
accepted by the Agent, on SCHEDULE 1.01.11, the same bears a
plate identifying Leasing Affiliate as the owner thereof, and
(C) the subject Inventory is landing gear; and
(b) is subject to a first priority perfected Lien in favor of
the Agent for the benefit of the Holders and no other Liens.
In any event, Eligible Inventory shall not consist of:
(1) goods in transit; or
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(2) goods held on consignment or any similar
arrangement, including, without limitation, goods held by a
Borrower or Distribution but owned by a customer of a Borrower
or Distribution, as applicable; or
(3) goods (A) with respect to which the Agent does
not have a perfected security interest senior in priority to
any other or (B) which are subject to a Lien in favor of a
landlord or bailee, except with respect to aircraft undergoing
conversion, Liens in favor of the bailee thereof for supplier
and materialman Liens which are otherwise Customary Permitted
Liens; or
(4) goods located on premises with respect to which
the Agent has not received a landlord's waiver, bailee
agreement, or consignee agreement in form and substance
satisfactory to the Agent (and substantially in the applicable
form attached as part of EXHIBIT D) within the time required
by the terms of this Agreement; or
(5) goods constituting "Scrap/Out of Date Material".
"GUARANTOR" means any of the Parent; Finance Affiliate;
Manufacturing; MR&O; Distribution; Aviation Sales SPS I, Inc. and Aero Hushkit
Corporation (each a Delaware corporation and wholly-owned Subsidiaries of
Leasing Affiliate); Aviation Sales Property Management Corp., a Delaware
corporation; AVSRE, L.P., a Delaware limited partnership; Hydroscience, Inc., a
Texas corporation; and each Subsidiary of a Borrower or one of the foregoing
named Guarantors which is not a Foreign Subsidiary or a Borrower.
"KRATZ-WILDE" means AVS/Kratz-Wilde Machine Company, a
Delaware corporation and wholly-owned Subsidiary of Manufacturing.
"LEASED INVENTORY" means Inventory of ASOC or Leasing
Affiliate which is subject to an Aircraft Parts Lease Agreement.
"NET CASH PROCEEDS OF ISSUANCE OF EQUITY SECURITIES OR
INDEBTEDNESS" means net cash proceeds (including cash, equivalents readily
convertible into cash, and such proceeds of any notes received as consideration
or any other non-cash consideration) received by the Parent, any Borrower, or
any Subsidiary of the Parent (other than Aviation Sales SPS I, Inc.) or a
Borrower at any time after the Effective Date on account of the issuance of (i)
equity Securities of the Parent, (ii) equity Securities of a Borrower or
Subsidiary of the Parent to any Person other than the Parent, (iii) equity
Securities of any Subsidiary of a Borrower (other than Aviation Sales SPS I,
Inc.) to any Person other than such Borrower, (iv) Indebtedness (other than
Indebtedness permitted under SECTION 10.01) of any Borrower or any Subsidiary of
a Borrower, or (v) Indebtedness (other than Indebtedness described on SCHEDULE
1.01.3 attached hereto and made a part hereof) of the Parent, in each case net
of all transaction costs and underwriters' discounts with respect thereto.
Notwithstanding the foregoing, such net cash proceeds received by the Parent on
account of the issuance of equity Securities of the Parent and the issuance of
Indebtedness of the Parent which are used by the Parent
5
<PAGE>
to make a capital contribution to any a Borrower within one hundred eighty (180)
days after Parent's receipt of such net cash proceeds shall not be included in
the definition of "Net Cash Proceeds of Issuance of Equity Securities or
Indebtedness".
"NET CASH PROCEEDS OF SALE" means (i) proceeds received by any
Borrower, any Subsidiary of any Borrower (other than Aviation Sales SPS I,
Inc.), or any other Subsidiary of Parent in cash (including cash, equivalents
readily convertible into cash, and such proceeds of any notes received as
consideration or any other non-cash consideration) from the sale, assignment or
other disposition of (but not the lease or license of) any Property, other than
sales permitted under CLAUSES (B), (C)(II)(A), and (D) of SECTION 10.02, net of
(A) the costs of sale, assignment or other disposition, (B) any income,
franchise, transfer or other tax liability arising from such transaction and (C)
amounts applied to the repayment of Indebtedness (other than the Obligations)
secured by a Lien permitted by SECTION 10.03 on the asset disposed of, if such
net proceeds arise from any individual sale, assignment or other disposition or
from any group of related sales, assignments or other dispositions; and (ii) to
the extent provided in SECTION 9.08, proceeds of insurance on account of the
loss of or damage to any such Property or Properties, and payments of
compensation for any such Property or Properties taken by condemnation or
eminent domain.
"PARENT" means Aviation Sales Company, a Delaware corporation.
(b) delete the definition of "Whitehall Subsidiaries" in its entirety, (c)
delete the reference to "and the Whitehall Subsidiaries" in the definition of
"Eligibility Reserves", and (d) add the following definition:
"MANUFACTURING" means Aviation Sales Manufacturing Company, a
Delaware corporation and wholly-owned Subsidiary of Parent.
1.2 All references to "M&R" in the Credit Agreement shall be
deemed to be references to Manufacturing. All references to "Leasing Affiliate
Liabilities" in the provisions related thereto appearing in SECTIONS 2.05,
3.01(A)(II), 6.02(E), 6.04, 10.04(F), 10.05(D), and 10.14 are hereby deleted in
their entirety. All references to Subsidiaries of the Borrowers in the Credit
Agreement shall be deemed to exclude Subsidiaries of Leasing Affiliate, unless
such Subsidiaries are explicitly referenced.
1.3 SECTION 3.01 is amended to (a) delete the reference to "or
Leasing Affiliate" in the first sentence thereof prior to CLAUSE (A), (b) delete
the references to "or Leasing Affiliate," in CLAUSE (B)(I) thereof, (c) delete
the reference to "and Leasing Affiliate" in CLAUSE (C)(I)(B) thereof, (d) delete
the references to "or Leasing Affiliate" in CLAUSE (D)(I)(A) and CLAUSES (D)(II)
and (D)(III) thereof, (e) delete the reference to "or Leasing Affiliate," in
CLAUSE (E)(II) thereof, (f) delete the references to "Leasing Affiliate or" and
", Leasing Affiliate," in CLAUSE (F) thereof, (g) delete the references to
"Leasing Affiliate, or" and ", Leasing Affiliate's," in CLAUSE (G) thereof, and
(h) delete the reference to ", Leasing Affiliate," in CLAUSE (I) thereof.
6
<PAGE>
1.4 SECTION 7.01 is amended to (a) delete CLAUSE (A)(I)
thereof in its entirety and substitute the following therefor:
(a) ORGANIZATION; POWERS. (i) Each of ASOC, Kratz-Wilde,
TIMCO, Whitehall Corporation, MR&O, Manufacturing, Finance Affiliate,
Distribution, Leasing Affiliate, Aviation Sales SPS I, Inc., Aero Hushkit
Corporation, Aviation Sales Property Management Corp. and Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Aerocell is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arkansas. Apex is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Arizona and of each other jurisdiction in which failure to be so
qualified and in good standing will result, or is reasonably likely to result,
in a Material Adverse Effect. Caribe and Aircraft Interior Design, Inc. are
corporations duly organized, validly existing and in good standing under the
laws of the State of Florida and of each other jurisdiction in which failure to
be so qualified and in good standing will result, or is reasonably likely to
result, in a Material Adverse Effect. Hydroscience, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and of each other jurisdiction in which failure to be so qualified and in
good standing will result, or is reasonably likely to result, in a Material
Adverse Effect. AVSRE, L.P. is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware and is in
good standing under the laws of the State of Texas. ASOC is duly qualified to do
business and is in good standing under the laws of the states of Texas, Florida,
California, Oklahoma, and Washington, and of each other jurisdiction in which
failure to be so qualified and in good standing will result, or is reasonably
likely to result, in a Material Adverse Effect. Aerocell is duly qualified to do
business and is in good standing under the laws of the state of Arkansas and of
each other jurisdiction in which failure to be so qualified and in good standing
will result, or is reasonably likely to result, in a Material Adverse Effect.
Kratz-Wilde is duly qualified to do business and is in good standing under the
laws of the states of Kentucky and Ohio and of each other jurisdiction in which
failure to be so qualified and in good standing will result, or is reasonably
likely to result, in a Material Adverse Effect. Leasing Affiliate is duly
qualified to do business and is in good standing under the laws of the state of
Florida and of each other jurisdiction in which failure to be so qualified and
in good standing will result, or is reasonably likely to result, in a Material
Adverse Effect. TIMCO is duly qualified to do business and is in good standing
under the laws of the state of North Carolina and of each other jurisdiction in
which failure to be so qualified and in good standing will result, or is
reasonably likely to result, in a Material Adverse Effect. Parent and Whitehall
are duly qualified to do business and are in good standing under the laws of the
state of Florida and of each other jurisdiction in which failure to be so
qualified and in good standing will result, or is reasonably likely to result,
in a Material Adverse Effect. Distribution is duly qualified to do business and
is in good standing under the laws of the states of Florida and Georgia and of
each other jurisdiction in which failure to be so qualified and in good standing
will result, or is reasonably likely to result, in a Material Adverse Effect.
Finance Affiliate and each Guarantor not specifically referenced hereinabove is
duly qualified to do business and is in good standing under the laws of each
jurisdiction in which failure to be so qualified and in good standing will
result, or is reasonably likely to result, in a Material Adverse Effect. Each
Borrower and Guarantor (A) has filed and maintained effective (unless exempt
from the requirements for filing) a current Business Activity Report with the
7
<PAGE>
appropriate Governmental Authority in the states of Minnesota and New Jersey,
(B) is a corporation for federal income tax purposes, and (C) has all requisite
corporate power and authority to own, operate and encumber its Property and to
conduct its business as presently conducted and as proposed to be conducted in
connection with and following the consummation of the transactions contemplated
by this Agreement.
(b) delete the last sentence of CLAUSE (C) thereof in its entirety and
substitute the following therefor:
The outstanding Capital Stock of each Borrower and each Guarantor is
duly authorized, validly issued, fully paid and nonassessable and
(except for the Capital Stock of the Parent) is not Margin Stock, are
free and clear of all Liens, except for Liens granted pursuant to the
Loan Documents, are not subject to any option or purchase rights,
conversion or exchange rights, call, commitment or claim of any right,
title or interest therein or thereto, and have been issued in
compliance with all applicable Requirements of Law.
and (c) delete the provisions of CLAUSE (AA) thereof in their entirety and
substitute the following therefor:
(aa) PLEDGE OF SECURITIES. The grant and perfection of the
security interest in the equity Securities of Borrowers, each Borrower's
Subsidiaries, and each Guarantor other than the Parent as contemplated by the
Loan Documents is not made in violation of any Requirement of Law.
1.5 SECTION 8.01 is amended to delete the references to (a)
"Leasing Affiliate and its Subsidiaries and" in CLAUSES (A)(I)(B) and (A)(II)(B)
thereof, (b) ", Leasing Affiliate and its Subsidiaries," in the last phrase of
CLAUSE (A) thereof, (c) "Leasing Affiliate and its Subsidiaries and" in CLAUSE
(B)(II) thereof and in the last phrase of the first sentence of CLAUSE (B)
thereof, (d) "Leasing Affiliate and its Subsidiaries and" in CLAUSE (C) thereof,
and (e) ",Leasing Affiliate and its Subsidiaries, and" in CLAUSE (F) thereof.
1.6 SECTION 8.11 is amended to delete the provisions thereof
in their entirety and substitute the following therefor:
8.11. HEDGE AGREEMENTS. ASOC shall provide to the Agent, promptly upon
the execution by any Borrower or any Subsidiary of a Borrower of any
Hedge Agreement, written notice of the notional amount thereof.
1.7 SECTION 10.01 is amended to add the following provision at
the end thereof.
No Borrower or Subsidiary of a Borrower may make any intercompany loan
or other advance to any Subsidiary of Leasing Affiliate.
1.8 SECTION 10.02(E) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
8
<PAGE>
(e) the sale or other transfer of Inventory in the ordinary course of
such Borrower's business, prior to the occurrence of an Event of
Default, to any Subsidiary of Leasing Affiliate which Inventory is
purchased after the Effective Date by such Borrower acting as a
purchasing agent for such Subsidiary and, after giving effect to the
sale or transfer thereof to such Subsidiary, the aggregate amount of
the unpaid sale price of Inventory of the Borrowers sold or otherwise
transferred to Subsidiaries of Leasing Affiliate determined at the
value of such Inventory after application of the advance rates
applicable thereto on the then most recent Borrowing Base Certificate
does not exceed $20,000,000.
1.9 SECTION 10.04 is amended to delete the last sentence
thereof in its entirety and substitute the following therefor:
No Borrower or Subsidiary of a Borrower may make any Investment in any
Subsidiary of Leasing Affiliate.
1.10 SECTION 10.05 is amended to delete the last sentence
thereof in its entirety and substitute the following therefor:
No Borrower or Subsidiary of a Borrower shall incur any Accommodation
Obligation with respect to Indebtedness of any Subsidiary of Leasing
Affiliate.
1.11 SECTION 10.08(D) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(d) the sale or other transfer of Inventory of a Borrower to a
Subsidiary of Leasing Affiliate at cost, if such Inventory is purchased
by such Borrower acting as purchasing agent for such Subsidiary of
Leasing Affiliate after February 19, 1999; PROVIDED THAT the sale or
other transfer of such Inventory is otherwise permissible under the
terms of SECTION 10.02(E).
1.12 SECTION 10.17(C) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(c) engage in any business other than that of acting as a holding
company for ASOC, Leasing Affiliate, Finance Affiliate, MR&O,
Manufacturing, Aviation Sales Property Management Corp., and Aviation
Sales Company FSC, Ltd., a Barbados corporation;
1.13 SECTION 15.07(C)(VI) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(vi) change in SECTION 10.08(D).
9
<PAGE>
1.14 Exhibits B, F and G and Schedules 1.01.1, 7.01-A and
7.01-C to the Credit Agreement are deleted in their entirety and the Exhibits
and Schedules attached hereto are substituted therefor. Schedule 1.01.11
attached hereto is hereby added as a Schedule to the Credit Agreement as
referenced above.
SECTION 2. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT.
This Amendment shall become effective as of February 19, 1999, if, and only if
the Agent shall have received (a) a facsimile or original executed copy of this
Amendment executed by the Parent, each Borrower and each Lender, (b) a
Reaffirmation Agreement, in form and substance satisfactory to the Agent,
executed by each Borrower and Guarantor, and (c) corporate resolutions and a
secretary's certificate with respect thereto for each of the Borrowers and
Guarantors a party to this Amendment or the aforesaid Reaffirmation Agreement
authorizing the execution and delivery of such agreements on behalf of such
Persons and such other agreements as are contemplated by the terms of this
Amendment or to realize the benefits of the changes in the Borrowing Base in
accordance with the terms of this Amendment; and the provisions of this
Amendment pertaining to supplemental additions to the Borrowing Base shall
further be conditioned upon the Agent's receipt, prior to, or concurrent with,
submission of a Borrowing Base Certificate including thereon Inventory described
in CLAUSES (VIII) and (IX) of the definition of "Borrowing Base" as amended by
the terms of this Amendment, (i) aircraft mortgages and other agreements in form
and substance satisfactory to the Agent and its counsel executed and delivered
by Leasing Affiliate and ASOC with respect to the new categories of Inventory to
be included in the Borrowing Base, (ii) collateral assignments of lease in form
and substance satisfactory to the Agent and its counsel executed and delivered
by Leasing Affiliate with respect to the lease agreements identified on SCHEDULE
1.01.1, and (iii) legal opinions of outside counsel to the Borrowers or the
Agent in form and substance satisfactory to the Agent and its counsel with
respect to the mortgages and collateral assignments referenced in CLAUSE (C)
above and the Liens created thereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES; ACKNOWLEDGMENT. The
Borrowers hereby represent and warrant as follows:
3.1 This Amendment and the Credit Agreement as previously
executed and delivered and as amended hereby constitute legal, valid and binding
obligations of the Borrowers and are enforceable against the Borrowers in
accordance with their terms.
3.2 No Event of Default or Potential Event of Default exists,
other than that arising due to Borrowers' failure to comply with the
restrictions on the amount of Leasing Affiliate Liabilities set forth in the
Credit Agreement as disclosed to the Agent and Lenders, or would result from any
of the transactions contemplated by this Amendment.
3.3 Upon the effectiveness of this Amendment, each Borrower
hereby reaffirms all covenants, representations and warranties made by it in the
Credit Agreement to the extent the same are not amended hereby and agree that
all such covenants, representations and warranties shall be deemed to have been
remade as of the date this Amendment becomes effective (unless a
10
<PAGE>
representation and warranty is stated to be given on and as of a specific date,
in which case such representation and warranty shall be true, correct and
complete as of such date).
The Borrowers hereby acknowledge the Agent's request, in accordance with the
provisions of SECTION 8.03(B) of the Credit Agreement, for a semi-annual
appraisal of each Borrower's and its respective Subsidiary's Inventory prepared
by an independent appraiser satisfactory to the Agent and on the same basis as
the Appraisal, and covenant and agree to obtain such appraisal and deliver the
same to the Agent and the Lenders by no later than May 19, 1999.
SECTION 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import shall mean and be a reference to the Credit Agreement, as
amended hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in connection with
the Credit Agreement shall mean and be a reference to the Credit Agreement as
amended hereby.
4.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of any
Lender or Issuing Bank or the Agent under the Credit Agreement, the Notes or any
of the other Loan Documents, nor constitute a waiver of any provision contained
therein, except as specifically set forth herein.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
11
<PAGE>
AVIATION SALES DISTRIBUTION AEROCELL STRUCTURES, INC.
SERVICES COMPANY
By___________________________________ By_____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
AVS/KRATZ-WILDE MACHINE WHITEHALL CORPORATION
COMPANY
By___________________________________ By_____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
TRIAD INTERNATIONAL APEX MANUFACTURING, INC.
MAINTENANCE CORPORATION
By___________________________________ By_____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
AIRCRAFT INTERIOR DESIGN, INC. CARIBE AVIATION, INC.
By___________________________________ By_____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
AVIATION SALES COMPANY AVIATION SALES LEASING COMPANY
By___________________________________ By_____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
12
<PAGE>
CITICORP USA, INC. HELLER FINANCIAL, INC.
By___________________________________ By_____________________________________
Shapleigh B. Smith Albert J. Forzano
Attorney-in-Fact Vice President
CONGRESS FINANCIAL NATIONAL CITY COMMERCIAL
CORPORATION FINANCE, INC.
By:__________________________________ By:____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
FIRST UNION COMMERCIAL CREDIT LYONNAIS, ATLANTA
CORPORATION AGENCY
By:__________________________________ By:____________________________________
Terri K. Lins David M. Cawrse
Vice President Vice President & Manager
IBJ SCHRODER BUSINESS CREDIT BANKBOSTON, N.A.
CORPORATION
By:__________________________________ By:____________________________________
Thomas M. Bayer Tony Zhang
Executive Vice President Vice President
SUNTRUST BANK, MIAMI, N.A. BANKATLANTIC
By:__________________________________ By:____________________________________
Carl F. Fine Ana C. Bolduc
Vice President Senior Vice President
13
<PAGE>
THE INTERNATIONAL BANK OF NATIONAL BANK OF CANADA, A
MIAMI, N.A. Canadian Chartered Bank
By___________________________________ By:____________________________________
Caridad C. Errazquin Frank H. D'Alto
Vice President Vice President
Trade Finance Division
By:____________________________________
Michael S. Bloomenfeld
Vice President & Manager
MERCANTILE BUSINESS CREDIT, INC. CITIZENS BUSINESS CREDIT
COMPANY
By:__________________________________ By:____________________________________
Robert H. Newman Ralph L. Letner
Senior Vice President Vice President
AMSOUTH BANK PNC BANK NATIONAL ASSOCIATION
By:__________________________________ By:____________________________________
Name:________________________________ Name:__________________________________
Title:_______________________________ Title:_________________________________
14
EXHIBIT 21.1
AVIATION COMPANY AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF REGISTRANT
Aviation Sales Distribution Services Company (wholly-owned subsidiary)
Aviation Sales Bearings Company (wholly-owned subsidiary of Aviation
Sales Distribution Services Company)
Aviation Sales Leasing Company (wholly-owned subsidiary)
Aviation Sales SPS I, Inc. (wholly-owned subsidiary of Aviation Sales
Leasing Company)
Aero Hushkit Corporation (wholly-owned subsidiary of Aviation Sales
Leasing Company)
Aviation Sales Finance Company (wholly-owned subsidiary)
Aviation Sales Manufacturing Company ("ASM") (wholly-owned subsidiary)
AVS/Kratz-Wilde Machine Company (wholly-owned subsidiary of ASM)
Apex Manufacturing, Inc. (wholly-owned subsidiary of ASM)
Aviation Sales Company FSC, Ltd. (wholly-owned subsidiary)
Aviation Sales Maintenance, Repair & Overhaul Company ("ASMRO")
(wholly-owned subsidiary)
Triad International Maintenance Corporation (wholly-owned subsidiary
of ASMRO)
Aerocell Structures, Inc. (wholly-owned subsidiary of ASMRO)
Caribe Aviation, Inc. (wholly-owned subsidiary of ASMRO)
Aircraft Interior Design, Inc. (wholly-owned subsidiary of
Caribe Aviation, Inc.)
Whitehall Corporation ("Whitehall") (wholly-owned subsidiary of
ASMRO)
Hydroscience, Inc. (wholly-owned subsidiary of Whitehall)
Aviation Sales Property Management Corp. ("ASPM") (wholly-owned subsidiary)
AVSRE, L.P. (a limited partnership of which ASPM is the sole general
partner and Whitehall is the sole limited partner)
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File No. 333-07021), Form
S-3 (File No. 333-40429) and File No. 333-55881, Post-Effective Amendment No. 1
on Form S-8 to Form S-4 (333-51479-01), and Post-Effective Amendment No. 3 on
Form S-3 to Form S-4 (333-51479-03).
ARTHUR ANDERSEN LLP
Miami, Florida,
March 30, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10- K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,536
<SECURITIES> 0
<RECEIVABLES> 115,974
<ALLOWANCES> 12,489<F1>
<INVENTORY> 277,131
<CURRENT-ASSETS> 425,989
<PP&E> 69,744
<DEPRECIATION> 0
<TOTAL-ASSETS> 599,377
<CURRENT-LIABILITIES> 256,247
<BONDS> 164,163
0
0
<COMMON> 12
<OTHER-SE> 154,286
<TOTAL-LIABILITY-AND-EQUITY> 599,377
<SALES> 359,245
<TOTAL-REVENUES> 500,816
<CGS> 372,728
<TOTAL-COSTS> 66,719
<OTHER-EXPENSES> (196)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,343
<INCOME-PRETAX> 40,222
<INCOME-TAX> 15,486
<INCOME-CONTINUING> 24,736
<DISCONTINUED> 0
<EXTRAORDINARY> 599
<CHANGES> 0
<NET-INCOME> 25,493
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.01
<FN>
Net of allowances for doubtful accounts of $12,489. Comprised of long-term debt.
</FN>
</TABLE>
