AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1999
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AVIATION SALES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 65-0665658
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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<TABLE>
<S> <C>
DALE S. BAKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6905 N.W. 25TH STREET 6905 N.W. 25TH STREET
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 592-4055 (305) 592-4055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
PHILIP B. SCHWARTZ, ESQ. BETH R. NECKMAN, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. LATHAM & WATKINS
ONE S.E. 3RD AVENUE, 28TH FLOOR 885 THIRD AVENUE, SUITE 1000
MIAMI, FLORIDA 33131-1704 NEW YORK, NEW YORK 10022-4802
(305) 374-5600 (212) 906-1200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share .................. 4,025,000 shares $ 44.0625 $ 177,351,562.50 $ 52,318.84
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 20, 1999
P R O S P E C T U S
3,500,000 Shares
[AVIATION SALES COMPANY LOGO]
Common Stock
$ per share
------------
Aviation Sales Company is selling 2,600,000 shares of its common stock and
the selling stockholders named in this prospectus are selling 900,000 shares.
Aviation Sales will not receive any proceeds from the sale of the shares sold
by the selling stockholders. The underwriters named in this prospectus may
purchase up to 525,000 additional shares of common stock from Aviation Sales
and several of the selling stockholders under certain circumstances.
The common stock is listed on the New York Stock Exchange under the symbol
"AVS." The last reported sale price of the common stock on the New York Stock
Exchange on April 16, 1999 was $44 1/16 per share.
------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------
<S> <C> <C>
Public Offering Price ....................................... $ $
Underwriting Discount ....................................... $ $
Proceeds to Aviation Sales (before expenses) ................ $ $
Proceeds to Selling Stockholders (before expenses) .......... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------
Salomon Smith Barney
BT Alex. Brown
Robert W. Baird & Co.
Incorporated
Warburg Dillon Read LLC
, 1999
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED BY THIS PROSPECTUS, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary .......................................................... 1
Risk Factors ................................................................ 7
Use of Proceeds ............................................................. 10
Dividend Policy ............................................................. 10
Capitalization .............................................................. 11
Selected Consolidated Financial Data ........................................ 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................. 14
Business .................................................................... 24
Management .................................................................. 35
Principal and Selling Shareholders .......................................... 43
Description of Capital Stock ................................................ 45
Market for Our Common Equity and Related Stockholder Matters ................ 47
United States Federal Income Tax Consequences for Non-United States Holders . 47
Underwriting ................................................................ 51
Where You Can Find More Information ......................................... 52
Legal Matters ............................................................... 53
Experts ..................................................................... 53
Index to Financial Statements ............................................... F-1
</TABLE>
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. We use words such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar expressions to identify forward-looking
statements. These statements discuss future expectations, contain projections
of results of operations or of financial condition or state other
"forward-looking" information. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this prospectus and
additional risks not presently known or which we presently deem immaterial,
together with other factors we note throughout this prospectus, could cause our
actual results to differ materially from those contained in the forward-looking
statements.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS. REFERENCES IN THIS
PROSPECTUS TO "AVIATION SALES," "WE," "OUR" AND "US" REFER TO AVIATION SALES
COMPANY, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES. UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE OPTION GRANTED TO UNDERWRITERS TO PURCHASE ADDITIONAL SHARES.
THE COMPANY
Aviation Sales Company is a leading provider of aviation inventory and
maintenance, repair and overhaul services. We believe that we are one of the
largest redistributors of aircraft spare parts in the world and the largest
independent provider of heavy maintenance services for aircraft in North
America. We sell aircraft spare parts and provide inventory management services
and maintenance, repair and overhaul services to commercial passenger airlines,
air cargo carriers, maintenance and repair facilities and other redistributors
throughout the world. We sell airframe and engine components for commercial
airplanes, including Boeing, McDonnell Douglas, Lockheed and Airbus aircraft,
as well as jet engines manufactured by Pratt & Whitney, General Electric and
Rolls Royce.
We offer maintenance and repair services through our six FAA-licensed
repair stations. These services include maintenance, repair and modification
services for aircraft, and repair and overhaul services on a wide range of
aircraft components. We provide inventory management services including
purchasing services, repair management, warehouse management, aircraft
disassembly services and consignment and leasing of aircraft parts and engines.
We also manufacture various aircraft parts for sale to original equipment
manufacturers, including precision engine parts.
Our strategy is to be the vendor of choice to our customers by providing
total inventory management and total aircraft maintenance solutions to meet our
customers' spare parts and maintenance, repair and overhaul requirements. We
believe our future growth will come from internal growth combined with growth
through additional acquisitions of companies which add to or expand our
existing product and service offerings. We expect to achieve internal growth
through:
/bullet/ increased customer penetration in existing markets;
/bullet/ improved capacity utilization of our maintenance and repair
facilities; and
/bullet/ continued expansion of the array of products and services which we
offer to customers.
The services we offer allow our customers to reduce their costs of
operations by outsourcing some or all of their inventory management and
maintenance, repair and overhaul functions and to take advantage of
opportunities to maximize the value of their spare parts inventories. As a
leading redistributor of aircraft spare parts we are able to better service our
maintenance and repair customers, due to the timely availability of our
extensive parts inventory. Similarly, as a leading provider of maintenance and
repair services, we are able to market our aircraft spare parts to our airline
customers.
INDUSTRY
We believe 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. We believe
that the total worldwide market for maintenance and repair services
1
<PAGE>
is approximately $27.0 billion annually and that $5.3 billion of that amount
represents maintenance, repair and modification services being provided in
North America. Airlines currently perform approximately 75% of the North
American services, outsourcing the balance to independent providers like
Aviation Sales. Due to trends currently affecting our industry, we believe that
the demand for maintenance and repair services from large independent operators
such as Aviation Sales will continue to increase in the future.
We believe that the trends currently affecting our industry are:
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS AND MAINTENANCE AND REPAIR
SERVICES. Boeing's 1998 Current Market Outlook report projects that:
/bullet/ the worldwide fleet of commercial airplanes will more than double
between 1997 and 2017;
/bullet/ the number of cargo jet aircraft will increase significantly
between 1997 and 2017; and
/bullet/ the aircraft fleet will continue to age.
We believe that a combination of these factors will increase the demand
for aircraft spare parts from the redistribution market and for maintenance and
repair services.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT AND MAINTENANCE AND REPAIR
REQUIREMENTS. We believe that airlines are seeking to reduce their operating
costs by obtaining replacement parts from the redistribution market. In
addition, by outsourcing all or a portion of their inventory management
functions and maintenance and repair requirements, airlines can achieve cost
savings. We believe that we can provide parts and services to our customers
less expensively and more efficiently because of economies of scale which we
can achieve in our business.
REDUCTION IN NUMBER OF APPROVED VENDORS. Airlines have been reducing the
number of their approved vendors. As a result of these reductions, there has
been and we believe there will continue to be a consolidation in the
redistribution and maintenance and repair markets.
CONSIGNMENT. We believe 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 Aviation Sales, 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
and enabling us to offer for sale a more significant parts inventory at minimal
capital cost to us.
COMPETITIVE STRENGTHS
We believe that the following factors contribute to our strong competitive
position:
DIVERSIFIED PRODUCTS AND SERVICES. We believe that our breadth of product
offerings and services, including a wide range of inventory management,
maintenance and repair services and specialized manufacturing, allows us to be
a vendor of choice to our customers in a highly fragmented industry. We have
over 1,000 customers, including commercial passenger airlines, air cargo
carriers and other maintenance and repair facilities.
LARGE INVENTORY BASE. We believe that we have one of the largest
inventories of aircraft spare parts in the world, with over 555,000 line items
currently in stock.
PROPRIETARY MANAGEMENT INFORMATION SYSTEMS. Our proprietary management
information systems are an integral component of our position as a leader in
our industry. Our computer systems collect
2
<PAGE>
and report data regarding inventory turnover, documentation, pricing, market
availability and customer demographic information on more than 3.7 million line
items. Our technology provides for rapid and accurate retrieval of inventory
traceability documents. The expense and complexity of implementing a system to
track this information acts as a barrier to new entrants into our markets.
EMPHASIS ON QUALITY. Our information systems allow us to provide
documentation that enables the aircraft parts and the maintenance we perform on
them to be traced. As industry, regulatory and public awareness have focused on
safety, our ability to track this information has become important to
customers.
All of our maintenance and repair facilities are licensed by the FAA. We
emphasize quality and on-time delivery to customers at our maintenance and
repair facilities.
WORLDWIDE MARKETING PRESENCE. Our international presence allows us to meet
the demands of our global customer base and to supply parts and services on a
timely basis. We distribute parts to customers in more than 100 countries and
utilize sales representatives in 23 countries.
SIGNIFICANT FINANCIAL AND OTHER RESOURCES. Our financial position, market
presence, industry experience and sophisticated management information systems
allow us to expand our products and services and to quickly analyze and
complete acquisitions of inventory when such opportunities arise.
OPERATIONS
Our core business is the buying and selling of aircraft spare parts, the
maintenance, repair and overhaul of aircraft and aircraft components and the
providing of inventory management services. Additionally, we manufacture
aircraft parts for sale to original equipment manufacturers.
SALES OF AIRCRAFT SPARE PARTS AND INVENTORY MANAGEMENT SERVICES
Our daily operations encompass inventory sales, brokering and exchanging
of aircraft spare parts. We purchase parts on behalf of our customers against
specific orders. We also offer a customer exchange program for aircraft spare
parts. In addition, we provide our customers the following inventory management
services: consignment, repair management, aircraft disassembly, warehouse
management, purchasing services and leasing. These services assist airlines in
streamlining their inventory management operations while utilizing their
capital more efficiently and reducing their costs.
MAINTENANCE AND REPAIR SERVICES
Through our six FAA-licensed repair facilities, we provide maintenance and
repair services for commercial, military and freighter aircraft and for a wide
range of aircraft components.
MANUFACTURING SERVICES
We also manufacture various aircraft parts for sale to original equipment
manufacturers, including precision engine parts.
Aviation Sales was incorporated in 1996, as the successor to a business
organized in 1992. Our principal executive offices are located at 6905 N.W.
25th Street, Miami, Florida 33122. Our telephone number is (305) 592-4055.
3
<PAGE>
THE STOCK OFFERING
<TABLE>
<S> <C>
Total shares offered by this prospectus ................... 3,500,000 shares
Offered by us ............................................. 2,600,000 shares
Offered by the selling stockholders ....................... 900,000 shares
Common stock to be outstanding after the offering ......... 15,153,775 shares
Use of proceeds ........................................... We intend to use the net proceeds from the
offering to reduce amounts outstanding under
our credit facility
New York Stock Exchange symbol ............................ "AVS"
</TABLE>
The number of shares that will be outstanding after the offering is based
on the number outstanding as of April 16, 1999. It excludes:
/bullet/ 1,659,541 shares of common stock issuable upon exercise of stock
options outstanding as of April 16, 1999, of which options to
purchase 829,719 shares were then exercisable; and
/bullet/ 552,987 shares reserved for issuance under our stock option plan
and our directors' stock option plan as of April 16, 1999.
THE NOTES OFFERING
Concurrently with this offering, we intend to issue $85.0 million of our
8 1/8% senior subordinated notes due 2008 in a public offering by a separate
prospectus. The stock offering and the notes offering are not conditioned upon
each other. The notes will be issued pursuant to an existing indenture under
which we have already issued $165.0 million of notes and will be unsecured
senior subordinated indebtedness. We intend to use the net proceeds of the
notes offering (estimated to be $82.7 million) to reduce amounts outstanding
under our credit facility.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data for the three
years ended December 31, 1996, 1997 and 1998 has been derived from our
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent certified public accountants, and are included elsewhere in
this prospectus.
The summary consolidated financial data should be read in conjunction with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the audited historical
financial statements of Aviation Sales and notes which are contained elsewhere
in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
PRO FORMA
1996(1) 1997(1) 1998(1) 1998(2)
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues ................................ $ 231,734 $ 322,538 $ 500,816 $ 614,982
Gross profit ...................................... 61,947 77,780 128,088 147,692
Income from operations ............................ 27,989 24,998 61,369 68,448
Net income(3) ..................................... 19,815 4,844 25,493 27,415
SHARE DATA(4):
Diluted net income per share(3) ................... $ 1.19 $ 0.39 $ 2.01 $ 2.15
Weighted average number of diluted shares ......... 10,769 12,450 12,696 12,729
OTHER DATA:
EBITDA(5) ......................................... $ 31,408 $ 30,231 $ 71,609 $ 81,171
Net cash used in operating activities ............. (12,064) (53,738) (70,954) (56,773)
Depreciation and amortization ..................... 3,419 5,233 10,240 12,723
Capital expenditures .............................. 5,549 8,133 16,618 20,089
Cash interest(6) .................................. 4,795 7,673 20,233 24,070
Ratio of total debt to EBITDA ..................... 5.1x 4.5x
Ratio of EBITDA to cash interest .................. 3.5x 3.4x
Ratio of earnings to fixed charges(7) ............. 2.8x 2.6x
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
AS FURTHER
PRO FORMA(2) AS ADJUSTED(2)(8) ADJUSTED(2)(9)
-------------- ------------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
AS ADJUSTED(8); AND AS FURTHER ADJUSTED(9) DATA:
Cash interest(6) .................................. $ 24,070 $ 16,017 $ 19,912
Net income ........................................ 27,415 32,327 29,794
Diluted net income per share ...................... 2.15 2.11 1.94
Weighted average number of diluted shares ......... 12,729 15,329 15,329
Ratio of total debt to EBITDA ..................... 4.5x 3.2x 3.4x
Ratio of EBITDA to cash interest .................. 3.4x 5.1x 4.1x
Ratio of earnings to fixed charges(7) ............. 2.6x 3.8x 3.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(8) ADJUSTED(9)
---------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 10,536 $ 10,536 $ 28,599
Working capital .................... 169,742 279,137 361,812
Total assets ....................... 599,377 599,377 619,765
Total debt ......................... 366,176 256,781 277,169
Total stockholders' equity ......... 154,298 263,693 263,693
Total capitalization ............... 520,474 520,474 540,862
</TABLE>
5
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- ----------------
(1) Dixie Bearings, Inc., which was acquired in August 1996, Kratz-Wilde
Machine Company, which was acquired in October 1997, Caribe Aviation,
Inc., which was acquired in March 1998 and Triad International Maintenance
Corporation (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 our historical results of operations
from their respective dates of acquisition.
AvEng Trading Partners, which was acquired in December 1996, Aerocell
Structures, Inc., which was acquired in September 1997, Apex Manufacturing,
Inc., which was acquired in December 1997, and Whitehall Corporation, which
was acquired in July 1998, are accounted for under the pooling of interests
method of accounting. Whitehall and AvEng are included in our historical
financial results for all periods presented. Historical operating results
for periods presented prior to 1997 have not been restated to give
retroactive effect to the acquisitions of Aerocell and Apex, due to the
immateriality of the restated amounts.
(2) Reflects the acquisitions of TIMCO and Caribe as if such acquisitions had
occurred on January 1, 1998 for statement of income, share and other data
and as of December 31, 1998 for balance sheet data.
(3) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as we conducted our business as a partnership prior to June
26, 1996.
(4) See Note 10 to the consolidated financial statements for information
regarding the computation of fully diluted net income per share.
(5) EBITDA represents income before income taxes plus net interest expense and
depreciation and amortization (excluding amortization of deferred
financing costs and original issue discount). While EBITDA should not be
construed as a substitute for income from operations or a better indicator
of liquidity than net cash used in operating activities, which are
determined in accordance with generally accepted accounting principles, it
is included herein to provide additional information with respect to the
ability of Aviation Sales to meet its future debt service, capital
expenditures and working capital requirements. In addition, Aviation Sales
believes that certain investors find EBITDA to be a useful tool for
measuring the ability of Aviation Sales to service its debt. EBITDA as
presented is not necessarily a measure of Aviation Sales' ability to fund
cash needs and may not be comparable to other similarly titled measures of
other companies.
(6) Cash interest is interest expense excluding amortization of deferred
financing costs and original issue discount.
(7) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before extraordinary items, interest expense, income tax
expense, and a portion of rent expense representative of the interest
component by the sum of interest expense and the portion of rent expense
representative of the interest component.
(8) Reflects the sale of 2,600,000 shares of common stock offered by this
prospectus by Aviation Sales at an assumed public offering price of $45.00
per share and application of the estimated net proceeds of $109.4 million
and as if such transactions had occurred as of January 1, 1998 for As
Adjusted Income Data and as of December 31, 1998 for As Adjusted Balance
Sheet Data.
(9) Reflects (i) the sale of 2,600,000 shares of common stock as described in
Note 8 above, and (ii) the concurrent offering of $85.0 million of senior
subordinated notes and application of the estimated net proceeds of $82.7
million, as if such transactions had occurred as of January 1, 1998 for As
Further Adjusted Income Data and as of December 31, 1998 for As Further
Adjusted Balance Sheet Data. The stock offering and the notes offering are
not conditioned upon each other.
6
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO INVEST IN OUR COMMON STOCK. WE URGE YOU TO CAREFULLY CONSIDER THESE
RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS, BEFORE YOU MAKE AN INVESTMENT DECISION. PLEASE NOTE THAT THE RISKS
DESCRIBED BELOW ARE NOT THE ONLY ONES FACING AVIATION SALES.
PROBLEMS IN THE AIRLINE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS
Since our customers consist of airlines, maintenance and repair facilities
that service airlines and other aircraft spare parts redistributors, as well as
original equipment manufacturers, economic factors affecting the airline
industry impact our business. When economic factors adversely affect the
airline industry, they tend to reduce the overall demand for aircraft spare
parts and maintenance and repair services, causing downward pressure on pricing
and increasing the credit risks associated with doing business with airlines.
Additionally the price of fuel affects the aircraft spare parts and maintenance
and repair markets, since older aircraft, which consume more fuel and which
account for most of our aircraft spare parts and maintenance and repair
services business, become less viable as the price of fuel increases. We cannot
assure you that economic and other factors which may affect the airline
industry will not adversely impact our business, financial condition or results
of operations.
WE HAVE SUBSTANTIAL DEBT WHICH WE MAY BE UNABLE TO SERVICE
We have and will continue to have a significant amount of debt. As of March
31, 1999, we had outstanding indebtedness of approximately $403.5 million
(including capitalized leases), of which $215.2 million was senior indebtedness
and $188.3 million was other indebtedness. As of March 31, 1999, we had
approximately $6.7 million available for future borrowing under our credit
facility and our principal and interest payment requirements for 1999 are
approximately $35.2 million. Our credit facility is secured by substantially all
of our assets. Subject to limitations in these debt instruments, we will likely
be able to incur significant additional amounts of secured and unsecured
indebtedness in the future. Our ability to make payments of principal and
interest on, or to refinance, our indebtedness depends on our future operating
performance, which may be subject to economic, financial, competitive and other
factors beyond our control. The level of our indebtedness could have important
consequences to you, including:
/bullet/ our vulnerability to adverse general economic and industry
conditions;
/bullet/ our ability to obtain additional financing for future working
capital expenditures, general corporate or other purposes; and
/bullet/ the dedication of a substantial portion of our future cash flow
from operations to the payment of principal and interest on
indebtedness, thereby reducing the funds available for operations
and future business opportunities.
Concurrently with this stock offering, we intend to sell $85.0 million in
additional senior subordinated notes in a public offering by a separate
prospectus. We intend to use the net proceeds from the notes offering
(estimated to be $82.7 million) to reduce amounts outstanding under our credit
facility.
WE DEPEND ON FINANCING TRANSACTIONS TO SUPPORT OUR GROWTH
During 1996, 1997 and 1998, we relied primarily upon significant
borrowings under our credit facility, and sales of our securities, including
our senior subordinated notes, to satisfy our funding requirements relating to
our acquisitions of several businesses and to finance the growth of our
business. We cannot assure you that financing alternatives will be available to
us in the future to support continued growth.
OUR LENDERS IMPOSE SIGNIFICANT RESTRICTIONS ON US
Our credit facility and the senior subordinated notes impose significant
operating and financial restrictions on us. These restrictions may
significantly limit our ability to incur additional indebtedness,
7
<PAGE>
pay dividends, repay indebtedness prior to its stated maturity, sell assets or
engage in mergers or acquisitions. In addition, our failure to comply with
these restrictions could result in an event of default which, if not cured or
waived, could materially adversely affect our business, financial condition or
results of operations.
OUR OPERATING RESULTS FLUCTUATE AND COULD DECLINE
Our operating results have fluctuated in the past and may fluctuate
significantly in the future. Many factors affect our operating results,
including:
/bullet/ the timing of orders and the timing of payments from large
customers;
/bullet/ the timing of expenditures to purchase inventory in anticipation
of future sales;
/bullet/ the timing of bulk inventory purchases;
/bullet/ the number of airline customers seeking maintenance and repair
services at any time;
/bullet/ our ability to fully utilize from period to period our hangar
space dedicated to maintenance and repair operations; and
/bullet/ the timeliness of customer aircraft in arriving for scheduled
maintenance and the mix of available aircraft spare parts
contained, at any time, in our inventory.
A large portion of our operating expenses are relatively fixed. Since we
usually do not obtain long-term purchase orders or commitments from our
customers, we must anticipate the future orders based upon the historic needs
of our customers and upon our discussions with our customers as to their future
needs. Cancellations, reductions or delays in orders by a customer or group of
customers could materially adversely affect our business, financial condition
or results of operations.
OUR BUSINESS IS SUBJECT TO HEAVY GOVERNMENT REGULATION
The aviation industry is highly regulated by the FAA in the United States
and by similar agencies in other countries. We must be certified by the FAA in
order to repair aircraft and aircraft components.
While our redistribution business itself is not regulated, the aircraft
spare parts which we sell to our customers must be accompanied by documentation
which enables our customers to substantiate their compliance with applicable
regulatory requirements.
Before parts may be installed in an aircraft, they must meet 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. Our parts may not meet applicable standards or standards may
change in the future, requiring parts already in our inventory to be scrapped
or modified. Aircraft manufacturers may also develop new parts to be used in
lieu of parts already in our inventory. To the extent that we have any of these
parts in our inventory, their value may be reduced.
We cannot assure you that new and more stringent government regulations
will not be adopted in the future or that any such new regulations, if enacted,
would not materially adversely affect our business, financial condition or
results of operations.
OUR GROWTH AND FUTURE ACQUISITIONS MAY STRAIN OUR RESOURCES
The key element of our growth strategy involves growth through the
acquisition of additional inventories of aircraft spare parts and the
acquisition of other companies, assets or product lines that complement or
expand our existing business. Our ability to grow through acquisitions depends
upon, and may be limited by, the availability of suitable aircraft parts
inventories, acquisition candidates and
8
<PAGE>
capital, and by restrictions imposed under our credit facility and our senior
subordinated notes. In addition, acquisitions of other companies involve risks
that could adversely affect our business, financial condition or operating
results, including:
/bullet/ the integration of the operations and personnel of acquired
companies;
/bullet/ the potential amortization of acquired intangible assets; and
/bullet/ the potential loss of key employees of the acquired companies.
We cannot assure you that we will be able to complete future acquisitions on
satisfactory terms or successfully operate acquired businesses.
WE DEPEND ON OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our continued success depends significantly upon the services of our
executive officers and upon our ability to attract and retain qualified
personnel. We have employment agreements with several of our executive
officers. Some of these employment agreements can be terminated by the
executive officer upon a change of control of our business. The loss of one or
more of our executive officers without capable successors could materially
adversely affect our business, financial condition or results of operations.
OUR BUSINESS IS HIGHLY COMPETITIVE
The airline industry and the markets for our products and services are
extremely competitive, and we face competition from a number of sources. Our
competitors include aircraft manufacturers, aircraft parts manufacturers,
airline and aircraft service companies, other companies providing maintenance,
repair and overhaul services, and other aircraft spare parts redistributors.
Some of our competitors have substantially greater financial and other
resources than us. We cannot assure you that competitive pressures will not
materially adversely affect our business, financial condition or results of
operations.
OUR INFORMATION TECHNOLOGY SYSTEM MAY BE SUBJECT TO YEAR 2000 PROBLEMS
We have determined that the management information system which we
currently use in our redistribution operations is not Year 2000 compliant. We
have commenced remediation to make it Year 2000 compliant so that our existing
system remains available for our use until the new system which we are
implementing for our distribution business becomes operational. The cost of
this Year 2000 remediation is expected to be approximately $2.1 million. We
believe that our existing system will be substantially remediated by the end of
August 1999 and that validation for our system, as remediated, should be
completed by the beginning of the fourth quarter of 1999, although we can not
assure you of this. Our failure to bring the existing system for our
redistribution operations into Year 2000 compliance would likely materially
adversely affect our business, in that it would make it very difficult for us
to operate our business in the ordinary course and would likely cause us to
lose revenue and have business interruptions of a material nature.
OUR BUSINESS IS SUSCEPTIBLE TO PRODUCT LIABILITY CLAIMS
Our business exposes us to possible claims for personal injury or death
which may result if an aircraft spare part which we have sold, manufactured or
repaired fails or if we were negligent in repairing an airplane. We cannot
assure you that claims will not arise in the future or that our insurance
coverage will be adequate to protect us in all circumstances. Additionally, we
cannot assure you that we will be able to maintain adequate insurance coverages
in the future at an acceptable cost. Any product liability claim not covered by
adequate insurance could materially adversely affect our business, financial
condition or results of operations.
OUR SIGNIFICANT STOCKHOLDERS MAY SUBSTANTIALLY INFLUENCE OUR BUSINESS
As of April 19, 1999, two of our stockholders beneficially owned
approximately 18.9% and 8.4%, of our outstanding common stock and will own
12.3% and 4.3% after the offering. Our directors and
9
<PAGE>
executive officers, as a group, beneficially owned an aggregate of
approximately 34.0% (including the 27.3% referred to above) of our outstanding
common stock and will own 22.5% after the offering. While each of these
stockholders is an independent party, if these parties were to act together as
a group, they would have the ability to exercise substantial influence on the
election of all of the members of our board of directors and, therefore, to
exercise substantial influence on our business, policies and affairs.
WE ARE SUBJECT TO SIGNIFICANT ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that may
have the effect of discouraging transactions involving an actual or threatened
change of control. In addition, our board of directors has the authority to
issue up to 1,000,000 shares of preferred stock in one or more series and to
fix the preferences, rights and limitations of any these series without
stockholder approval. Our ability to issue preferred stock could discourage
unsolicited acquisition proposals or make it more difficult for a third party
to gain control of us, which could adversely affect the market price of our
common stock.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE DEPRESSED BY FUTURE SALES
Future sales of our common stock, or the perception that these sales could
occur, could adversely affect the market price of our common stock. We cannot
assure you as to when, and how many of, the shares of our common stock will be
sold and the effect these sales may have on the market price of our common
stock. In addition, we may issue additional shares of common stock in
connection with possible future acquisitions or other transactions. Although
these securities may be subject to regulatory or contractual resale
restrictions, as these restrictions lapse or if these shares are registered for
sale to the public, they may be sold to the public. In the event we issue a
substantial number of shares of our common stock, which subsequently become
available for unrestricted resale, there could be a material adverse effect on
the prevailing market price of our common stock.
USE OF PROCEEDS
The net proceeds to Aviation Sales from the sale of the 2,600,000 shares
of common stock offered by Aviation Sales under this prospectus are estimated
to be approximately $109.4 million at an assumed public offering price of
$45.00 per share and after deducting the estimated underwriting discount and
offering expenses payable by Aviation Sales.
We expect to use the net proceeds from this offering to reduce the amounts
outstanding under our credit facility. Our 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. Interest under the
credit facility is, at our option, (a) prime plus a margin ranging from 0.0% to
1.0%, or (b) LIBOR plus a margin ranging from 1.125% to 2.5%. At December 31,
1998, the margin was 0.5% for prime rate loans and 2.0% for LIBOR rate loans.
The indebtedness will mature in 2002. We used the proceeds of our revolving
credit facility to acquire TIMCO and Whitehall, as well as for working capital.
We will not receive any of the net proceeds from the sale of shares by the
selling stockholders.
Concurrently with this offering, we intend to issue $85.0 million of our
8 1/8% senior subordinated notes due 2008 in a public offering by a separate
prospectus with net proceeds estimated to be $82.7 million. We intend to use
the net proceeds from the note offering to reduce amounts outstanding under our
credit facility. The stock offering and the notes offering are not conditioned
on each other.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth
of our business.
10
<PAGE>
CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1998
and as adjusted to give effect to our receipt of the estimated net proceeds
from the sale by Aviation Sales of 2,600,000 shares of common stock offered by
this prospectus at an assumed public offering price of $45.00 per share and as
further adjusted to give effect to the concurrent offering of $85.0 million of
senior subordinated notes offered in a separate prospectus and the application
of the estimated net proceeds. The consummation of the stock offering and the
consummation of the notes offering are not conditioned upon each other. You
should read this information in conjunction with our consolidated financial
statements and the related notes that appear in this prospectus beginning on
page F-1.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
---------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents .................................... $ 10,536 $ 10,536 $ 28,599
======== ======== ======
Long term debt, including current maturities(1):
Revolving loan(2) ........................................... $174,007 $ 64,612 $ --
Senior subordinated notes ................................... 164,163 164,163 249,163
Other debt .................................................. 28,006 28,006 28,006
-------- -------- --------
Total long term debt ....................................... 366,176 256,781 277,169
-------- -------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding .......................................... -- -- --
Common stock, $.001 par value, 30,000,000 shares authorized;
12,515,809 shares issued and outstanding; and 15,115,809
shares issued and outstanding, as adjusted and as further
adjusted(3) ............................................... 12 15 15
Additional paid-in capital .................................. 64,344 173,736 173,736
Retained earnings ........................................... 89,942 89,942 89,942
-------- -------- --------
Total stockholders' equity ................................. 154,298 263,693 263,693
-------- -------- --------
Total capitalization ...................................... $520,474 $520,474 $540,862
======== ======== ========
</TABLE>
- ----------------
(1) For a description of our outstanding long-term debt see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(2) As of March 31, 1999, $215.2 million was outstanding under the credit
facility.
(3) Excludes (A) 1,659,541 shares subject to options outstanding as of the date
of this prospectus and (B) 552,987 additional shares reserved for
issuance pursuant to options available for grant under our stock option
plans. See "Management--Stock Option Plans."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data has been
derived from our consolidated financial statements. Our financial statements as
of December 31, 1997 and 1998, and for the years ended December 31, 1996, 1997
and 1998, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their report included elsewhere herein. The
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited historical financial statements of Aviation Sales and notes which
are contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(1)
-------------------------------------
1994 1995 1996
----------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues ........................................... $ 60,289 $ 169,771 $ 231,734
Gross profit ................................................. 20,686 50,333 61,947
Income from operations ....................................... 3,061 21,449 27,989
Interest and other (income) expense .......................... 3,044 7,262 4,950
Income before income taxes, equity (income) losses of
affiliate and extraordinary item ............................ 17 14,187 23,039
Income tax expense ........................................... -- 914 1,617
Equity (income) losses of affiliate, net of income taxes ..... 50 38 (255)
Extraordinary item, net of income taxes ...................... -- -- 1,862
-------- --------- ---------
Net income (loss)(3) ......................................... $ (33) $ 13,235 $ 19,815
======== ========= =========
SHARE DATA(4):
Diluted net income per share(3) .............................. $ -- $ 1.01 $ 1.19
======== ========= =========
Weighted average number of diluted shares .................... 8,699 9,161 10,769
======== ========= =========
OTHER DATA:
EBITDA(5) .................................................... $ 4,460 $ 24,011 $ 31,408
Net cash provided by (used in) operating activities .......... 14,093 12,680 (12,064)
Depreciation and amortization ................................ 1,399 2,563 3,419
Capital expenditures ......................................... 1,002 2,566 5,549
Cash interest(6) ............................................. 3,677 7,621 4,795
Ratio of total debt to EBITDA ................................
Ratio of EBITDA to cash interest .............................
Ratio of earnings to fixed charges(7) ........................
<CAPTION>
YEARS ENDED DECEMBER 31,(1)
-----------------------------------------
PRO FORMA
1997 1998 1998(2)
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues ........................................... $ 322,538 $ 500,816 $ 614,982
Gross profit ................................................. 77,780 128,088 147,692
Income from operations ....................................... 24,998 61,369 68,448
Interest and other (income) expense .......................... 12,755 21,147 24,984
Income before income taxes, equity (income) losses of
affiliate and extraordinary item ............................ 12,243 40,222 43,464
Income tax expense ........................................... 7,260 15,486 16,806
Equity (income) losses of affiliate, net of income taxes ..... 139 (1,356) (1,356)
Extraordinary item, net of income taxes ...................... -- 599 599
---------- ----------- -----------
Net income (loss)(3) ......................................... $ 4,844 $ 25,493 $ 27,415
========== =========== ===========
SHARE DATA(4):
Diluted net income per share(3) .............................. $ 0.39 $ 2.01 $ 2.15
========== =========== ===========
Weighted average number of diluted shares .................... 12,450 12,696 12,729
========== =========== ===========
OTHER DATA:
EBITDA(5) .................................................... $ 30,231 $ 71,609 $ 81,171
Net cash provided by (used in) operating activities .......... (53,738) (70,954) (56,773)
Depreciation and amortization ................................ 5,233 10,240 12,723
Capital expenditures ......................................... 8,133 16,618 20,089
Cash interest(6) ............................................. 7,673 20,233 24,070
Ratio of total debt to EBITDA ................................ 5.1x 4.5x
Ratio of EBITDA to cash interest ............................. 3.5x 3.4x
Ratio of earnings to fixed charges(7) ........................ 2.8x 2.6x
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
AS FURTHER
PRO FORMA(2) AS ADJUSTED(2)(8) ADJUSTED(2)(9)
-------------- ------------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
AS ADJUSTED(8) AND AS FURTHER ADJUSTED(9):
Cash interest(6) .................................. $ 24,070 $ 16,017 $ 19,912
Net income ........................................ 27,415 32,327 29,794
Diluted net income per share ...................... 2.15 2.11 1.94
Weighted average number of diluted shares ......... 12,729 15,329 15,329
Ratio of total debt to EBITDA ..................... 4.5x 3.2x 3.4x
Ratio of EBITDA to cash interest .................. 3.4x 5.1x 4.1x
Ratio of earnings to fixed charges(7) ............. 2.6x 3.8x 3.1x
</TABLE>
12
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998 1998
---------- ---------- ---------- ---------- ---------- ------------- ------------
AS AS FURTHER
ADJUSTED(8) ADJUSTED(9)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ...... $ 10,938 $ 7,635 $ 3,918 $ 6,237 $ 10,536 $ 10,536 $ 28,599
Working capital ................ 69,610 68,039 88,222 89,988 169,742 279,137 361,812
Total assets ................... 121,477 134,660 190,118 341,332 599,377 599,377 619,765
Total debt ..................... 69,152 62,042 42,360 165,802 366,176 256,781 277,169
Total stockholders' equity ..... 34,068 44,298 115,896 121,279 154,298 263,693 263,693
Total capitalization ........... 103,220 106,340 158,256 287,081 520,474 520,474 540,862
</TABLE>
- ----------------
(1) Dixie Bearings, which was acquired in August 1996, Kratz-Wilde, which was
acquired in October 1997, Caribe, which was 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 our historical results of operations from their
respective dates of acquisition.
AvEng, which was acquired in December 1996, Aerocell, which was acquired in
September 1997, Apex, which was acquired in December 1997, and Whitehall,
which was acquired in July 1998, are accounted for under the pooling of
interests method of accounting. Whitehall is included in our historical
financial results for all periods presented, AvEng is included 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 prior
to 1997 have not been restated to give retroactive effect to the
acquisitions of Aerocell and Apex, due to the immateriality of the restated
amounts.
(2) Reflects the acquisitions of TIMCO and Caribe as if such acquisitions had
occurred on January 1, 1998 for statement of income, share and other data
and as of December 31, 1998 for balance sheet data.
(3) Periods presented prior to 1997 include pro forma adjustments to record
income taxes, as we conducted our business as a partnership prior to June
26, 1996.
(4) See Note 10 to the consolidated financial statements for information
regarding the computation of fully diluted net income per share.
(5) EBITDA represents income before income taxes plus net interest expense and
depreciation and amortization (excluding amortization of deferred
financing costs and original issue discount). While EBITDA should not be
construed as a substitute for income from operations or a better indicator
of liquidity than net cash used in operating activities, which are
determined in accordance with generally accepted accounting principles, it
is included herein to provide additional information with respect to the
ability of Aviation Sales to meet its future debt service, capital
expenditures and working capital requirements. In addition, Aviation Sales
believes that certain investors find EBITDA to be a useful tool for
measuring the ability of Aviation Sales to service its debt. EBITDA as
presented is not necessarily a measure of Aviation Sales' ability to fund
cash needs and may not be comparable to other similarly titled measures of
other companies.
(6) Cash interest is interest expense excluding amortization of deferred
financing costs and original issue discount.
(7) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before extraordinary items, interest expense, income tax
expense, and a portion of rent expense representative of the interest
component by the sum of interest expense and the portion of rent expense
representative of the interest component.
(8) Reflects the sale of 2,600,000 shares of common stock offered by this
prospectus at an assumed public offering price of $45.00 per share and
application of the estimated net proceeds of $109.4 million as if such
transactions had occurred as of January 1, 1998 for As Adjusted Income
Data and as of December 31, 1998 for As Adjusted Balance Sheet Data.
(9) Reflects (i) the sale of 2,600,000 million shares of common stock as
described in Note 8 above, and (ii) the concurrent offering of $85.0
million of senior subordinated notes and application of the estimated net
proceeds of $82.7 million, as if such transactions had occurred as of
January 1, 1998 for As Further Adjusted Income Data and as of December 31,
1998 for As Further Adjusted Balance Sheet Data. The stock offering and
the notes offering are not conditioned upon each other.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 our inventory. Revenues and gross profit can be
impacted by the timing of bulk inventory purchases. In general, bulk inventory
purchases allow us to obtain large inventories of aircraft spare parts at a
lower cost than can ordinarily be obtained by purchasing such parts on an
individual basis.
Many factors affect our operating results, including:
/bullet/ the timing of orders and the timing of payments from large
customers;
/bullet/ the timing of expenditures to purchase inventory in anticipation
of future sales;
/bullet/ the timing of bulk inventory purchases;
/bullet/ the number of airline customers seeking maintenance and repair
services at any time;
/bullet/ our ability to fully utilize from period to period our hangar
space dedicated to maintenance and repair operations;
/bullet/ the timeliness of customer aircraft in arriving for scheduled
maintenance; and
/bullet/ the mix of available aircraft spare parts contained, at any time,
in our inventory.
A large portion of our operating expenses are relatively fixed. Since we
typically do not obtain long-term purchase orders or commitments from our
customers, we must anticipate the future volume of orders based upon the
historic purchasing patterns of our customers and upon our discussions with our
customers as to their future requirements. Cancellations, reductions or delays
in orders by a customer or group of customers could materially adversely affect
our business, financial condition and results of operations.
Aviation Sales believes its future growth will come from internal growth
combined with growth through additional acquisitions. Internal growth during
1996, 1997 and 1998, was driven by:
/bullet/ increased customer penetration in existing markets;
/bullet/ improved capacity utilization of our maintenance and repair
facilities; and
/bullet/ continued expansion of the array of products and services which we
offer to customers.
14
<PAGE>
We also expect to continue to grow through acquisitions. Our acquisitions
in 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
DATE OF ACQUISITION COMPANY ACQUIRED BUSINESS LINE
- --------------------- -------------------------------- ----------------------------------------
<S> <C> <C>
September 1998 TIMCO Airframe heavy maintenance
July 1998 Whitehall Corporation Airframe heavy maintenance
March 1998 Caribe Aviation, Inc. Aircraft component maintenance
March 1998 Aircraft Interior Design, Inc. Aircraft interior refurbishment
December 1997 Apex Manufacturing, Inc. Specialty manufacture of aircraft parts
October 1997 Kratz-Wilde Machine Co. Specialty manufacture of aircraft parts
September 1997 Aerocell Structures, Inc. FAA-licensed repair station
December 1996 AvEng Trading Partners Redistribution of aircraft engine parts
August 1996 Dixie Bearings, Inc. Provider of aircraft bearings
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The following tables set forth information relating to our operations for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1998
-------------------------- ------------------------
$ % $ %
------------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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%
========= ===== ======== =====
Historical diluted net income per share ...................... $ 0.39 $ 2.01
========= ========
</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 our 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 by the government in June 1997.
15
<PAGE>
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. The
cancellation of the C-130 contract unfavorably impacted margins in 1997. The
improved utilization of our heavy maintenance and repair facilities favorably
impacted our gross profit margin during 1998, which was partially offset by an
increase in the percentage of our total business derived from our maintenance
and repair operations that generally operate at lower gross profit margin
percentage than our redistribution operations.
Our 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 16.3% 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 Aviation 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.
As a result of the above factors, income before income taxes, equity
(income) losses of affiliate and extraordinary item for the year ended December
31, 1998 was $40.2 million, compared to $12.2 million in 1997.
Equity (income) losses of affiliate, net of income taxes, increased from a
loss of $140,000 to income of $1.4 million in 1998, due to increased sales of
aircraft noise reduction kits.
During the first quarter of 1998, we repaid all of our outstanding term
and revolving indebtedness with the proceeds from the sale of our senior
subordinated notes. In connection with the repayment of this debt, during the
first quarter of 1998, we wrote off $1.0 million of deferred financing costs.
This resulted in an extraordinary item, net of income taxes, of $599,000.
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.
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<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following tables set forth information relating to our operations for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997
------------------------ --------------------------
$ % $ %
----------- ---------- ------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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%
======== ===== ========= =====
Historical diluted net income per share ...................... $ 1.84 $ 0.39
======== =========
</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 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 canceled by the
government. Operating revenues increased due to the inclusion of a full year of
sales from our bearings distribution business, which was acquired in August
1996, increased revenues from leasing activities, increased customer
penetration, increased sales due to our investment in and availability of
increased amounts of inventory and the continued expansion of inventory
management services being offered to and utilized by our 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 loss of the C-130 contract
contributed to this decrease. In addition to the fixed costs associated with
the idle hangar space, we 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 our lower margin bearings distribution business
acquired in August 1996.
Our 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
17
<PAGE>
recorded by Whitehall. 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 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 our continued
growth.
Other income and expense in 1997 included a $4.5 million writedown by
Whitehall of its investment in the preferred stock of the purchaser of its
ocean systems business. Whitehall wrote off this investment prior to our
acquisition of Whitehall. 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 $255,000 in 1996 to a loss of $139,000 in 1997.
Prior to June 26, 1996, our operations were conducted by a partnership
and, therefore, our 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 the partners. Additionally, income
taxes for 1996 were offset by one-time deferred tax benefits of approximately
$4.9 million associated with our organization. No such tax benefit was realized
in 1997.
In connection with our initial public offering, we repaid all outstanding
term and revolving indebtedness. As a result, during 1996 we 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.
Net income for the year ended December 31, 1997 was $4.8 million ($.39 per
diluted share) compared to net income of $19.8 million ($1.84 per diluted
share) for 1996. Weighted average common and common equivalent shares
outstanding (diluted) were 12.5 million for the year ended December 31, 1997,
compared with 10.8 million for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH
Cash used in operations was $12.1 million in 1996, $53.7 million in 1997
and $71.0 million in 1998. Cash used in investing activities was $22.2 million
in 1996, $58.4 million in 1997 and $114.3 million in 1998. We continue to
invest in spare parts inventories in order to support increased parts sales and
continue to grow through strategic acquisitions. We financed our operating and
investing activities primarily with our cash flow from financing activities,
amounting to $30.6 million in 1996, $114.4 million in 1997, and $189.5 million
in 1998.
CAPITAL EXPENDITURES
We incurred capital expenditures of approximately $5.5 million in 1996,
$8.1 million in 1997 and $16.6 million in 1998, primarily to make enhancements
to our management information systems, telecommunications systems and to
renovate one of our maintenance facilities and other capital equipment and
improvements. We anticipate that we will incur capital expenditures of
approximately $27.4 million in 1999 for new equipment for our manufacturing
operations, fixtures for our new corporate headquarters, new management
information systems and enhancements to the existing management information
systems, as well as ordinary course replacement of existing equipment.
Financing for such expenditures will be provided from operations and from
borrowings under our credit facility.
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<PAGE>
As part of our growth strategy, we intend to continue to grow through
internal expansion as well as acquisitions of other businesses. Financing for
such activities will be provided by earnings and by borrowings under our credit
facility and potential issuances of additional debt and/or equity securities.
We believe that available capital resources under our credit facility will be
sufficient to satisfy our anticipated working capital requirements over the
next twelve months.
ENVIRONMENTAL
We are taking remedial action pursuant to regulations of the Environmental
Protection Agency ("EPA") and Florida Department of Environmental Protection
("FDEP") at our facility in Lake City. We are conducting ongoing testing and
gathering new information to continually assess the impact and magnitude of the
required remediation efforts on us. Based upon the most recent cost estimates
provided by environmental consultants, we believe that the total remaining
testing, remediation and compliance costs for this facility will be
approximately $2.4 million. We have substantially completed testing and
evaluation for all known sites on our property in Lake City, and we have
commenced a remediation program. We are currently monitoring the remediation
which will extend into the future. Subsequently, we increased our accruals
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, we believe that we have established an accrual
for a reasonable estimate of the costs associated with our current remediation
strategies. To comply with the financial assurances required by the FDEP, we
have issued a $1.7 million standby letter of credit in favor of the FDEP.
Additionally, there are other areas adjacent to our facility in Lake City
that could also require remediation. We do not believe that we are responsible
for these areas; however, it may be asserted that TIMCO and other parties are
jointly and severally liable and are responsible for the remediation of those
properties. No estimate of any such costs to us 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, recently exercised its option of
requiring Whitehall to repurchase this property for $300,000.
We have accrued $3.4 million towards potential obligations to remediate
the environmental matters described above.
Future information and developments will require us to continually
reassess the expected impact of the environmental matters discussed above.
Actual costs incurred in future periods may vary from the estimate, given the
inherent uncertainties in evaluating environmental exposures. These
uncertainties include the extent of required remediation based on testing and
evaluation not yet completed and the varying costs and effectiveness of
remediation methods.
CREDIT FACILITY
We have a credit facility with a syndicate of financial institutions. Our
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 our assets, including substantially all of our receivables
and inventory. Interest under the credit facility is, at our option, (a) prime
plus a margin, or (b) LIBOR plus a margin, where the respective margin
determination is made upon our 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.
Our credit facility contains financial covenants regarding our financial
performance and other covenants, including limitations on the amount of our
annual capital expenditures and the ability to
19
<PAGE>
incur additional debt, and provides for the suspension of borrowing and
repayment of all debt in the event of a material adverse change in our business
or a change in control. In addition, the credit facility requires mandatory
repayments from the proceeds of a sale of our assets or an issuance of our
equity or debt securities or as a result of insufficient collateral to meet the
borrowing base requirements thereunder. At December 31, 1998, we were not in
compliance with one of our non-monetary financial covenants and we have
obtained a waiver from the lender relating to that covenant. At March 31, 1999,
$6.7 million was available for borrowing under the credit facility and
outstanding letters of credit aggregated $22.6 million.
Following our sale of common stock offered by this prospectus and the
application of the net proceeds from this sale, we will have $116.1 million
available for borrowing under the credit facility. Additionally, if we close
our sale of $85.0 million of our senior subordinated notes in a concurrent
public offering and use the net proceeds (estimated to be $82.7 million) to
reduce the amounts outstanding under our credit facility, we will have $198.8
million available under the credit facility.
SENIOR SUBORDINATED NOTES
In February 1998 we sold $165.0 million of senior subordinated notes due
in 2008 with a coupon rate of 8.125% at a price of 99.395%. We used the
proceeds of the sale to repay all amounts outstanding under our then
outstanding term, acquisition and revolving credit facilities and to fund the
cash requirements related to the acquisition of Caribe Aviation and Aircraft
Interior Design. The funds repaid included amounts borrowed during 1997 to
repay 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-Wilde. Concurrently with this offering, we intend to issue
an additional $85.0 million of our senior subordinated notes due 2008 in a
public offering by a separate prospectus.
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 ours,
subordinated in right of payment to all of our existing and future senior debt,
including indebtedness outstanding under our 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, including the credit facility.
The indenture governing the senior subordinated notes permits us and our
subsidiaries to incur substantial additional indebtedness, including additional
senior debt. Under the indenture, we may borrow unlimited additional amounts so
long as after incurring such debt we meet 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, our fixed charge coverage ratio for the
last four fiscal quarters was 3.1 to 1. Additionally, the indenture allows us
to borrow and have outstanding additional amounts of indebtedness (even if we
do 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 our existing subsidiaries
and each subsidiary that we will organize in the future, unless the 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.
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<PAGE>
The senior subordinated notes are redeemable, at our 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:
<TABLE>
<S> <C>
2003 ........................ 104.063%
2004 ........................ 102.708%
2005 ........................ 101.354%
2006 and thereafter ......... 100.000%
</TABLE>
In addition, on or prior to February 15, 2001, we 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 of the notes, plus accrued and unpaid
interest to the redemption date with the net proceeds of a public offering of
our common stock; PROVIDED, that at least 65% of the aggregate principal amount
of the senior subordinated notes originally issued remains outstanding
immediately after this redemption.
Upon a change in control, we will be required to make an offer to
repurchase each holder's senior subordinated notes at a price equal to 101% of
the principal amount thereof, plus interest.
The indenture contains covenants that, among other things, limit our
ability 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 liens securing indebtedness, enter
into transactions with affiliates, sell assets or enter into mergers and
consolidations or sell all or substantially all of our assets.
OTHER NOTES
We have entered into several term loan agreements to finance equipment and
parts which we lease to customers. 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, we
were in compliance with all covenants of these term loans.
In connection with our acquisition of Kratz-Wilde, we delivered to the
sellers a non-interest bearing promissory note in the original principal amount
of $2.2 million. As of December 31, 1998, we were in compliance with the terms
of this promissory note.
In connection with our acquisition of Caribe Aviation and Aircraft
Interior Design, on March 6, 1998 we delivered to the sellers a promissory
note in the original principal amount of $5.0 million. The note is payable with
interest at the rate of 8% per annum, and as of March 31, 1999, $2.5 million in
principal was outstanding.
LEASE FOR NEW FACILITY
In 1998, we decided to move to a new corporate headquarters and warehouse
facility. On December 17, 1998, we entered into an operating lease for our new
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. The lease contains
financial covenants regarding our financial performance and other affirmative
and negative covenants. Substantially all of our subsidiaries have guaranteed
our obligations under the lease. Additionally, we have an option to acquire the
new facility at the end of the lease. If we do not purchase the new facility at
the end of the lease, we will be obligated to pay a fee.
The lessor has financed the development of the new facility through a
$35.5 million loan from a syndicate of financial institutions. We are obligated
to develop the new facility on behalf of the lessor
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<PAGE>
and are responsible for the timely completion within an established
construction budget. We and substantially all of our subsidiaries have
guaranteed the repayment of $31.2 million of the lessor's obligations under the
agreements. The lessor's obligations under these agreements are secured by a
lien on the real property and on the new facility. Further, we have posted an
irrevocable letter of credit in favor of the lessor in the amount of
approximately $8.0 million to secure both our obligations under the lease and
the lessor's obligations under these agreements.
IMPACT OF THE YEAR 2000
Since the fourth quarter of 1997, we have been implementing new management
information systems ("MIS") in order to both allow our computer systems to meet
our needs into the foreseeable future and to mitigate the Year 2000 issues
inherent in our existing systems.
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. We may be affected by
Year 2000 issues in our 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
We have substantially completed an assessment of our internal and external
(third-party) IT systems and non-IT systems. At this point in our assessment,
which we believe is approximately 90% complete (in the aggregate), other than
as described in this prospectus, we are not currently aware of any Year 2000
problems relating to our systems or the systems operated by third parties which
would materially adversely affect our business, results of operations or
financial condition, without taking into account our efforts to avoid such
problems, although we cannot assure you of this fact. In addition, we believe
that we are approximately 50% complete (in the aggregate) with our Year 2000
remediation and 30% complete (in the aggregate) with our Year 2000 validation.
Our IT systems consist of software licensed from third parties and
hardware purchased or leased from third parties. We are currently implementing
new systems, which are primarily designed to service our redistribution
operations and manufacturing operations, including new software and hardware,
which we believe, once fully implemented, will be Year 2000 compliant and will
meet the requirements of these operations into the foreseeable future.
We have determined that the MIS system which we currently use in our
redistribution operations is not Year 2000 compliant. In order to give us the
time to implement our new system for these operations in an orderly fashion, we
have engaged a vendor to remediate our existing system to make it Year 2000
compliant. We believe that the remediation to our existing system will be
completed by the end of August 1999 at an estimated cost of $2.1 million, and
that we can validate the remediated system, as modified, for Year 2000
compliance by the beginning of the fourth quarter of 1999. While we have been
informed by our vendor that our existing system can be brought into Year 2000
compliance on a timely basis, there can be no assurance of this fact.
We have substantially remediated the MIS systems used by our manufacturing
operations for Year 2000 compliance. We have also substantially remediated the
MIS systems used by our maintenance and repair operations for Year 2000
compliance.
We have substantially completed an assessment of the Year 2000 issues of
our non-IT systems which we have identified as containing embedded chip
systems. We are not currently aware of any Year 2000 problems relating to these
systems which would materially adversely affect our business, results of
operations, or financial condition, without taking into account our efforts to
avoid these problems.
We are reviewing the efforts of our 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
22
<PAGE>
which we do business to assess their Year 2000 readiness. To date, we have
received responses from approximately 40% of these third parties, and
approximately 60% of the companies that have responded have assured us that
they have already addressed, or that they will address on a timely basis, all
of their known significant Year 2000 issues. Although this review is
continuing, we are not currently aware of any vendor or customer circumstances
that may materially adversely impact us. We will seek alternative suppliers if
circumstances warrant. We cannot assure you that Year 2000 compliance plans of
our vendors and customers will be completed on a timely manner.
A substantial majority of the aircraft spare parts in our inventory do not
have date-sensitive technologies and, as a result, do not pose Year 2000
compliance issues. For the small part of our aircraft spare parts inventory
that may pose Year 2000 compliance issues, we have contacted our vendors to
assess the Year 2000 compliance of those parts. We believe that issues relating
to the Year 2000 compliance of aircraft spare parts in our inventory, if any,
will ultimately be the responsibility of the manufacturers of such parts,
although we cannot assure you of this fact. Further, it is unclear whether our
product liability insurance would ultimately cover a claim based upon a Year
2000 problem in a part sold by us.
COSTS
We believe that the cost of the new MIS system (1) for our redistribution
operations will be approximately $13.5 million, of which approximately $4.8
million has been spent to date and approximately $8.7 million of which we
believe will be expended during 1999 and (2) for our manufacturing operations
will be approximately $2.1 million of which approximately $1.0 million has been
spent to date and approximately $1.1 million will be expended during 1999. The
costs incurred to date in connection with the remediation of our maintenance
and repair operations for Year 2000 compliance have not been material. We are
funding the costs of our new systems from our existing credit facility. The
$5.8 million spent to date has related substantially to the cost of the new
systems and not to bringing our existing MIS systems into Year 2000 compliance.
We intended to replace these systems to meet our future needs and to incur the
costs regardless of the Year 2000 compliance issue. However, the replacement of
these systems have assisted our Year 2000 compliance efforts. 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 our 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 our employees working on such compliance efforts.
We have decided to update the MIS system currently used in our
redistribution operations to make it Year 2000 compliant, so that such system
remains available for use in our operations until the new system for these
operations becomes fully operational. We expect the cost of such update to be
approximately $2.1 million. We can not recover this cost in connection with the
development and implementation of our new system.
RISKS RELATING TO OUR FAILURE TO BECOME YEAR 2000 COMPLIANT
Our failure to bring our existing systems into Year 2000 compliance by the
end of 1999 would likely materially adversely affect us, in that it would make
it very difficult for us to operate our business in the ordinary course and
would likely cause us to lose revenues, have increased operating costs and have
business interruptions of a material nature (which would likely not be covered
by our existing business interruption insurance) until we fixed our systems. In
addition, we can not assure you that the Year 2000 issues of other entities
will not materially adversely impact our systems or results of operations.
CONTINGENCY PLANS
We are currently considering what our contingency plans will be in the
event that we are not able to bring our IT and non-IT systems into Year 2000
compliance by the end of 1999. We plan to complete such contingency plans by
the end of May 1999.
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<PAGE>
BUSINESS
Aviation Sales is a leading provider of aviation inventory and
maintenance, repair and overhaul services. We believe that we are one of the
largest redistributors of aircraft spare parts in the world and the largest
independent provider of heavy maintenance services for aircraft in North
America. We sell aircraft spare parts and provide inventory management services
and aircraft maintenance, repair and overhaul services to commercial passenger
airlines, air cargo carriers, maintenance and repair facilities and other
redistributors throughout the world. We sell airframe and engine components for
commercial airplanes, including Boeing, McDonnell Douglas, Lockheed and Airbus
aircraft, as well as jet engines manufactured by Pratt & Whitney, General
Electric and Rolls Royce.
We offer maintenance and repair services through our six FAA-licensed
repair stations. These services include maintenance, repair and modification
services for aircraft, and repair and overhaul services on a wide range of
aircraft components. We provide inventory management services including
purchasing services, repair management, warehouse management, aircraft
disassembly services and consignment and leasing of inventories of aircraft
parts and engines. We also manufacture various aircraft parts for sale to
original equipment manufacturers, including precision engine parts.
Our strategy is to be the vendor of choice to our customers, providing
total inventory management solutions and total aircraft maintenance solutions
to meet our customers' spare parts and maintenance, repair and overhaul
requirements. We believe our future growth will come from internal growth
combined with growth through additional acquisitions of companies which add to
or expand our existing product and service offerings. We expect to achieve
internal growth through:
/bullet/ increased customer penetration in existing markets;
/bullet/ improved capacity utilization of our maintenance and repair
facilities; and
/bullet/ continued expansion of the array of products and services which we
offer to customers.
The services we offer allow our customers to reduce their costs of
operations by outsourcing some or all of their inventory management and
maintenance repair and overhaul functions and to take advantage of
opportunities to maximize the value of their spare parts inventories. As a
leading redistributor of aircraft spare parts, we are able to better service
our maintenance and repair customers, due to the timely availability of our
extensive parts inventory. Similarly, as a leading provider of maintenance and
repair services, we are able to market our aircraft spare parts to our airline
customers.
INDUSTRY
We believe 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. We believe
that the total worldwide market for maintenance and repair services is
approximately $27.0 billion annually and that $5.3 billion of that amount
represents maintenance, repair and modification services being provided in
North America. Airlines currently perform approximately 75% of the North
American services, outsourcing the balance to independent providers like
Aviation Sales.
Due to the trends currently affecting our industry, we believe that the
demand for maintenance and repair services from large, fully integrated
independent operators such as Aviation Sales will continue to increase in the
future.
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<PAGE>
We believe that the trends currently affecting our industry are:
GROWTH IN MARKET FOR AIRCRAFT SPARE PARTS AND MAINTENANCE AND REPAIR
SERVICES.
The Boeing 1998 Current Market Outlook report projects that:
/bullet/ the worldwide fleet of commercial airplanes will more than double
from 1997 to 2017;
/bullet/ the number of cargo jet aircraft will increase significantly
between 1997 and 2017; and
/bullet/ the aircraft fleet will continue to age.
We believe that a combination of these factors will increase the demand
for aircraft spare parts from the redistribution market and for maintenance and
repair services.
INCREASED OUTSOURCING OF INVENTORY MANAGEMENT AND MAINTENANCE AND REPAIR
REQUIREMENTS
Airlines incur substantial expenditures in connection with fuel, labor and
aircraft ownership. 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, such as the price of fuel and
labor costs, we believe that obtaining replacement parts from the
redistribution market and outsourcing inventory management and maintenance and
repair functions are areas in which airlines can reduce their operating costs.
Outsourcing of inventory management and maintenance and repair functions by
airlines allows an operator such as Aviation Sales to achieve economies of
scale unavailable to individual airlines and to handle these functions less
expensively and more efficiently on its customers' behalf.
REDUCTION IN NUMBER OF APPROVED 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 we believe there will continue to
be a consolidation in the redistribution and maintenance and repair market.
CONSIGNMENT
Some of our customers adjust inventory levels periodically by disposing of
excess aircraft parts. Traditionally, larger airlines have used internal
purchasing agents to manage these dispositions. We believe 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. Consigning inventories to a redistributor like Aviation Sales
allows customers to distribute their aircraft spare parts to a larger number of
prospective inventory buyers, and allows the customers to maximize the value of
their inventory. Consignment also enables us to offer for sale a significant
parts inventory at minimal capital cost to us. 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. The
Boeing 1998 Current Market Outlook report notes that the operators and owners
will remove approximately 3,732 aircraft from active commercial service between
1997 and 2017. Many of these aircraft will be disassembled in order to sell
their parts.
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COMPETITIVE STRENGTHS
We believe that our strong competitive position is based on our diverse
product and service offerings, sophisticated inventory management information
systems and a consistent record of meeting rigorous customer requirements.
DIVERSIFIED PRODUCTS AND SERVICES
We believe that the breadth of our product offerings and services,
including a wide range of inventory management, maintenance and repair services
and specialized manufacturing, allows us to be a vendor of choice to our
customers in a highly fragmented industry. Aviation Sales has over 1,000
customers, including commercial passenger airlines, air cargo carriers and
maintenance and repair facilities.
LARGE INVENTORY BASE
We believe that we have one of the largest inventories of aircraft spare
parts in the world, with over 555,000 line items currently in stock. Our
inventory supports a wide range of aircraft in the worldwide commercial fleet
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, we have parts available for a broad range of General Electric, Pratt
and Whitney and Rolls Royce engines.
PROPRIETARY MANAGEMENT INFORMATION SYSTEMS
Our proprietary management information systems are an integral component
of our position as a leader in our industry. Documentation and traceability of
aircraft parts have become key factors in determining which companies will be
able to effectively compete in the redistribution business because industry,
regulatory and public awareness have focused on safety. 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 our market. Our MIS systems
collect and report data regarding inventory turnover, documentation, pricing,
market availability and customer demographic information on more than 3.7
million line items. Access to such information enables us to be aware of and to
capitalize on the changing trends in the marketplace. We utilize electronic
data scanning and document image storage technology for rapid and accurate
retrieval of inventory traceability documents. We continue to invest in
technology in order to allow us to maintain our strength in this area.
EMPHASIS ON QUALITY
Our information system allows us to provide documentation that enables the
aircraft parts we distribute and the maintenance we perform on them to be
traced. As industry, regulatory and public awareness have focused on safety,
our ability to track this information has become important to customers.
All of our maintenance and repair facilities are licensed by the FAA. We
emphasize quality and on-time delivery to customers at our maintenance and
repair facilities.
WORLDWIDE MARKETING PRESENCE
Our international presence allows us to meet the demands of our global
customer base and to supply parts and services on a timely basis. We distribute
aircraft spare parts in more than 100 countries and utilize sales
representatives in 23 countries. During the years ended December 31, 1996, 1997
and 1998, 29%, 24% and 18% of our revenues were derived from sales to
international customers and 71%, 76% and 82% were derived from sales to
domestic customers.
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SIGNIFICANT FINANCIAL AND OTHER RESOURCES
Our financial position allows us to take advantage of opportunities which
arise in the market from time to time to expand our products and services, make
selected acquisitions and evaluate bulk purchases of inventory. Our market
presence, industry experience, sophisticated management information systems and
capital strength enable us to quickly analyze and complete acquisitions of
inventory, giving us a competitive advantage in the market.
AIRCRAFT SPARE PARTS
AIRCRAFT SPARE PARTS CATEGORIES
Aircraft spare parts can be categorized by their ongoing ability to be
repaired and returned to service. The general categories are as follows:
/bullet/ rotable;
/bullet/ repairable; and
/bullet/ 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. Our inventory
consists in large part of rotable and repairable parts which are regularly
required by our customers. We also maintain an inventory of expendable parts.
AIRCRAFT SPARE PARTS CONDITIONS
Aircraft spare parts conditions are classified within the industry as:
/bullet/ factory new;
/bullet/ new surplus;
/bullet/ overhauled;
/bullet/ serviceable; and
/bullet/ 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
(1) it is repaired by a licensed repair facility rather than completely
disassembled as in an overhaul or (2) if it is removed by the operator from an
aircraft or engine while operating under an approved maintenance program and is
functional and meets any manufacturer or time and cycle restrictions applicable
to the part. A factory new, new surplus, overhauled or serviceable part
designation indicates that the part is eligible for immediate use on an
aircraft. A part in an as removed condition requires functional testing, repair
or overhaul by a licensed facility prior to being returned to service in an
aircraft.
OUR INVENTORY
Our inventory consists principally of new, overhauled, serviceable and
repairable aircraft parts that we purchase from many sources. Before we may
install parts in an aircraft, they must meet
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enumerated 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 these agencies.
OPERATIONS
Our core business is the buying and selling of aircraft spare parts and
the providing of maintenance, repair and overhaul of aircraft and aircraft
components and the provision of inventory management services. Additionally, we
manufacture aircraft parts for sale to original equipment manufacturers.
SALES OF AIRCRAFT SPARE PARTS
Our daily operations encompass inventory sales, brokering and exchanging
aircraft spare parts. We advertise our available inventories held for sale or
exchange on the Inventory Locator Service and the Airline Inventory
Redistribution System electronic databases. Buyers of aircraft spare parts can
access these databases and determine which companies have the desired inventory
available. We estimate that 70% of our daily sales activity results from an
electronic database inquiry. All major airlines and repair agencies subscribe
to one or both of these databases and, accordingly, we maintain continual
on-line direct access with them. We also maintain direct Electronic Data
Interchanges with significant customers.
We currently have over 555,000 line items in stock with market
availability, pricing and historical data available on more than 3.7 million
line items. We sell parts from our inventory. Additionally, we will purchase
parts on behalf of our customers against specific orders. We also offer a
customer exchange program for rotables. In an exchange transaction, we exchange
a new surplus, overhauled or serviceable component taken from stock with a
customer's as-removed unit which has failed. We receive 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.
INVENTORY MANAGEMENT SERVICES
OUTSOURCING
We are meeting the outsourcing requirements of our customers by providing
a number of inventory management services. These services assist airlines in
streamlining their inventory management operations while utilizing their
capital more efficiently and reducing their costs. Through the offering of
various services, we believe we can provide an inventory management program
geared to a customer's particular requirements. These services include
consignment, repair management, aircraft disassembly, warehouse management,
purchasing services and leasing.
CONSIGNMENT AND OTHER SERVICES
By consigning inventories to Aviation Sales, customers are able to
distribute their aircraft spare parts to a larger number of prospective
inventory buyers, allowing the customers to maximize the value of their
inventory. Consignment also enables us to offer for sale significant parts
inventory at minimal capital cost to us. We also provide repair management
services to several of our customers, whereby we receive a fee for managing a
customer's spare parts repair requirements. We provide "teardown" services at
our Ardmore, Oklahoma facility where we tear down aircraft which we purchase to
disassemble and sell the parts in our redistribution business. We also
disassemble aircraft in connection with consignment arrangements and to return
disassembled aircraft spare parts directly to a customer. We provide warehouse
management services which allow a customer to maintain an
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<PAGE>
inventory at our warehouse facility to avoid the costs associated with the
operation of its own inventory warehouse facility. We also will manage a
customer's inventory at the customer's own facility.
LEASING
We provide long-term leasing of inventories of aircraft spare parts and
aircraft engines 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. We believe
that we have a competitive advantage in aircraft engines and aircraft spare
parts leasing due to our ability to maximize the residual value of the parts
after termination of the lease through sales of the parts in the ordinary
course of our business. As of December 31, 1996, 1997 and 1998, we had $18.0
million, $22.8 million and $28.4 million of inventories on long-term lease.
MAINTENANCE AND REPAIR SERVICES
In 1997, we made a strategic decision to expand our service offerings to
include the maintenance, repair and overhaul of aircraft and aircraft
components. Our recent acquisitions allow us to provide maintenance and repair
services for commercial, military and freighter aircraft, including the
maintenance and repair of airframe components, hydraulic, pneumatic, electrical
and electromagnetic aircraft components, and interior cabin components.
REPAIR AND OVERHAUL SERVICES
We provide repair and overhaul services at our FAA-licensed repair
stations. Aerocell specializes in the maintenance, repair and overhaul of
airframe components, including flight controls, doors, fairing panels, nacelle
systems and exhaust systems. Caribe Aviation specializes 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 Design refurbishes aircraft interior components,
including passenger and crew seats.
AIRCRAFT HEAVY MAINTENANCE
We perform maintenance, repair and modification services of aircraft at
TIMCO's three repair stations. These services 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 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 visually inspect the external
structure and internal structure through access panels, repair all defects and
remove all corrosion found. 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 we have completed the evaluation and repairs,
we reassemble the aircraft and its systems 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 work or
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repairs not provided for in the original work scope. Project coordinators and
customer support personnel work closely with the aircraft's customer service
representative 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. This is evidenced by the issuance of a Supplemental
Type Certificate 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. We also convert passenger
aircraft to freighter configuration.
When we convert a passenger plane to freighter configuration we:
/bullet/ completely strip the interior;
/bullet/ strengthen the load-bearing capacity of the flooring;
/bullet/ install the bulkhead or cargo net;
/bullet/ cut into the fuselage for the installation of a cargo door;
/bullet/ reinforce the surrounding structures for the new door;
/bullet/ replace windows with metal plugs; and
/bullet/ fabricate and install a cargo door or cargo doors.
We may also need to line the aircraft interior to protect cabin walls from
pallet damage and we may have to modify the air conditioning system. Conversion
contracts also typically require "C" or "D" level maintenance checks as these
converted aircraft have often been out of service for some time and maintenance
is required for the aircraft to comply with current FAA standards. Additional
overhaul and modification services performed include cockpit reconfiguration
and the integration of Traffic Control and Avoidance Systems, windshear
detection systems and navigational aids.
MANUFACTURING SERVICES
The Boeing 1998 Current Market Outlook report projects that:
/bullet/ global air travel will increase by an average of 5% per year
through the year 2007;
/bullet/ average passenger fleet miles flown will increase significantly
over the next few years, requiring current operators to increase
the size of their fleets; and
/bullet/ many new airlines will commence operations in the United States
and abroad.
These increases in passenger travel and the number of aircraft in service
increase the demand for manufacturing services. Consequently, we foresee the
manufacture of aircraft parts as a significant growth opportunity for us, and
as an integral component of our expansion strategy.
We currently own two companies which manufacture various aircraft parts
for sale to original equipment manufacturers.
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 us with precision manufacturing
capabilities which we believe will allow us to expand our relationship with
our current and future original equipment manufacturers.
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.
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SALES AND MARKETING; CUSTOMERS
We utilize inside salespersons, regional field salespersons, independent
contract representatives and overseas sales offices in our sales and marketing
efforts. Our outside sales force is responsible for obtaining new customers and
maintaining relationships with existing customers. Our inside sales force
accomplishes the majority of our day-to-day sales.
We staff our 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. Our South Florida location,
with easy access to Miami International Airport and Fort Lauderdale
International Airport, assists us in providing reliable and timely delivery of
purchased products.
We have over 1,000 customers, which include commercial passenger airlines,
air cargo carriers, maintenance and repair facilities and other aircraft parts
redistribution companies. Our top ten customers combined accounted for
approximately 26%, 29% and 38% of operating revenues, for the three years ended
December 31, 1996, 1997 and 1998. No single customer accounted for more than
10% of operating revenues for the year ended December 31, 1998.
MANAGEMENT INFORMATION SYSTEMS
We have developed a proprietary management information system which is an
important component of our business and a significant factor in our leading
position in the redistribution market. Our management information system
collects and reports data regarding inventory turnover and traceability,
pricing, market availability, customer demographics and other important data.
We currently maintain marketing data on and are able to estimate the value of
more than 35 million line items. We also maintain databases on recommended
upgrades or replacements, including airworthiness directives. Access to such
information gives us the best possible opportunity to avoid purchases of
aircraft spare parts which might be deemed unusable. In addition, we maintain
data that allows us to provide our customers with information with respect to
obsolescence and interchangeability of parts. We utilize electronic data
scanning and document image storage technology for accurate and rapid retrieval
of inventory traceability documents that must accompany all sales. Our
customers require these in order for them to comply with applicable regulatory
guidelines. We believe that our continued investment in the development of
information systems is a key factor in maintaining our competitive advantage.
We believe that to maintain our competitive advantages, accommodate growth
and keep pace with the rapid changes in technology we must continue to acquire
state of the art management information systems to ensure the capability to
meet our needs. We are currently implementing a new management information
system for our redistribution operations. We have also commenced the
remediation of our existing system for these operations to make it Year 2000
compliant so that such system remains available for use in our operations until
the new system becomes operational. We are also addressing the Year 2000 issues
relating to our other management information systems.
COMPETITION
There are numerous suppliers of aircraft parts in the aviation market
worldwide and, through inventory listing services, customers have access to a
broad array of suppliers. These include major aircraft manufacturers, airline
and aircraft service companies and aircraft spare parts redistributors.
Competition in the redistribution market is generally based on price,
availability of product and quality, including traceability. Our 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 maintenance and repair market, our major competitors are B.F.
Goodrich, Dee Howard Company and Mobile Aerospace Inc. We also compete for
military maintenance and repair contracts.
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Our principal competitors for military maintenance and repair contracts include
Boeing Military Aircraft, Lockheed-Martin Aeromod and Raytheon-E Systems.
GOVERNMENT REGULATION AND TRACEABILITY
The aviation industry is highly regulated. While our spare parts business
is not regulated, the aircraft spare parts which we sell to our customers must
be accompanied by documentation which enables the customer to comply with
applicable regulatory requirements. Additionally, Aviation Sales must be
certified by the FAA and, in some cases, by original equipment manufacturers in
order to manufacture or repair aircraft components and to perform maintenance
and repair services on aircraft.
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, we utilize FAA and/or Joint
Aviation Authority certified repair stations (including our six FAA-licensed
repair facilities) to repair and certify parts to ensure worldwide
marketability. We closely monitor the FAA and industry trade groups in an
attempt to understand how possible future regulations might impact us.
An important factor in the aircraft spare parts redistribution market
relates to the documentation or traceability that is supplied with an aircraft
spare part. We require all of our suppliers to provide adequate documentation
as dictated by the appropriate regulatory authority. We utilize electronic data
scanning and storage techniques to maintain complete copies of all
documentation. Documentation required includes, where applicable:
/bullet/ a maintenance release from a certified airline or repair facility
signed and dated by a licensed airframe and/or power plant
mechanic who repaired the aircraft spare part and an inspector
certifying that the proper methods, materials and workmanship were
used;
/bullet/ a "teardown" report detailing the discrepancies and corrective
actions taken during the last shop repair; and
/bullet/ an invoice or purchase order from an approved source.
Further, our operations are also 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 promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. We believe that our operations are in material
compliance with health and safety requirements of the Occupational Safety and
Health Act.
PRODUCT LIABILITY
Our business exposes us to possible claims for personal injury or death
which may result from the failure of an aircraft spare part sold, manufactured
or repaired by us or from our negligence in the repair or maintenance of an
aircraft or an aircraft part. We may also have exposure to product liability
claims if the use of our leased aircraft, aircraft engines or aircraft spare
parts inventory is alleged to have resulted in bodily injury or property
damage. While we maintain what we believe to be adequate liability insurance to
protect us from claims of this type, based on our review of the insurance
coverages maintained by similar companies in our industry, we cannot assure you
that claims will not arise in the future or that our 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 liability of this type
not covered by insurance could materially adversely affect our financial
condition.
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EMPLOYEES
As of December 31, 1998, Aviation Sales employed approximately 3,800
persons. None of our employees are covered by collective bargaining agreements.
We believe that our relations with our employees are good.
PROPERTIES
Our executive offices are located in Miami, Florida. The construction of
our new corporate headquarters and warehouse facility recently commenced. Our
new facility, which 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 our redistribution operations, as well as serve as the
corporate headquarters of our redistribution, maintenance and repair, leasing
and manufacturing operations. We will use the second building, which will
contain approximately 85,000 square feet of office and warehouse space, for
maintenance and repair operations.
The following table identifies, as of April 16, 1999, the principal
properties utilized by us. See Notes 6 and 8 of the notes to consolidated
financial statements.
<TABLE>
<CAPTION>
SQUARE OWNED OR
FACILITY DESCRIPTION LOCATIONS FOOTAGE LEASED
- ---------------------------------------------- ------------------ --------- ---------
<S> <C> <C> <C>
Corporate Headquarters and Central 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 Facility Macon, GA 140,000 Leased
Office and Aircraft Maintenance Facility Greensboro, NC 610,000 Leased
</TABLE>
In March 1999, we agreed to enter into a lease for a facility in
Winston-Salem, North Carolina containing 250,000 square feet of hangar space.
We intend to utilize this space to expand our TIMCO aircraft maintenance and
repair operations.
Our ownership interests and leasehold interests in such properties are
pledged as collateral for amounts borrowed.
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LEGAL PROCEEDINGS
On January 8, 1999, PaineWebber Incorporated filed in the Supreme Court of
the State of New York a complaint against us and our subsidiary, Whitehall
Corporation, alleging breach of contract claims and related claims against us
and Whitehall and a tortious interference with a contract claim against us.
PaineWebber alleges that it is owed a fee in connection with our acquisition of
TIMCO in September 1998 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 allegedly due relating to the failure
of Whitehall to honor an alleged right of first refusal in the 1997 agreement.
We believe that our acquisition of TIMCO was not within the scope of the
1997 PaineWebber/Whitehall agreement and that claims brought under this
agreement against us and Whitehall are without merit. We are vigorously
defending these claims. Although we can give no assurance, we believe that the
ultimate outcome of this matter will not materially adversely affect our
financial condition.
On June 4, 1998, Kenneth L. Harding filed a complaint against us in the
United States District of Oklahoma. Harding alleges that he had a contract with
AvEng Trading Partners, Inc., which was subsequently acquired by us, that
provided 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 termination of the contract
in November 1997. Harding claims that James Stoecker, AvEng's principal who we
subsequently employed, confirmed and ratified Harding's claim while Mr.
Stoecker was our employee. Mr. Stoecker and Aviation Sales severed their
relationship in November 1997. We intend to vigorously defend this action.
Although we can give no assurance, based upon the available facts, we believe
that the ultimate disposition should not materially adversely affect our
financial condition.
On June 24, 1998, Zantop International Airlines, Inc. filed a complaint
against Aero Corp.-Macon, Inc., one of our subsidiaries, which is now part of
TIMCO, in the Superior Court of Bibb County, Georgia. The suit seeks an
unspecified amount of damages and equitable relief arising out of the July 1997
sale to Aero Corp.-Macon, a subsidiary of Whitehall, of certain assets used in
connection with the operation of Aero Corp.-Macon. The action involves a
contractual dispute relative to certain purchase price adjustments and
inventory purchases. We are vigorously defending this action. Although we can
give no assurance, based upon the available facts, we believe that the ultimate
disposition should not materially adversely affect our 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, we are not presently involved in any material
legal proceedings outside the ordinary course of business. We believe that the
ultimate resolution of these claims and lawsuits will not materially adversely
affect our financial condition.
From time to time others may sue us in lawsuits for product defects,
breach of warranty, breach of implied warranty of merchantability or other
actions relating to products manufactured by others which we distribute or
relating to repair and maintenance and repair services which we provide on
aircraft and aircraft parts. We believe that we maintain adequate insurance to
cover these risks, although we cannot assure you of this fact.
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MANAGEMENT
BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide for a board of
directors divided into three classes, as equal in size as possible, with
staggered terms of three years. At the date of this prospectus, the members of
our board of directors and the expiration of their terms as directors are as
follows:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITIONS EXPIRES
- -------------------------------- ----- --------------------------------------- --------
<S> <C> <C> <C>
Dale S. Baker ................. 41 Chairman of the Board, President and 1999
Chief Executive Officer
Harold M. Woody ............... 53 Director and Executive Vice President 1999
and President of our leasing
operations
Robert Alpert ................. 49 Director 2001
Sam Humphreys ................. 38 Director 2000
Philip B. Schwartz ............ 45 Director 1999
George F. Baker, III .......... 50 Director 2001
Jeffrey N. Greenblatt ......... 40 Director 2000
</TABLE>
BUSINESS EXPERIENCE
DALE S. BAKER has been the President and Chief Executive Officer of
Aviation Sales since February 1992. Prior to joining Aviation Sales, Mr. Baker
was Senior Vice President and Manager of GE Capital's Corporate Investment
Finance Group.
HAROLD M. WOODY has been the Executive Vice President of Aviation Sales
since February 1992 and the President of our leasing operations since early
1997.
ROBERT ALPERT is a private investor. In addition to his investment in
Aviation Sales, Mr. Alpert has invested significantly in business ventures in
the steel, environmental, waste and oil service industries.
SAM HUMPHREYS is a Managing Director of Main Street Merchant Partners, a
merchant banking firm, and has been a partner in that firm and its predecessor
since January 1996. Since March 1997, Mr. Humphreys has also been the Chairman
of PalEx, Inc., the largest manufacturer of pallets in the United States. From
April 1993 until March 1997, Mr. Humphreys held various executive positions
with U.S. Delivery Systems, Inc., a provider of same-day local delivery
services, and Envirofil, Inc., an environmental services company.
PHILIP B. SCHWARTZ is a shareholder in the Florida law firm of Akerman,
Senterfitt & Eidson, P.A., practicing in the firm's Miami office. Prior to
joining Akerman Senterfitt in September 1995, Mr. Schwartz was a partner with
Broad and Cassel, Miami, Florida, for five years. Mr. Schwartz is a member of
The Florida Bar and the American Bar Association and a former Chair of the
Business Law Section of The Florida Bar. Akerman Senterfitt performs legal
services for us.
GEORGE F. BAKER, III has been a director of Aviation Sales since July
1998. Mr. Baker served as a director of Whitehall from March 1991 until July
1998, as Chairman of the Board of Directors and Chief Executive Officer of
Whitehall from April 1991 until July 1998 and as President of Whitehall from
October 1991 until April 1995. Mr. Baker is a managing partner of Cambridge
Capital Fund, L.P., an investment partnership, and Baker Nye, L.P., an
investment partnership.
JEFFREY N. GREENBLATT has been a director of Aviation Sales since July
1998. Presently, Mr. Greenblatt serves as managing director and a management
committee member of Cambridge
35
<PAGE>
Capital Management, L.L.C., an investment manager. Mr. Greenblatt also serves as
a shareholder/officer of Monarch Management Group, Ltd., a portfolio manager.
Further, Mr. Greenblatt serves as a managing member of Monarch GP, LLC, a
general partner of an investment partnership. Since January 1989, Mr. Greenblatt
has been a general partner of Cambridge Capital Fund, L.P., an investment
partnership, and since January 1988, Mr. Greenblatt has been a general partner
of Baker Nye, L.P., an investment partnership.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors is responsible for establishing broad corporate
policies and for our overall performance. Our board has several committees.
Standing committees of the board are the executive committee, the audit
committee and the compensation committee.
The executive committee is authorized to act between meetings of our board
and to exercise in full the powers of the board, subject to such limitations
imposed by law. The members of the executive committee are Dale S. Baker,
Harold M. Woody, Robert Alpert, Sam Humphreys and George F. Baker, III.
The audit committee maintains communications between our board and our
independent auditors, monitors performance of the independent auditors, reviews
audit scope and results, reviews the organization and performance of our
internal systems of audit and financial controls, and recommends the retention
or, where appropriate, the replacement of independent auditors. The members of
the audit committee are Philip B. Schwartz and Jeffrey N. Greenblatt.
The compensation committee reviews and approves compensation policies and
practices for all elected corporate executive officers and fixes the total
compensation of the Chief Executive Officer. The compensation committee also
administers our 1996 stock option plan and our 1996 director stock option plan.
The members of the compensation committee are Robert Alpert, Sam Humphreys and
George F. Baker, III.
COMPENSATION OF DIRECTORS
Each director who is not an employee of Aviation Sales receives an annual
retainer fee of $12,000 per year for serving as a director. In addition, each
director who is not an employee of Aviation Sales receives $1,000 for each
meeting of the board attended and $1,000 for each committee meeting attended.
All directors receive on an annual basis a mandatory stock option grant
under the 1996 director stock option plan for serving on our board. Five-year
options to purchase 5,000 shares of common stock are automatically granted to
each director on July 1 of each year, at an option exercise price equal to the
closing price of common stock on July 1. All such options are immediately
exercisable on the date of grant. Upon the organization of Aviation Sales, we
granted existing directors five-year options to purchase 10,000 shares of
common stock, all of which were immediately exercisable, at an option exercise
price equal to the initial public offering price. Additionally, directors
appointed to our board are and will in the future be granted options to
purchase 10,000 shares of common stock at the time they are appointed to the
board, at an option exercise price equal to the closing price of common stock
on the date of their appointment to the board.
36
<PAGE>
EXECUTIVE OFFICERS
The following list reflects our executive officers, as of the date of this
prospectus, the capacity in which they serve Aviation Sales, and when they
assumed office:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITIONS OFFICER SINCE
- ------------------------------ ----- ------------------------------------------------ ---------------
<S> <C> <C> <C>
Dale S. Baker ............... 41 President and Chief Executive Officer February 1992
Harold M. Woody ............. 53 Executive Vice President of Aviation Sales and February 1992
President of our leasing operations
William H. Alderman ......... 37 Senior Vice President, Corporate Development September 1996
James D. Innella ............ 40 Senior Vice President of Aviation Sales and December 1994
President of our redistribution operations
Benito Quevedo .............. 45 Senior Vice President of Aviation Sales and July 1998
President of our maintenance and
repair operations
Garlan Braithwaite .......... 64 Vice President, Finance and Treasurer February 1999
Gary Eakins ................. 45 Vice President and Chief Legal Officer July 1998
Richard Hutchinson .......... 40 Chief Information Officer July 1998
Michael A. Saso ............. 42 Senior Vice President, Purchasing of our December 1994
redistribution operations
Laura DeCespedes ............ 42 Vice President, Human Resources January 1999
Philip B. Schwartz .......... 45 Corporate Secretary March 1999
</TABLE>
BUSINESS EXPERIENCE
DALE S. BAKER. See the biographical information contained in "Board of
Directors" above.
HAROLD M. WOODY. See the biographical information contained in "Board of
Directors" above.
WILLIAM H. ALDERMAN has been our Senior Vice President of Corporate
Development since September 1996. Prior to joining us, from May 1995 to
September 1996, Mr. Alderman was a Managing Director and principal of the
financial advisory firm of International Aviation Management Group. Prior to
joining International Aviation Management Group, Mr. Alderman was Vice
President of Structured Finance of GE Capital Aviation Services.
JAMES D. INNELLA was our Vice President and Chief Operating Officer from
December 1994 until July 1998, when he became our Senior Vice President and
President of our redistribution operations. Prior thereto, for more than five
years, Mr. Innella served in various capacities with the Aviation Sales
business unit of Aviall, Inc. and with Ryder Airlines Services.
BENITO QUEVEDO has been our Senior Vice President and President of our
maintenance and repair operations since July 1998. Prior to joining Aviation
Sales, Mr. Quevedo was the principal shareholder and President of Caribe
Aviation and Aircraft Interior Designs.
GARLAN BRAITHWAITE has been the Vice President, Finance of Aviation Sales
since February 1999. From July 1998 to February 1999, Mr. Braithwaite was a
consultant to Aviation Sales, and from August 1997 to July 1998, Mr.
Braithwaite was the Senior Vice President and Chief Financial Officer of
Whitehall. From 1990 through 1997, Mr. Braithwaite was the President of Dragon
Investment Corp., which made investments in small service businesses. .
GARY EAKINS has been our Vice President and Chief Legal Officer since July
1998. Prior thereto, for more than five years, Mr. Eakins served as Vice
President, Secretary and General Counsel of Southern Air Transport. Southern
Air Transport filed for bankruptcy on October 1, 1998.
37
<PAGE>
RICHARD HUTCHINSON has been with Aviation Sales since January 1997 and has
been our Chief Information Officer since July 1998. From March 1995 to December
1996, Mr. Hutchinson was Senior Business Analyst, IT Manager, Project Leader
and Technical Consultant for Racal Data Group, an international source of
computer networking systems and services. From September 1994 to March 1995,
Mr. Hutchinson served as a consultant on various projects. From January 1991 to
September 1994, Mr. Hutchinson served as Director of Information Services for
Burt Hill Kosar Rittelmann Associates.
MICHAEL A. SASO has been the Senior Vice President, Purchasing of our
redistribution operations since December 1994. From 1986 until December 1994,
Mr. Saso served as Vice President, Purchasing for the Aviation Sales business
unit of Aviall, Inc.
LAURA DECESPEDES has been our Vice President, Human Resources since
January 1999. Prior to joining us, from September 1997 to December 1998, Ms.
DeCespedes was the Vice President of Human Resources for Productivity Point
International. From June 1995 to September 1997, Ms. DeCespedes was Director of
Field Human Resources for Sensormatic Electronics Corp.
PHILIP B. SCHWARTZ. See the biographical information contained in "Board
of Directors" above.
FAMILY RELATIONSHIPS
There are no family relationships between or among any of our directors
and executive officers, and there is no family relationship between Dale S.
Baker and George F. Baker, III.
EXECUTIVE COMPENSATION
The following table sets forth information about the compensation paid or
accrued during 1998, 1997 and 1996 to our Chief Executive Officer and to each
of the four other most highly compensated executive officers of Aviation Sales
whose aggregate direct compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
SALARY BONUS OTHER ANNUAL ALL OTHER
NAME YEAR ($) ($) COMPENSATION COMPENSATION
- ----------------------------- ------ --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Dale S. Baker ............... 1998 263,797 197,848 (1) --
1997 258,670 212,627 (1) --
1996 248,416 124,208 (1) --
Harold M. Woody ............. 1998 236,029 177,021 --
1997 231,442 116,385 -- --
1996 222,267 111,134 -- --
Michael A. Saso ............. 1998 186,888 140,166 -- --
1997 186,889 153,613 -- --
1996 135,975 67,988 -- --
Joseph E. Civiletto ......... 1998 175,000 131,250 -- --
1997 141,588 116,385 -- --
1996 135,975 67,988 -- --
James D. Innella ............ 1998 225,000 168,750 -- --
1997 153,735 126,370 -- --
1996 141,977 70,959 -- --
</TABLE>
- ----------------
(1) Mr. Baker also receives $5,000 per year for life insurance premiums. See
"Employment Agreements" below.
No long-term compensation awards were made to management during the three
years ended December 31, 1998.
38
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of common stock granted during the fiscal year ended December 31, 1998
to those persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION
NUMBER OF OPTIONS GRANTED FOR OPTION TERM(1)
SHARES UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------- ------------------- ---------------- ---------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dale S. Baker ........... 25,000 5.6 24.50 09/15/08 385,250 976,167
5,000 1.1 37.00 07/01/08 116,346 294,842
Harold M. Woody ......... 15,000 3.4 24.50 09/15/08 231,150 585,700
5,000 1.1 37.00 07/01/08 116,346 294,842
Michael A. Saso ......... 15,000 3.4 24.50 09/15/08 231,150 585,700
Joseph E. Civiletto ..... 15,000 3.4 31.05 05/06/99 35,513 72,191
15,000 3.4 24.50 09/15/99 28,022 56,963
James D. Innella ........ 25,000 5.6 35.25 06/12/08 554,213 1,404,485
15,000 3.4 24.50 09/15/08 231,150 585,700
</TABLE>
- ----------------
(1) These amounts represent assumed rates of appreciation in the price of
common stock during the term of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of common
stock and overall stock market conditions. There is no representation that
the rates of appreciation reflected in the table will be achieved.
AGGREGATED OPTIONS EXERCISED DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning the exercise of
stock options to purchase common stock during the 1998 fiscal year and the
value of unexercised stock options to purchase common stock at the end of the
1998 fiscal year for the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR END AT FISCAL YEAR-END($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE*
- ----------------------------- ----------------- ------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Dale S. Baker ............... -- -- 38,250/16,750 602,381/270,094
Harold M. Woody ............. -- -- 34,950/10,050 549,169/162,056
Michael A. Saso ............. -- -- 14,999/10,001 234,359/161,266
Joseph E. Civiletto ......... -- -- 31,666/18,334 495,115/260,385
James D. Innella ............ -- -- 38,332/26,668 541,024/250,851
</TABLE>
- ----------------
* Computed based upon the difference between the closing price of common stock
at December 31, 1998 and the exercise price. No value has been assigned to
options which are not in-the-money.
EMPLOYMENT AGREEMENTS
On January 1, 1999, we entered into an employment agreement with Dale S.
Baker. The employment agreement provides for an annual base salary of $550,000
(to be increased annually by a cost of living adjustment). In addition, we
agreed to provide Mr. Baker with all employee benefits available under benefit
plans established by Aviation Sales, and to pay Mr. Baker an additional sum of
$5,000 per year for insurance premiums to maintain a whole life insurance
policy. The employment agreement requires Mr. Baker to use his best efforts to
perform the duties of President and Chief Executive Officer. The agreement
provides for a term expiring on January 1, 2002.
39
<PAGE>
The employment agreement further provides for an option grant to purchase
350,000 shares of common stock (granted outside of any plan) at $40.625 per
share, with one-third of the options granted vesting on January 1, 2000,
one-third of the options granted vesting on January 1, 2001, and one-third of
the options granted vesting on January 1, 2002. The employment agreement also
provides for Mr. Baker's participation in the Aviation Sales Company 1999
EBITDA Plan which allows him to earn an incentive bonus of between 50% and 125%
of his base salary.
Mr. Woody has an employment agreement with us under which he is entitled
to an annual base salary of $212,500 (to be increased annually by a cost of
living adjustment), and all employee benefits available under benefit plans we
establish. This employment agreement provides for an initial term expiring on
December 31, 1999. Thereafter, the respective agreement shall run for
successive one-year periods unless we terminate the agreement upon six months'
prior written notice, or Mr. Woody terminates the agreement upon three months'
prior written notice.
On January 1, 1999, we entered into employment agreements with James D.
Innella and Benito Quevedo to serve as Senior Vice Presidents and as President
of our redistribution operations and our maintenance and repair operations,
under which they are each entitled to an annual base salary of $350,000 (to be
increased annually by a cost of living adjustment), and all employee benefits
available under benefit plans we establish. Mr. Innella's and Mr. Quevedo's
agreements provide for a term expiring on January 1, 2003 and January 1, 2002,
respectively.
The employment agreements with Messrs. Innella and Quevedo further provide
for option grants to each to purchase 175,000 shares of common stock (granted
outside of any plan) at $40.625 per share, with one-third of the options
granted vesting on January 1, 2000, one-third of the options granted vesting on
January 1, 2001, and one-third of the options granted vesting on January 1,
2002. The employment agreements also provide for Messrs. Innella's and
Quevedo's participation in the Aviation Sales Company 1999 EBITDA Plan, which
provides each with the opportunity to earn an incentive bonus of between 50%
and 125% of his base salary.
Mr. Saso has an employment agreement with us under which he serves as
Senior Vice President, Purchasing of our redistribution operations and is
entitled to an annual base salary of $185,000 (to be increased annually by a
cost of living adjustment), and all employee benefits available under benefit
plans we establish. The agreement provides for an initial term expiring on May
31, 2001, running for successive one-year terms thereafter, unless we terminate
the agreement upon six months' prior written notice, or Mr. Saso terminates the
agreement upon three months' prior written notice.
The employment agreements with Messrs. Woody and Saso also provide for
their participation in our 1997 EBITDA Incentive Compensation Plan, which
provides that each of them has the opportunity to earn an incentive bonus of
between 20% and 250% of their base salary.
Further, each of our employment agreements provides for certain benefits
in the event of a change of control.
Section 162(m) of the Internal Revenue Code generally disallows an income
tax deduction to public companies for compensation over $1.0 million paid in a
year to any one of the chief executive officer or the four most highly
compensated other executive officers, to the extent that this compensation is
not "performance based" within the meaning of Section 162(m). As a result of
this limitation, we cannot assure you that all of the compensation paid to our
executive officers in the future will be deductible.
STOCK OPTION PLANS
Our board and stockholders have adopted two stock option plans. Pursuant
to our 1996 director stock option plan, options to acquire a maximum of the
greater of 150,000 shares or 2% of the number of shares of common stock then
outstanding may be granted to our directors. Pursuant to our 1996
40
<PAGE>
stock option plan, options to acquire a maximum of the greater of 650,000
shares common stock or 8% of the number of shares of common stock then
outstanding may be granted to our executive officers, employees (including
employees who are directors), independent contractors and consultants. As of
the date of this prospectus, options to purchase 702,391 shares at exercise
prices ranging from $11.31 per share to $37.44 per share are currently
outstanding under both plans, 572,569 of which are immediately exercisable.
The compensation committee administers both stock option plans. Prior to
the formation of the compensation committee, the board administered both plans.
The compensation committee determines which persons will receive options and
the number of options to be granted to such persons. The 1996 director stock
option plan also provides for annual mandatory grants of options to directors.
The compensation committee will also interpret the provisions of both plans and
make all other determinations that it may deem necessary or advisable for the
administration of both plans.
Pursuant to both of our stock option plans, we may grant incentive stock
options as defined in Section 422(b) of the Internal Revenue Code and
non-qualified stock options, not intended to qualify under Section 422(b). The
price at which our common stock may be purchased upon the exercise of options
granted under our stock option plans will be required to be at least equal to
the per share fair market value of common stock on the date the particular
options are granted. Options granted under either plan may have maximum terms
of not more than ten years and are not transferable, except by will or the laws
of descent and distribution. None of the incentive stock options under our
stock option plans may be granted to an individual owning more than 10% of the
total combined voting power of all classes of stock issued by our company
unless the purchase price of common stock under such option is at least 110% of
the fair market value of the shares issuable on exercise of the option
determined as of the date the option is granted, and such option is not
exercisable more than five years after the grant date.
Generally, options granted under our two stock option plans may remain
outstanding and may be exercised at any time up to three months after the
person to whom such options were granted is no longer employed or retained by
us or serving on our board.
Pursuant to our two stock option plans, unless otherwise determined by the
compensation committee, one-third of the options granted to an individual are
exercisable upon grant, one-third are exercisable on the first anniversary of
such grant and the final one-third are exercisable on the second anniversary of
such grant. However, options granted under our stock option plans shall become
immediately exercisable if we terminate the holder of such options or if the
holder is no longer our director, as the case may be, subsequent to certain
events which are deemed to be a "change in control" of Aviation Sales. A
"change in control" of our company generally is deemed to occur when:
/bullet/ any person becomes the beneficial owner of or acquires voting
control with respect to more than 20% of common stock (or 35% if
such person was a holder of common stock on July 2, 1996, the date
of our initial public offering);
/bullet/ a change occurs in the composition of a majority of our board
during a two-year period, provided that a change with respect to a
member of our board shall be deemed not to have occurred if the
appointment of a member of our board is approved by a vote of at
least 75% of the individuals who constitute the then existing
board; or
/bullet/ our stockholders approve the sale of all or substantially all of
our assets.
Incentive stock options granted under our two stock option plans are
subject to the restriction that the aggregate fair market value (determined as
of the date of grant) of options which first become exercisable in any calendar
year cannot exceed $100,000.
Our two stock option plans provide for appropriate adjustments in the
number and type of shares covered by the plans and options granted under our
plans in the event of any reorganization, merger, recapitalization or certain
other transactions involving Aviation Sales.
41
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the past fiscal year, none of our directors or executive officers
served as a member of the compensation committee or similar committee of
another entity, one of whose executive officers served on our board or served
as a director of another entity, one of whose executive officers served on our
board, or served as a member of the compensation committee or similar committee
of any other entity, one of whose executive officers served as our director.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of April 16, 1999 and as adjusted to reflect
the sale of the common stock offered by this prospectus by: (1) each person who
owns more than 5% of the outstanding common stock, (2) each named executive
officer of Aviation Sales, (3) each director of Aviation Sales, (4) all
directors and executive officers as a group and (5) each selling stockholder.
The stock offering is not dependent on the notes offering.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power and/or
investment power with respect to securities. Shares of common stock subject to
options currently exercisable or exercisable within 60 days of April 16, 1999
are deemed outstanding for purposes of computing the percentage beneficially
owned by the person holding the options but are not deemed outstanding for
purposes of computing the percentage beneficially owned by any other person.
Unless otherwise specified, the address for each beneficial owner is c/o
Aviation Sales Company, 6905 N.W. 25th Street, Miami, Florida 33122. There is
no family relationship between George F. Baker, III and Dale S. Baker.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO OFFERING(1)
------------------------
APPROXIMATE
PERCENT SHARES TO
NAME NUMBER OF CLASS BE SOLD
- ----------------------------------------- ----------- ------------ -----------------
<S> <C> <C> <C>
Robert Alpert(2)(3) ..................... 2,372,000 18.9% 500,000
George F. Baker, III(4) ................. 1,055,776 8.4 400,000
Richard B. Nye(5) ....................... 973,774 7.8 400,000
Cambridge Capital Fund, L.P.(6) ......... 675,995 5.4 400,000
Dale S. Baker(7) ........................ 338,250 2.7 100,000(a)
Baker Nye, L.P.(8) ...................... 297,779 2.4 --
Harold M. Woody(9) ...................... 234,950 1.9 50,000(a)
Sam Humphreys(10) ....................... 20,000 * --
Philip B. Schwartz(11) .................. 16,400 * --
Jeffrey N. Greenblatt(12) ............... 30,572 * --
Michael A. Saso(13) ..................... 49,999 * --
James D. Innella(14) .................... 110,332 * 25,000(a)
William H. Alderman(15) ................. 41,132 * 15,000(a)
All directors and executive
officers as a group
(15 persons)(16) ....................... 4,400,611 34.0%
Total shares to be sold:
No exercise of underwriters'
option ............................... 900,000
=============
Full exercise of underwriters'
option ............................... 1,090,000
=============
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER OFFERING
--------------------------------------------------
NO EXERCISE OF FULL EXERCISE OF
UNDERWRITERS' OPTION UNDERWRITERS' OPTION
------------------------- ------------------------
APPROXIMATE APPROXIMATE
PERCENT PERCENT
NAME NUMBER OF CLASS NUMBER OF CLASS
- ----------------------------------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Robert Alpert(2)(3) ..................... 1,872,000 12.3% 1,872,000 12.1%
George F. Baker, III(4) ................. 655,776 4.3 655,776 4.2
Richard B. Nye(5) ....................... 573,774 3.8 573,774 3.7
Cambridge Capital Fund, L.P.(6) ......... 275,995 1.8 275,995 1.8
Dale S. Baker(7) ........................ 338,250 2.2 238,250 1.5
Baker Nye, L.P.(8) ...................... 297,779 2.0 297,779 2.0
Harold M. Woody(9) ...................... 234,950 1.6 184,950 1.2
Sam Humphreys(10) ....................... 20,000 * 20,000 *
Philip B. Schwartz(11) .................. 16,400 * 16,400 *
Jeffrey N. Greenblatt(12) ............... 30,572 * 30,572 *
Michael A. Saso(13) ..................... 49,999 * 49,999 *
James D. Innella(14) .................... 110,332 * 85,332 *
William H. Alderman(15) ................. 41,132 * 26,132 *
All directors and executive
officers as a group
(15 persons)(16) ....................... 3,500,611 22.5% 3,310,611 20.8%
Total shares to be sold:
No exercise of underwriters'
option ...............................
Full exercise of underwriters'
option ...............................
</TABLE>
- ---------------
* Less than one percent
(a) If the Underwriters exercise in full their option to purchase additional
shares of common stock, Messrs. Baker, Woody, Innella and Alderman will
sell up to 100,000, 50,000, 25,000 and 15,000 shares, respectively.
(1) Unless otherwise indicated, each person named in the table has the sole
voting and investment power with respect to the shares beneficially owned.
(2) Shares are primarily owned of record by two corporate entities controlled
by Mr. Alpert.
(3) Includes vested options to purchase 20,000 shares at prices ranging from
$19.00 to $37.00 per share.
43
<PAGE>
(4) George F. Baker, III may be deemed to beneficially own 675,995 shares of
common stock directly owned by Cambridge Capital Fund, L.P. ("Cambridge
Capital"), of which Mr. Baker is a managing general partner and 297,995
shares of common stock directly owned by Baker Nye, L.P. ("Baker Nye"), of
which Mr. Baker is a managing general partner. Includes vested options to
purchase 82,002 shares at prices ranging from $12.52 to $37.97 per share.
(5) Richard B. Nye may be deemed to beneficially own 675,995 shares of common
stock directly owned by Cambridge Capital of which Mr. Nye is a managing
general partner and 297,995 shares of common stock directly owned by Baker
Nye of which Mr. Nye is a managing general partner.
(6) Cambridge Capital is an investment limited partnership. George F. Baker,
III, one of its managing general partners, and Jeffrey N. Greenblatt, a
non-managing general partner of Cambridge Capital, are also directors of
Aviation Sales.
(7) Includes vested options to purchase 38,250 shares at prices ranging from
$19.00 to $37.00 per share.
(8) Baker Nye is an investment limited partnership. George F. Baker, III, one
of its managing general partners, and Jeffrey N. Greenblatt, a
non-managing general partner of Baker Nye, are directors of Aviation
Sales.
(9) Includes vested options to purchase 34,950 shares at prices ranging from
$19.00 to $37.00 per share.
(10) Vested options to purchase 20,000 shares at prices ranging from $19.00 to
$37.00 per share.
(11) Includes vested options to purchase 15,000 shares at prices ranging from
$37.00 to $37.06 per share.
(12) Vested options to purchase 30,572 shares at prices ranging from $11.31 to
$34.63 per share.
(13) Includes vested options to purchase 14,999 shares at prices ranging from
$24.50 to $25.25 per share.
(14) Includes vested options to purchase 38,332 shares at prices ranging from
$19.00 to $35.25 per share.
(15) Vested options to purchase 40,832 shares at prices ranging from $19.00 to
$35.25 per share.
(16) Includes vested options to purchase 374,498 shares at prices ranging from
$11.31 to $37.00 per share.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 30,000,000 shares of common stock, par
value $.001 per share, and 1,000,000 shares of preferred stock, par value $.01
per share. None of the preferred stock is outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held of
record on all matters presented to stockholders, including the election of
directors. In the event of a liquidation, dissolution or winding up of Aviation
Sales, the holders of common stock are entitled to share equally and ratably in
the assets of Aviation Sales, if any, remaining after paying all debts and
liabilities of Aviation Sales and the liquidation preferences of any
outstanding preferred stock. The common stock has no preemptive rights or
cumulative voting rights and no redemption, sinking fund or conversion
provisions.
Holders of common stock are entitled to receive dividends if, as and when,
declared by the board of directors out of funds legally available therefore,
subject to the dividend and liquidation rights of any preferred stock that may
be issued and outstanding and subject to any dividend restrictions in our
credit facilities. No dividend or other distribution (including redemptions and
repurchases of shares of capital stock) may be made, if after giving effect to
such distribution, we would not be able to pay our debts as they become due in
the usual course of business, or if our total assets would be less than the sum
of our total liabilities plus the amount that would be needed at the time of a
liquidation to satisfy the preferential rights of any holders of preferred
stock.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder action,
to divide any or all shares of the authorized preferred stock into series and
fix and determine the designations, preferences and relative rights and
qualifications, limitations or restrictions thereon of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. As of the date of this prospectus,
our board of directors has not authorized any series of preferred stock, and
there are no plans, agreements or understandings for the authorization or
issuance of any shares of preferred stock. The issuance of preferred stock with
voting rights or conversion rights may adversely affect the voting power of
common stock, including the loss of voting control to others. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of Aviation Sales.
PROVISIONS OF THE CERTIFICATE AND BYLAWS
A number of provisions of our certificate of incorporation and bylaws
concern matters of corporate governance and the rights of stockholders. Certain
of these provisions, as well as the ability of our board of directors to issue
shares of preferred stock and to set the voting rights, preferences and other
terms thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the board of directors (including
takeovers which certain stockholders may deem to be in their best interests).
To the extent takeover attempts are discouraged, temporary fluctuations in the
market price of the common stock, which may result from actual or rumored
takeover attempts, may be inhibited. These provisions, together with the
classified board of directors and the ability of the board to issue preferred
stock without further stockholder action, also could delay or frustrate the
removal of incumbent directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders of
Aviation Sales. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contests, even if they could be favorable to the
interests of stockholders, and could potentially depress the market price of
the common stock. The board of directors believes that these provisions are
appropriate to protect the interest of Aviation Sales and all of its
stockholders.
45
<PAGE>
ISSUANCE OF RIGHTS. The certificate authorized the board of directors to
create and issue rights (the "Rights") entitling the holders thereof to
purchase from Aviation Sales shares of capital stock or other securities. The
times at which, and the terms upon which, the Rights are to be issued may be
determined by the board of directors and set forth in the contracts or
instruments that evidence the Rights. The authority of the board of directors
with respect to the Rights includes, but is not limited to, the determination
of (1) the initial purchase price per share of the capital stock or other
securities of Aviation Sales to be purchased upon exercise of the Rights, (2)
provisions relating to the times at which and the circumstances under which the
Rights may be exercised or sold or otherwise transferred, either together with
or separately from, any other securities of Aviation Sales, (3) antidilutive
provisions which adjust the number or exercise price of the Rights or amount or
nature of the securities or other property receivable upon exercise of the
Rights, (4) provisions which deny the holder of a specified percentage of the
outstanding securities of Aviation Sales the right to exercise the Rights
and/or cause the Rights held by such holder to become void, (5) provisions
which permit Aviation Sales to redeem the Rights and (6) the appointment of a
rights agent with respect to the Rights.
MEETINGS OF STOCKHOLDERS. The bylaws provide that a special meeting of
stockholders may be called only by the board of directors unless otherwise
required by law. The bylaws provide that only those matters set forth in the
notice of the special meeting may be considered or acted upon at that special
meeting, unless otherwise provided by law. In addition, the bylaws set forth
certain advance notice and informational requirements and time limitations on
any director nomination or any new business which a stockholder wishes to
propose for consideration at an annual meeting of stockholders.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The certificate provides that
any action required or permitted to be taken by our stockholders at an annual
or special meeting of stockholders must be effected at a duly called meeting
and may not be taken or effected by a written consent of stockholders in lieu
thereof.
AMENDMENT OF THE CERTIFICATE. The certificate provides that an amendment
thereof must first be approved by a majority of the board of directors and
(with certain exceptions) thereafter approved by the holders of a majority of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal; provided, however, that the affirmative vote of 80%
of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, is required to amend provisions relating to the
establishment of the board of directors and amendments to the certificate.
AMENDMENTS OF BYLAWS. The certificate provides that the board of directors
or the stockholders may amend or repeal the bylaws. Such action by the board of
directors requires the affirmative vote of a majority of the directors then in
office. Such action by the stockholders requires the affirmative vote of the
holders of at least two-thirds of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal at an annual
meeting of stockholders or a special meeting called for such purposes, unless
the board of directors recommends that the stockholders approve such amendment
or repeal at such meeting, in which case such amendment or repeal shall only
require the affirmative vote of a majority of the total votes eligible to be
cast by holders of voting stock with respect to such amendment or repeal.
NEW YORK STOCK EXCHANGE
The common stock is traded on the NYSE under the symbol "AVS."
TRANSFER AGENT
The transfer agent for the common stock is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
46
<PAGE>
MARKET FOR OUR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The following information relates to our common stock, par value $.001 per
share, which currently is listed on the New York Stock Exchange under the
symbol AVS. At April 16, 1999, there were approximately 615 stockholders of
record of our common stock. The foregoing number does not include beneficial
holders of our common stock. The high and low last sales prices of the common
stock for each quarter during our two most recent fiscal years as well as for
the first quarter of 1999, as reported by the New York Stock Exchange and the
first quarter of 1999, are set forth below:
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
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
1999
First Quarter .......... $ 47.62 $ 37.00
</TABLE>
UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
We discuss below the material United States federal income and estate tax
consequences of the ownership and disposition of the common stock applicable to
non-U.S. holders. In general, a "non-U.S. holder" is any holder of comon stock
other than:
(1) a citizen or resident of the United States;
(2) a corporation or partnership created or organized in the United States
or under the laws of the United States or of any state, other than any
partnership treated as foreign under U.S. Treasury regulations;
(3) an estate, whose income the Federal government may include in gross
income for United States federal income tax purposes regardless of its
source; or
(4) in general, a trust, if a court within the United States may exercise
primary supervision over the administration of the trust, and one or
more United States persons have authority to control all substantial
decisions of the trust.
We provide this discussion based on current law and for general
information only. This discussion does not address aspects of United States
federal taxation other than income and estate taxation, and does not address
all aspects of income and estate taxation. This discussion also does not
consider any specific facts or circumstances that may apply to a particular
non-U.S. holder, including certain U.S. expatriates. ACCORDINGLY, WE URGE
NON-U.S. OFFEREES OF OUR COMMON STOCK TO CONSULT WITH THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME
AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF OUR COMMON
STOCK.
47
<PAGE>
The government may consider an individual, subject to exceptions, a
resident alien, as opposed to a non-resident alien, by virtue of the
individual's presence in the United States for at least 31 days in the calendar
year and for an aggregate of at least 183 days during a three-year period
ending in the current calendar year. The days counted for this purpose are all
of the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year. In addition to the "substantial presence test" described in the
immediately preceding sentence, the federal government will treat an alien as a
resident alien if he or she meets a lawful permanent residence test, referred
to as a "green card" test, or elects treatment as a U.S. resident and meets the
substantial presence test in the immediately following year. Resident aliens
are subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
In general, dividends paid to a non-U.S. holder will be subject to United
States withholding tax at a 30% rate, or a lower rate prescribed by an
applicable tax treaty, unless:
/bullet/ the dividends are effectively connected with a trade or business
carried on by the non-U.S. holder within the United States; or
/bullet/ if an income tax treaty applies, the dividends are attributable to
a permanent establishment of the non-U.S. holder, or, in the case
of an individual, a "fixed base" in the United States maintained
by the non-U.S. holder.
United States withholding tax will generally not apply to dividends so
connected with such a United States trade or business or attributable to such a
United States permanent establishment or fixed base if the non-U.S. holder
files the appropriate IRS form with the payor of the dividend. The form, under
U.S. Treasury regulations generally effective for payments made after December
31, 1999 (subject to certain transitional rules), requires the non-U.S. holder
to provide a U.S. taxpayer identification number.
United States federal income tax, on a net income basis, will generally
apply to these dividends in the same manner as if the non-U.S. holder were a
resident of the United States. An additional branch profits tax may apply to a
non-U.S. holder that is a corporation. If so, it will apply at a rate of 30%,
or such lower rate as may be specified by an applicable treaty. To determine
the applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed, under United
States Treasury regulations that are currently effective, to be paid to a
resident of that country absent knowledge to the contrary.
Under regulations generally effective for dividend payments after December
31, 1999, however, a non-U.S. holder of common stock who wishes to claim the
benefit of an applicable treaty rate generally must satisfy applicable
certification and other requirements and must provide a U.S. taxpayer
identification number unless an exception applies. In addition under these new
regulations, in the case of common stock held by a foreign partnership, (1) the
certification requirement will generally apply to the partners of the
partnership and (2) the partnership must provide certain information, including
a United States taxpayer identification number. These new regulations also
provide look-through rules for tiered partnerships. Lastly, the new regulations
generally would require non-U.S. holders to file an IRS Form W-8 to obtain the
benefit of any applicable tax treaty providing for a lower rate of U.S.
withholding tax on dividends. A non-U.S. holder that is eligible for a reduced
rate of U.S. withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
SALE OF COMMON STOCK
In general, United States federal income tax will not apply to a non-U.S.
holder on any gain the stockholder realizes upon his disposition of shares of
common stock unless:
48
<PAGE>
(a) the gain is effectively connected with a trade or business carried on
by the non-U.S. holder within the United States or, alternatively, if
tax treaties apply, is attributable to a permanent establishment in the
United States maintained by the non-U.S. holder, and in either case, the
branch profits tax discussed above may also apply if the non-U.S. holder
is a corporation; or
(b) the non-U.S. holder is an individual who holds shares of common stock
as a capital asset and is present in the United States for 183 days or
more in the taxable year of disposition, and either (1) such individual
has a "tax home," as defined for United States federal income tax
purposes, in the United States, unless the gain from the disposition is
attributable to an office or fixed place of business maintained by such
non-U.S. holder in a foreign country and the individual actually pays a
foreign income tax equal to at least 10% of the gain derived from such
disposition, or (2) the gain is attributable to an office or other fixed
place of business maintained by such individual in the United States; if
these rules cause a non-U.S. holder to be subject to U.S. federal income
tax on the gain on the disposition, the non-U.S. holder's net gains will
be subject to tax at a 30% rate, unless an applicable tax treaty reduces
or eliminates the tax.
ESTATE TAX
Unless an applicable estate tax treaty provides otherwise, U.S. federal
estate tax law may require an individual, who is not a citizen or resident of
the United States at the time of death, to include any common stock he owns, or
the federal estate tax law deems him to own, in his gross estate for U.S.
federal estate tax purposes.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to and the tax withheld with respect to each non-U.S. holder.
These reporting requirements apply regardless of whether an applicable tax
treaty reduced or eliminated the withholding. Copies of this information also
may be made available under the provisions of a specific treaty or agreement
with the tax authorities in the country in which the non-U.S. holder resides or
is established.
Under the U.S. Treasury regulations currently effective, United States
backup withholding tax, which generally applies at the rate of 31% on certain
payments (including dividends) to persons that fail to furnish the information
required under the United States information reporting requirements, generally
will not apply to dividends paid on common stock to a non-U.S. holder at an
address outside of United States. Backup withholding and information reporting
generally will apply to dividends paid on shares of common stock to a non-U.S.
holder at an address in the United Sates, if such holder fails to establish an
exemption or to provide certain other information to the payor. Under the
regulations generally effective for dividend payments after December 31, 1999,
however, a non-U.S. holder of common stock that fails to certify its non-U.S.
holder status according to the requirements of those regulations may be subject
to United States backup withholding on payments of dividends.
Information reporting and backup withholding requirements will apply to
the payment of proceeds from the disposition of common stock to or through a
United States office of a broker unless the owner, under penalties of perjury,
certifies, among other things, such owner's status as a non-U.S, holder or
otherwise establishes an exemption. These requirements generally will not apply
to the payment of proceeds from the disposition of common stock to or through a
non-U.S, office of a non-U.S. broker, except as noted below. Unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status, or the broker has documentary evidence in its
files that the owner is a non-U.S. holder and the broker has no actual
knowledge to the contrary,
49
<PAGE>
information reporting, but, currently, not backup withholding, will apply in
the case of proceeds from a disposition of common stock paid to or through a
non-U.S. office of a broker that is:
/bullet/ a United States person;
/bullet/ a "controlled foreign corporation" for U.S. federal income tax
purposes;
/bullet/ a foreign person with 50% or more gross income derived from U.S.
trade or business over a particular time period; or
/bullet/ for payments made after December 31, 1999, a partnership with some
connections to the United States.
Non-U.S. holders should consult their own tax advisors regarding the
application of information reporting or back-up withholding in their particular
situation, including the availability of an exemption from such requirements
and the procedures for obtaining an exemption and the effect of the regulations
generally effective for payments after December 31, 1999. Backup withholding is
not an additional tax. The IRS will refund or credit against the non-U.S.
holder's U.S. federal income tax liability any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder if the non-U.S.
holder furnishes the required information to the IRS.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and Aviation Sales and the selling stockholders have agreed to sell
to such underwriter, the number of shares set forth opposite the name of such
underwriter.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME ----------
<S> <C>
Salomon Smith Barney Inc. ..................
BT Alex. Brown Incorporated ................
Robert W. Baird & Co. Incorporated .........
Warburg Dillon Read LLC ....................
----------
Total .................................... 3,500,000
----------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., BT Alex. Brown
Incorporated, Robert W. Baird & Co. Incorporated and Warburg Dillon Read LLC
are acting as representatives, propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share on sales to certain other dealers. If all of the shares are not sold at
the initial offering price, the representatives may change the public offering
price and the other selling terms.
Aviation Sales and several selling stockholders have granted to the
underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to 525,000 additional shares of common stock at the
public offering price less the underwriting discount. The underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each underwriter will be obligated, subject to certain conditions, to purchase
a number of additional shares approximately proportionate to such underwriter's
initial purchase commitment.
Aviation Sales, its officers and directors and the selling stockholders
have agreed that, for a period of 90 days from the date of this prospectus,
they will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of common stock of Aviation Sales or any
securities convertible into or exchangeable for common stock. Salomon Smith
Barney Inc. in its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice.
The common stock is listed on the New York Stock Exchange under the symbol
"AVS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Aviation Sales and the selling stockholders in
connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.
<TABLE>
<CAPTION>
PAID BY AVIATION SALES PAID BY SELLING STOCKHOLDERS
------------------------------- ------------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Per share ......... $ $ $ $
Total ............. $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves
51
<PAGE>
syndicate sales of common stock in excess of the number of shares to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Stablizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New
York Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
Aviation Sales and the selling stockholders estimate that their respective
portions of the total expenses of this offering will be $ and $ .
Aviation Sales and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.
The representatives have performed investment banking and advisory
services for Aviation Sales from time to time for which they have received
customary fees and expenses. The representatives may, from time to time, engage
in transactions and perform services for Aviation Sales in the ordinary course
of their business.
Citibank, N.A., an affiliate of Salomon Smith Barney Inc., is the agent
and a lender under our credit facility. Aviation Sales intends to use the
proceeds from the sale of the common stock to repay indebtedness owed to the
lenders under the credit facility, including Citibank, N.A. The common stock
meets the requirements of Rules 2710(c)(8) and 2720(c)(3)(B) of the NASD
Conduct Rules.
Salomon Smith Barney Inc. and BT Alex. Brown Incorporated are acting as
underwriters in connection with the concurrent offering of $85.0 million of
senior subordinated notes. Aviation Sales also intends to use the proceeds from
the sale of these notes to repay indebtedness owed to financial institutions
(including Citibank, N.A.) under the credit facility.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by
52
<PAGE>
reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until our offering is complete:
(a) Our Annual Report on Form 10-K for the year ended December 31, 1998;
(b) The description of our common stock contained in our registration
statement on Form 8-A12B dated May 23, 1996.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and telephone number:
Aviation Sales Company
6905 N.W. 25th Street
Miami, Florida 33122
(305) 592-4055
Attention: Vice President--Finance
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date
on the front of this prospectus.
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., a law firm in Miami, Florida, will
opine as to the validity of the shares of common stock offered under this
prospectus on behalf of Aviation Sales. Philip B. Schwartz, a shareholder of
Akerman Senterfitt, is a director of Aviation Sales and some of the attorneys
that work for Akerman Senterfitt own shares of Aviation Sales common stock on
the date of this prospectus. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Latham & Watkins, a law
firm in New York, New York.
EXPERTS
Aviation Sales' consolidated financial statements and schedule included in
this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent certified public accountants, as indicated
in their report with respect thereto, and are included in this prospectus in
reliance upon the authority of said firm as experts in giving said report.
53
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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-4
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1998 ............................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 F-6
Notes to Consolidated Financial Statements ....................................... F-7
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts for the three years ended
December 31, 1998 ............................................................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Aviation Sales Company:
We have audited the accompanying consolidated balance sheets of Aviation
Sales Company (a Delaware corporation) and subsidiaries as of December 31, 1997
and 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, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 9, 1999.
F-2
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
ASSETS ----------- ----------
<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
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
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, 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-3
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
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-4
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
-------------- -------- ------------
<S> <C> <C> <C>
BALANCE AS OF
DECEMBER 31, 1995 ...................... 10,175,788 $ 10 $ 12,732
Net income ............................. -- -- --
Stock options exercised ................ 33,738 -- 413
Distribution to partners prior to
public offering ...................... -- -- --
Payments to J/T Aviation Partners
(Note 1) ............................. (575,000) (1) (4,262)
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
Impact of immaterial poolings
(Note 2) ............................. -- -- 583
Net income ............................. -- -- --
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
Net income ............................. -- -- --
Stock issued in Caribe acquisition
(Note 2) ............................. 182,143 -- 5,720
Rescinded stock grant (Note 6) ......... (18,000) -- --
Stock options execised ................. 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
========== ==== ==========
<CAPTION>
TREASURY STOCK TOTAL
RETAINED ----------------------------- STOCKHOLDERS'
EARNINGS SHARES AMOUNT EQUITY
---------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE AS OF
DECEMBER 31, 1995 ...................... $ 47,697 (1,111,562) $ (16,145) $ 44,294
Net income ............................. 19,815 -- -- 19,815
Stock options exercised ................ -- -- -- 413
Distribution to partners prior to
public offering ...................... (3,042) -- -- (3,042)
Payments to J/T Aviation Partners
(Note 1) ............................. (5,898) -- -- (10,161)
Net proceeds from sale of common
stock ................................ -- -- -- 64,576
-------- ---------- --------- ---------
BALANCE AS OF
DECEMBER 31, 1996 ...................... 58,572 (1,111,562) (16,145) 115,895
Impact of immaterial poolings
(Note 2) ............................. 1,033 -- -- 1,616
Net income ............................. 4,844 -- -- 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 ...................... 64,449 (1,111,562) (16,145) 121,279
Net income ............................. 25,493 -- -- 25,493
Stock issued in Caribe acquisition
(Note 2) ............................. -- -- -- 5,720
Rescinded stock grant (Note 6) ......... -- -- -- --
Stock options execised ................. -- -- -- 1,806
Retirement of treasury stock ........... -- 1,111,562 16,145 --
-------- ---------- --------- ---------
BALANCE AS OF
DECEMBER 31, 1998 ...................... $ 89,492 -- $ -- $ 154,298
======== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
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 affilliate, 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)
--------- --------- ----------
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 sales 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-6
<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-7
<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
F-8
<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)
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:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
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
========= =========
</TABLE>
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-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)
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:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current assets .................. $ 14,358 $ 18,294
Noncurrent assets ............... 2,782 1,351
Current liabilities ............. 12,489 8,150
Noncurrent liabilities .......... 2,000 2,000
</TABLE>
Summarized results of operations for the joint venture for the years ended
December 31, 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales .................. $ 11,520 $ 17,810 $ 45,483
Gross profit ............... 4,104 3,578 7,754
Net income (loss) .......... 1,044 (569) 5,557
</TABLE>
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
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)
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:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deferred financing costs:
Original basis ................... $ 3,244 $ 9,378
Accumulated amortization ......... (568) (1,274)
------- --------
$ 2,676 $ 8,104
======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Goodwill:
Original basis ................... $ 17,902 $ 58,805
Accumulated amortization ......... (190) (1,869)
-------- --------
$ 17,712 $ 56,936
======== ========
</TABLE>
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
DEFERRED INCOME
Advance payments and deposits received on operating leases are initially
deferred and subsequently recognized as the Company's obligations under the
lease 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
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)
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 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.
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)
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.
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.
F-13
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(FINANCIAL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
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.
F-14
<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)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- -------------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Revenue ...................................................... $ 503,100 $ 614,900
Income before extraordinary item ............................. 3,700 28,000
Net income ................................................... 3,700 27,415
Diluted earnings per share before extraordinary item ......... $ 0.29 $ 2.15
</TABLE>
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.
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.
F-15
<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)
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:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
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
======= ======== =========
</TABLE>
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
F-16
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(FINANCIAL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--ACCOUNTS RECEIVABLE--(CONTINUED)
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.
NOTE 4--EQUIPMENT ON LEASE
In the normal course of business, the Company leases engines and spare
parts to third parties pursuant to noncancelable operating leases ranging from
one to ten years. The cost and accumulated amortization of equipment on lease
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
<S> <C> <C>
1997 1998
---- ----
Equipment on lease, at cost ......... $ 26,385 $ 31,368
Accumulated amortization ............ (3,627) (3,014)
-------- --------
$ 22,758 $ 28,354
======== ========
</TABLE>
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.
F-17
<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--(CONTINUED)
Future minimum lease receivables under outstanding leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ---------------------------
<S> <C>
1999 ................ $ 5,762
2000 ................ 4,894
2001 ................ 4,442
2002 ................ 3,429
2003 ................ 2,772
Thereafter .......... 10,010
--------
$ 31,309
========
</TABLE>
NOTE 5--NOTES PAYABLE AND REVOLVING LOAN
At December 31, 1997 and 1998, notes payable and revolving loan consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- ------------
<S> <C> <C>
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
========== ==========
</TABLE>
Future maturities of notes payable and revolving loan at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ---------------------------
<S> <C>
1999 ................. $ 178,915
2000 ................. 5,247
2001 ................. 1,659
2002 ................. 5,595
2003 ................. 6,380
Thereafter ........... 164,163
---------
$ 361,959
=========
</TABLE>
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
F-18
<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)
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.
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
F-19
<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)
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.
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 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
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--(CONTINUED)
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, 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.
F-21
<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
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.
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
F-22
<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)
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.
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., 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.
F-23
<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)
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.
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.
F-24
<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)
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.
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.
F-25
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(FINANCIAL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8--LEASES--(CONTINUED)
Minimum rental commitments under all leases (excluding the operating lease
for the new facility discussed above) are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
---------------------------------------
TO RELATED TO THIRD CAPITAL
YEARS ENDING DECEMBER 31, PARTIES PARTIES LEASES
- --------------------------------------- ------------ ---------- -----------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
NOTE 10--EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share" during 1997. SFAS 128 establishes standards
for computing and presenting basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding during the year. Diluted earnings per share is based
on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
of options. In computing diluted earnings per share, the Company has utilized
the treasury stock method. All prior period earnings per share data have been
restated to conform with SFAS 128.
F-26
<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)
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.
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:
<TABLE>
<S> <C>
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
========
</TABLE>
Pro forma basic earnings per share have been computed by dividing pro
forma net income by the weighted average number of common shares outstanding.
Pro forma diluted earnings per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise of options.
F-27
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(FINANCIAL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--INCOME TAXES
The income tax expense for the years ended December 31, 1996, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
----------- ----------
<S> <C> <C>
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
======== ========
</TABLE>
The Company has established a valuation allowance to offset the deferred
tax assets that have resulted from items that will only be deductible when such
items are actually incurred. The valuation allowance will be maintained until
it is more likely than not that these deferred tax assets will be realized.
F-28
<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 reconciliation of the federal statutory rate and the Company's
effective tax rate is as follows for the year ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
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%
===== ==== ====
</TABLE>
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-29
<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:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TOTAL EXERCISE PRICE
--------- -----------------
<S> <C> <C>
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
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICE SHARES REMAINING CONTRACTUAL LIFE SHARES EXERCISE PRICE
- ------------------------ -------- ---------------------------- -------- -----------------
<S> <C> <C> <C> <C>
$ 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
==================== ===== === === ========
</TABLE>
F-30
<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-31
<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)
</TABLE>
- ----------------
(a) Includes gain on legal settlement with former employee and shareholder of
approximately $2,600.
<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-32
<PAGE>
SCHEDULE II
AVIATION SALES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS FOR
THE THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT COST AND (A) (B) BALANCE AT
DESCRIPTION BEGINNING OF YEAR EXPENSES OTHER DEDUCTIONS END 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-33
<PAGE>
================================================================================
3,500,000 Shares
AVIATION SALES COMPANY
Common Stock
[AVIATION SALES COMPANY LOGO]
--------
P R O S P E C T U S
, 1999
--------
Salomon Smith Barney
BT Alex. Brown
Robert W. Baird & Co.
Incorporated
Warburg Dillon Read LLC
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Except as set forth below, the following fees and expenses will be paid by
Aviation Sales in connection with the issuance and distribution of the
securities registered hereby and do not include underwriting commissions and
discounts. All such expenses, except for the SEC registration, NASD filing and
New York Stock Exchange listing fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee .......................... $ 52,318.84
NASD filing fee ............................... 18,235.16
New York Stock Exchange listing fee ........... 10,000.00
Legal fees and expenses ....................... 750,000.00
Accounting fees and expenses .................. 350,000.00
Transfer Agent's and Registrar's fees ......... 10,000.00
Blue Sky Fees ................................. 7,500.00
Printing and engraving expenses ............... 250,000.00
Miscellaneous ................................. 306,946.00
------------
Total ........................................ $1,755,000.00
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, Aviation Sales has the power to indemnify anyone made or
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of Aviation Sales) because such person
is or was a director or officer of Aviation Sales against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit, or
proceeding, provided that (i) such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
Aviation Sales and (ii) in the case of a criminal proceeding such person had no
reasonable cause to believe his conduct was unlawful.
With respect to an action or suit by or in the right of Aviation Sales to
procure a judgment in its favor, Section 145(b) of the Delaware General
Corporation Law provides that Aviation Sales shall have the power to indemnify
anyone who was, is, or is threatened to be made a party to a threatened,
pending, or completed action or suit brought by or in the right of Aviation
Sales to procure a judgment in its favor because such person is or was a
director or officer of Aviation Sales against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, provided that such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of Aviation Sales, except that no indemnification shall be made
in a case in which such person shall have been adjudged to be liable to
Aviation Sales unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall have determined upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses.
Indemnification as described above shall only be granted in a specific
case upon a determination that indemnification is proper under the
circumstances using the applicable standard of conduct which is
II-1
<PAGE>
made by (a) a majority of a quorum of directors who were not parties to such
proceeding, (b) independent legal counsel in a written opinion if such quorum
cannot be obtained or if a quorum of disinterested directors so directs, or (c)
the shareholders of Aviation Sales.
Section 145(g) of the Delaware General Corporation Law permits the
purchase and maintenance of insurance to indemnify directors and officers
against any liability asserted against or incurred by them in any such
capacity, whether or not Aviation Sales itself would have the power to
indemnify any such director or officer against such liability. Aviation Sales
has obtained such insurance and premiums are paid by Aviation Sales.
The Certificate of Incorporation of Aviation Sales provides for the
indemnification of directors and officers of Aviation Sales to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law, as the
same may be amended or supplemented. The Certificate of Incorporation further
provides that the indemnification provided for therein shall not be exclusive
of any rights to which those indemnified may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise.
The Certificate of Incorporation also contains a provision that eliminates
the personal liability of Aviation Sales' directors to Aviation Sales or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to Aviation Sales or its shareholders, (ii) acts or omissions not in
good faith, involving intentional misconduct or involving knowing violations of
law, (iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the director received an improper personal benefit.
Depending on judicial interpretation, the provision may not affect liability
for violations of the federal securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Aviation
Sales pursuant to the foregoing provisions, or otherwise, Aviation Sales has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Aviation Sales of expenses incurred or
paid by a director, officer or controlling person of Aviation Sales in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Aviation Sales will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
NUMBER DESCRIPTION
--- ---------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
4.1 Registrant's Certificate of Incorporation, as amended, filed as Exhibits 3.1 and 3.2 to
Registrant's Registration Statement on Form S-1, File No. 333-3650, hereby incorporated by
reference.
4.2 Registrant's Bylaws filed as Exhibit 3.3 to Registrant's Registration Statement on Form S-1,
File No. 333-3650, hereby incorporated by reference.
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Akerman, Senterfitt & Eidson, P.A. (Included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page of this registration statement)
</TABLE>
II-2
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for the Three Years Ended
December 31, 1998
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Aviation Sales pursuant to the foregoing provisions, or otherwise, Aviation
Sales has been advised that, in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Aviation
Sales of expenses incurred or paid by a director, officer or controlling person
of Aviation Sales in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, Aviation Sales will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on April 19, 1999.
AVIATION SALES COMPANY
By: /s/ DALE S. BAKER
------------------------
Dale S. Baker, President
Each person whose signature appears below appoints Dale S. Baker as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his stead, in any capacities to sign any and all
amendments, including post-effective amendments to this Registration Statement
and to file the same, with all exhibits thereto and all other document in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------- ------------------------------------------ ---------------
<S> <C> <C>
/s/ DALE S. BAKER President, Chief Executive and Financial April 19, 1999
- --------------------------------- Officer and Chairman of the Board
Dale S. Baker (Principal Executive and
Financial Officer)
/s/ GARLAN BRAITHWAITE Vice President, Finance April 19, 1999
- -------------------------------- (Principal Accounting Officer)
Garlan Braithwaite
/s/ HAROLD M. WOODY Executive Vice President and Director April 19, 1999
- --------------------------------
Harold M. Woody
/s/ ROBERT ALPERT Director April 19, 1999
- --------------------------------
Robert Alpert
/s/ SAM HUMPHREYS Director April 19, 1999
- --------------------------------
Sam Humphreys
/s/ PHILIP B. SCHWARTZ Director April 19, 1999
- --------------------------------
Philip B. Schwartz
/s/ GEORGE F. BAKER Director April 19, 1999
- --------------------------------
George F. Baker
/s/ JEFFREY N. GREENBLATT Director April 19, 1999
- --------------------------------
Jeffrey N. Greenblatt
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- -------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Akerman, Senterfitt & Eidson, P.A. (contained in Exhibit 5.1)
</TABLE>
EXHIBIT 1.1
AVIATION SALES COMPANY
3,500,000 Shares
Common Stock
($0.001 par value)
UNDERWRITING AGREEMENT
New York, New York
__________, 1999
SALOMON SMITH BARNEY INC.
BT ALEX. BROWN INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
WARBURG DILLON READ LLC
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Aviation Sales Company, a corporation organized under the laws
of Delaware (the "Company"), proposes to sell to the several underwriters named
in Schedule I hereto (the "Underwriters"), for whom you (the "Representatives")
are acting as representatives, 2,600,000 shares of Common Stock, $0.001 par
value ("Common Stock") of the Company, and the persons named in Schedule II
hereto (the "Selling Stockholders") propose to sell to the several Underwriters
900,000 shares of Common Stock (said shares to be issued and sold by the Company
and shares to be sold by the Selling Stockholders collectively being hereinafter
called the "Underwritten Securities"). The Company and the Selling Stockholders
also propose to grant to the Underwriters an option to purchase up to an
aggregate of 525,000 in the amounts set forth in Schedule III, additional shares
of Common Stock to cover over-allotments (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires. In addition, to the
extent that there is not more than one Selling Stockholder named in Schedule II,
the term Selling Stockholder shall mean either the singular or plural. The use
of the neuter in this Agreement shall include the feminine and masculine
wherever appropriate. Any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the
<PAGE>
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of such Preliminary Prospectus or the
Prospectus, as the case may be; and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the filing of any document under the Exchange Act after the Effective Date of
the Registration Statement, or the issue date of any Preliminary Prospectus or
the Prospectus, as the case may be, deemed to be incorporated therein by
reference. Certain terms used herein are defined in Section 17 hereof.
1. REPRESENTATIONS AND WARRANTIES.
(i) The Company represents and warrants to, and agrees with,
each Underwriter as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3
under the Act and has prepared and filed with the Commission a
registration statement (file number 333-[___]) on Form S-3, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or
more amendments thereto, including a related preliminary prospectus,
each of which has previously been furnished to you. The Company will
next file with the Commission one of the following: either (1) prior to
the Effective Date of such registration statement, a further amendment
to such registration statement, (including the form of final
prospectus) or (2) after the Effective Date of such registration
statement, a final prospectus in accordance with Rules 430A and 424(b).
In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and
the rules thereunder to be included in such registration statement and
the Prospectus. As filed, such amendment and form of final prospectus,
or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be
included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein)
and on any date on which Option Securities are purchased, if such date
is not the Closing Date (a "settlement date"), the Prospectus (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the Exchange Act and the
respective rules thereunder; on the Effective Date and at the Execution
Time, the Registration Statement did not or will not contain any untrue
statement of a
2
<PAGE>
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date and any settlement
date, the Prospectus (together with any supplement thereto) will not,
include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the Company makes no representations or
warranties as to the information contained in or omitted from the
Registration Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing
to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(c) Each of the Company and each of the Company's subsidiaries
(the "Subsidiaries") has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized with full corporate power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires such
qualification, except where the failure so to qualify or be in good
standing does not have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and the Subsidiaries taken as a whole (a "Material
Adverse Effect").
(d) All the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned
Subsidiaries free and clear of any perfected security interest or any
other security interests, claims, liens or encumbrances.
(e) The Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock (including the
Securities being sold hereunder by the Selling Stockholders) have been
duly and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder by the Company have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities being sold by the Selling
Stockholders are duly listed, and admitted and authorized for trading,
on the New York Stock Exchange and the Securities being sold hereunder
by the Company are duly listed, and admitted and authorized for
trading, subject to official notice of issuance, on the New York Stock
Exchange;
3
<PAGE>
the certificates for the Securities are in valid and sufficient form;
the holders of outstanding shares of capital stock of the Company are
not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding.
(f) There is no franchise, contract, indenture or other
document of a character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit thereto, which is
not described or filed as required; and the statements included or
incorporated by reference in the Prospectus under the headings "United
States Federal Tax Considerations," "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources- Environmental," "- Lease for New Facility," "-
Credit Facility," "- Senior Subordinated Notes," and "- Other Notes,"
"Business - Government Regulation and Traceability" and "- Legal
Proceedings" and the statements included in the Form 10-K for the year
ended December 31, 1998, under the heading "Certain Relationships and
Related Transactions" fairly summarize the matters therein described.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by
federal or state securities laws, bankruptcy, insolvency,
reorganization, moratorium or other similar laws or equitable
principles affecting the enforcement of creditors' rights.
(h) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(j) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries
pursuant to, (i) the charter or by-laws of the Company or any of the
Subsidiaries, (ii) the terms of any material indenture, contract,
lease, mortgage,
4
<PAGE>
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument in any material respect
to which the Company or any of the Subsidiaries is a party or bound or
to which its or their property is subject, or (iii) any statute, law,
rule, regulation, judgment, order or decree in any material respect
applicable to the Company or any of the Subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or any of the
Subsidiaries or any of its or their properties.
(k) Except as disclosed in the Prospectus, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement. Except as described in or
contemplated in the Prospectus, there are no outstanding options,
warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable
or exercisable for capital stock of the Company.
(l) The consolidated historical financial statements and
schedules of the Company and the consolidated Subsidiaries included in
the Prospectus and the Registration Statement present fairly in all
material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods
indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectus and Registration
Statement fairly present, on the basis stated in the Prospectus and the
Registration Statement, the information included therein. The pro
forma, as adjusted and as further adjusted, financial data included in
the Prospectus and the Registration Statement include assumptions that
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions and events described therein,
the related adjustments give appropriate effect to those assumptions,
and the adjustments reflect the proper application of those adjustments
to the historical financial statement amounts in the pro forma, as
adjusted and as further adjusted, financial data included in the
Prospectus and the Registration Statement. The pro forma, as adjusted
and as further adjusted, financial data included in the Prospectus and
the Registration Statement comply as to form in all material respects
with the applicable accounting requirements of Regulation S-X under the
Act and the pro forma, as adjusted and as further adjusted, adjustments
have been properly applied to the historical amounts in the compilation
of those statements.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of the Subsidiaries or its or their property is pending
or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a material adverse effect on the
performance of this Agreement or the consummation of any
5
<PAGE>
of the transactions contemplated hereby or (ii) could reasonably be
expected to have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(n) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims,
security interests or other encumbrances except as described in the
Prospectus, and all the property described in the Prospectus as being
held under lease by each of the Company and the Subsidiaries is held by
it under valid, subsisting and enforceable leases, with only such
exceptions as in the aggregate are not materially burdensome and do not
interfere in any material respects with the conduct of the business of
the Company and the Subsidiaries taken as a whole.
(o) Neither the Company nor any Subsidiary is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other material agreement, obligation,
condition, covenant or instrument to which it is a party or bound or to
which its property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or such Subsidiary or any of its
properties, as applicable, except where such violations or defaults in
the aggregate would not have a Material Adverse Effect.
(p) Arthur Anderson LLP, who have certified certain financial
statements of the Company and the consolidated Subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Prospectus, are
independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(q) There are no transfer taxes or other similar fees or
charges under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the Company
or sale by the Selling Stockholders of the Securities.
(r) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto)) and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that
any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in
6
<PAGE>
good faith or as would not have a Material Adverse Effect, whether or
not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto).
(s) To the best knowledge of the Company, no labor problem or
dispute with the employees of the Company or any of the Subsidiaries
exists or is threatened or imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or the Subsidiaries' principal suppliers, contractors or customers,
that could have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(t) The Company and each of the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; all policies of insurance and
fidelity or surety bonds insuring the Company or any of the
Subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and
the Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the
Company or any of the Subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(u) No Subsidiary is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any
other distribution on such Subsidiary's capital stock, from repaying to
the Company any loans or advances to such Subsidiary from the Company
or from transferring any of such Subsidiary's property or assets to the
Company or any other Subsidiary of the Company, except as described in
or contemplated by the Prospectus.
(v) Each of the Company and the Subsidiaries possess all
licenses, certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the
7
<PAGE>
aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(w) The Company and each of the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(x) Except as disclosed in the Prospectus (or any amendment or
supplement thereto), subsequent to the date as of which such
information is given in the Prospectus (or any amendment or supplement
thereto), neither the Company nor any of the Subsidiaries has incurred
any liability or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that is material
to the Company and the Subsidiaries taken as a whole, and there has not
been any material change in the capital stock of the Company or any of
the Subsidiaries, any material increase in the short-term or long-term
debt of the Company or any of the Subsidiaries, any material adverse
change, or any development involving, or which could reasonably be
expected to involve, a prospective material adverse change, in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and the Subsidiaries taken as a whole.
(y) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(z) The Company and the Subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or
potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes,
pollutants or contaminants, except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals, or liability would not, individually or in the
aggregate, have a
8
<PAGE>
Material Adverse Effect, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated
in the Prospectus (exclusive of any supplement thereto). Except as set
forth in the Prospectus, neither the Company nor any of the
Subsidiaries has been named as a "potentially responsible party" under
the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended.
(aa) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and the Subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws, or any permit, license or approval, any
related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company
has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(bb) Each of the Company and the Subsidiaries has fulfilled
its obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of
1974 ("ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in Section 3(3) of
ERISA and such regulations and published interpretations) in which
employees of the Company and the Subsidiaries are eligible to
participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such
regulations and published interpretations. The Company and the
Subsidiaries have not incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA.
(cc) The Company has not distributed and, prior to the later
to occur of (i) the Closing Date and (ii) completion of the
distribution of the Securities, the Company will not distribute any
offering material in connection with the offering and sale of the
Securities other than the Registration Statement, the Preliminary
Prospectus, the Prospectus or other materials, if any, permitted by the
Act.
(dd) Neither the Company nor any of the Subsidiaries nor, to
the knowledge of the Company, any employee or agent of the Company or
any Subsidiary has made any payment of funds of the Company or any
Subsidiary or received or retained any funds in violation of any law,
rule or regulation, which violation would have a Material Adverse
Effect.
(ee) The Company and each of the Subsidiaries own or possess
all patents, trademarks, trademark registrations, service marks,
service mark registrations,
9
<PAGE>
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the
Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and the Subsidiaries with
respect to the foregoing.
(ff) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with
Cuba.
(gg) Except as otherwise disclosed in the Prospectus, the
Company and the Subsidiaries are implementing a comprehensive, detailed
program to analyze and address the risk that the computer hardware and
software used by them may be unable to recognize and properly execute
date-sensitive functions involving certain dates prior to and any dates
after December 31, 1999 (the "Year 2000 Problem"), and reasonably
believes that such risk will be remedied on a timely basis without
material expense and will not have a Material Adverse Effect; and the
Company believes, after due inquiry, that each supplier, vendor,
customer or financial service organization used or serviced by the
Company and the Subsidiaries has remedied or will remedy on a timely
basis the Year 2000 Problem, except to the extent that a failure to
remedy by any such supplier, vendor, customer or financial service
organization would not have a Material Adverse Effect. The Company is
in compliance with the Commissions staff legal bulletin No. 5 dated
January 12, 1998 related to Year 2000 compliance, as amended to date.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
(ii) Each Selling Stockholder represents and warrants to, and
agrees with, each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the
Securities to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Securities, as provided
herein, such Selling Stockholder will convey to the Underwriters good
and marketable title to such Securities, free and clear of all liens,
encumbrances, equities and claims whatsoever.
(b) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities.
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<PAGE>
(c) Certificates in negotiable form for such Selling
Stockholder's Securities have been placed in custody, for delivery
pursuant to the terms of this Agreement, under a Custody Agreement and
Power of Attorney duly authorized (if applicable) executed and
delivered by such Selling Stockholder, in the form heretofore furnished
to you (the "Custody Agreement") with [________________], as Custodian
(the "Custodian"); the Securities represented by the certificates so
held in custody for each Selling Stockholder are subject to the
interests hereunder of the Underwriters; the arrangements for custody
and delivery of such certificates, made by such Selling Stockholder
hereunder and under the Custody Agreement, are not subject to
termination by any acts of such Selling Stockholder, or by operation of
law, whether by the death or incapacity of such Selling Stockholder or
the occurrence of any other event; and if any such death, incapacity or
any other such event shall occur before the delivery of such Securities
hereunder, certificates for the Securities will be delivered by the
Custodian in accordance with the terms and conditions of this Agreement
and the Custody Agreement as if such death, incapacity or other event
had not occurred, regardless of whether or not the Custodian shall have
received notice of such death, incapacity or other event.
(d) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except
such as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Underwriters and
such other approvals as have been obtained.
(e) Neither the sale of the Securities being sold by such
Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by such Selling Stockholder or the
fulfillment of the terms hereof by such Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a
default under any law or the charter or by-laws of such Selling
Stockholder, if applicable, or the terms of any indenture or other
agreement or instrument to which such Selling Stockholder or any of its
subsidiaries, if applicable, is a party or bound, or any judgment,
order or decree applicable to such Selling Stockholder or any of its
subsidiaries, if applicable, of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder or any of its subsidiaries,
if applicable.
(f) Such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in this Section
1 are not true and correct, is familiar with the Registration Statement
and has no knowledge of any material fact, condition or information not
disclosed in the Prospectus or any supplement thereto which has
adversely affected or may adversely affect the business of the Company
or any of the Subsidiaries; and the sale of Securities by such Selling
Stockholder pursuant hereto is not prompted by any information
11
<PAGE>
concerning the Company or any of the Subsidiaries which is not set
forth in the Prospectus or any supplement thereto.
(g) In respect of any statements in or omissions from the
Registration Statement or the Prospectus or any supplements thereto
made in reliance upon and in conformity with information furnished in
writing to the Company by any Selling Stockholder specifically for use
in connection with the preparation thereof, such Selling Stockholder
hereby makes the same representations and warranties to each
Underwriter as the Company makes to such Underwriter under paragraph
(i)(b) of this Section.
Any certificate signed by any Selling Stockholder or any
officer of any Selling Stockholder, if applicable, and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by such Selling
Stockholder, as to matters covered thereby, to each Underwriter.
2. PURCHASE AND SALE.
(a) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company and the Selling
Stockholders agree, severally and not jointly, to sell to each Underwriter, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, at a purchase price of $[____] per share, the
amount of the Underwritten Securities set forth opposite such Underwriter's name
in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company and the Selling
Stockholders named in Schedule III hereto hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to 525,000 Option
Securities at the same purchase price per share as the Underwriters shall pay
for the Underwritten Securities. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Securities by the Underwriters.
Said option may be exercised in whole or in part at any time (but not more than
once) on or before the 30th day after the date of the Prospectus upon written or
telegraphic notice by the Representatives to the Company and such Selling
Stockholders setting forth the number of shares of the Option Securities as to
which the several Underwriters are exercising the option and the settlement
date. The maximum number of Option Securities which the Company and each Selling
Stockholder agrees to sell is set forth in Schedule III hereto. In the event
that the Underwriters exercise less than their full over-allotment option, the
number of Option Securities to be sold by the Company and each Selling
Stockholder listed on Schedule III shall be determined as set forth in Schedule
III. The number of Option Securities to be purchased by each Underwriter shall
be the same percentage of the total number of shares of the Option Securities to
be purchased by the several Underwriters as such Underwriter is purchasing of
the Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
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<PAGE>
3. DELIVERY AND PAYMENT. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
_________, 1999, or at such time on such later date not more than three Business
Days after the foregoing date as the Representatives shall designate, which date
and time may be postponed by agreement among the Representatives, the Company
and the Selling Stockholders or as provided in Section 9 hereof (such date and
time of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Stockholders to or upon the order of the Company and the Selling Stockholders by
wire transfer payable in same-day funds to the accounts specified by the Company
and the Selling Stockholders. Delivery of the Underwritten Securities and the
Option Securities shall be made through the facilities of The Depository Trust
Company unless the Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Securities to be purchased by them from such Selling Stockholder and the
respective Underwriters will pay any additional stock transfer taxes involved in
further transfers.
If the option provided for in Section 2(b) hereof is exercised
after the third Business Day prior to the Closing Date, the Company and the
Selling Stockholders named in Schedule III hereto will deliver the Option
Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company and the Selling Stockholders
named in Schedule III by wire transfer payable in same-day funds to the accounts
specified by the Company and the Selling Stockholders named in Schedule III
hereto. If settlement for the Option Securities occurs after the Closing Date,
the Company and such Selling Stockholders will deliver to the Representatives on
the settlement date for the Option Securities, and the obligation of the
Underwriters to purchase the Option Securities shall be conditioned upon receipt
of, supplemental opinions, certificates and letters confirming as of such date
the opinions, certificates and letters delivered on the Closing Date pursuant to
Section 6 hereof.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
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<PAGE>
5. AGREEMENTS.
(i) The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company
will promptly advise the Representatives (1) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been
filed with the Commission, (3) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (4) of any request by the
Commission or its staff for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or for any
supplement to the Prospectus or for any additional information, (5) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the Exchange Act or the respective
rules thereunder, the Company promptly will (1) notify the
Representatives of such event, (2) prepare and file with the
Commission, subject to the second sentence of paragraph (i)(a) of this
Section 5, an amendment or supplement which will correct such statement
or
14
<PAGE>
omission or effect such compliance and (3) supply any supplemented
Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and the Subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(e) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of
the Securities and will pay any fee of the National Association of
Securities Dealers, Inc., in connection with its review of the
offering; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so
qualified or to take any action that would subject it to service of
process in suits, other than those arising out of the offering or sale
of the Securities, in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or
otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to
cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of
the Company) directly or indirectly, including the filing (or
participation in the filing) of a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act, any other shares of Common
Stock or any securities convertible into, or exercisable, or
exchangeable for, shares of Common Stock; or publicly announce an
intention to effect any such transaction, for a period of 90 days after
the date of the Underwriting Agreement, provided, however, that the
Company may issue and sell Common Stock pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the Execution Time and the Company may issue
Common Stock issuable upon the conversion of securities or the exercise
of warrants outstanding at the Execution Time.
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<PAGE>
(g) The Company will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(ii) Each Selling Stockholder agrees with the several
Underwriters that:
(a) Such Selling Stockholder will not, without the prior
written consent of Salomon Smith Barney, offer, sell, contract to sell,
pledge or otherwise dispose of, (or enter into any transaction which is
designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or any
affiliate of the Company or any person in privity with the Company or
any affiliate of the Company) directly or indirectly, or file (or
participate in the filing of) a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act with respect to, any shares
of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly
announce an intention to effect any such transaction, for a period of
90 days after the date of this Agreement, other than shares of Common
Stock disposed of as bona fide gifts approved by Salomon Smith Barney
Inc.
(b) Such Selling Stockholder will not take any action designed
to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(c) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as
delivery of a prospectus relating to the Securities by an underwriter
or dealer may be required under the Act, of (i) any material change in
the Company's condition (financial or otherwise), prospects, earnings,
business or properties, (ii) any change in information in the
Registration Statement or the Prospectus relating to such Selling
Stockholder or (iii) any new material information relating to the
Company or relating to any matter stated in the Prospectus which comes
to the attention of such Selling Stockholder.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Stockholders made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the
16
<PAGE>
Selling Stockholders of their respective obligations hereunder and to
the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become
effective not later than (i) 6:00 PM New York City time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 PM New York City time on such date or (ii)
9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested and caused Akerman,
Senterfitt & Eidson, P.A., counsel for the Company, to have furnished
to the Representatives their opinion, dated the Closing Date and
addressed to the Representatives, to the effect that:
(i) each of the Company and the Subsidiaries (other
than Aviation Sales Company FSC, Ltd., a Barbados corporation
which has no material operations or assets) has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate power and
authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification, except where
the failure so to qualify does not have a Material Adverse
Effect;
(ii) all the outstanding shares of capital stock of
each Subsidiary (other than Aviation Sales Company FSC, Ltd.,
a Barbados corporation which has no material operations or
assets) have been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital
stock of the Subsidiaries are owned of record and, to the best
knowledge of such counsel after reasonable inquiry,
beneficially by the Company either directly or through wholly
owned Subsidiaries free and clear of any perfected security
interest and, to the best knowledge of such counsel, after
reasonable inquiry, any other security interest, claim, lien
or encumbrance;
(iii) the Company's authorized equity capitalization
is as set forth in the Prospectus; the capital stock of the
Company conforms in all
17
<PAGE>
material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock (including
the Securities being sold hereunder by the Selling
Stockholders) have been duly and validly authorized and issued
and are fully paid and nonassessable; the Securities being
sold hereunder by the Company have been duly and validly
authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities being sold by the
Selling Stockholders are duly listed, and admitted and
authorized for trading, on the New York Stock Exchange and the
Securities being sold hereunder by the Company are duly
listed, and admitted and authorized for trading, subject to
official notice of issuance, on the New York Stock Exchange;
the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital
stock of the Company are not entitled to preemptive or, to the
best knowledge of such counsel after due inquiry, other rights
to subscribe for the Securities; and, except as set forth in
the Prospectus, to the best knowledge of such counsel after
due inquiry, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert
any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company are
outstanding;
(iv) to the best knowledge of such counsel after
reasonable inquiry, there is no pending or threatened action,
suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the
Company or any of the Subsidiaries or its or their property of
a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Prospectus,
and there is no franchise, contract or other document of a
character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit thereto,
which is not described or filed as required; and the
statements included or incorporated by reference in the
Prospectus under the headings "United States Federal Tax
Considerations," "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources - Environmental," "- Lease for New
Facility," "- Credit Facility," "- Senior Subordinated Notes,"
and "- Other Notes," "Business - Government Regulation and
Traceability" and "- Legal Proceedings" and the statements
included in the Form 10-K for the year ended December 31,
1998, under the heading "Certain Relationships and Related
Transactions" fairly summarize the matters therein described;
(v) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued,
no proceedings for that purpose have been instituted or
threatened
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<PAGE>
and the Registration Statement and the Prospectus (other than
the financial statements and other financial information
contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Exchange Act and
the respective rules thereunder; and such counsel has no
reason to believe that on the Effective Date or at the
Execution Time the Registration Statement contained any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of
its date and on the Closing Date included or includes any
untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the
financial statements and other financial and statistical
information contained therein, as to which such counsel need
express no opinion;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company and constitutes a legal,
valid and binding instrument enforceable against the Company
in accordance with its terms (subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors'
rights generally from time to time in effect and to general
principles of equity, including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing,
regardless of whether considered in a proceeding in equity or
at law); and the Securities have been duly authorized and,
when executed and delivered to and paid for by the
Underwriters pursuant to this Agreement, will constitute
legal, valid and binding obligations of the Company, and the
description of the Securities in the Prospectus will conform
in all material respects to the Securities;
(vii) the Company is not and, after giving effect to
the offering and sale of the Securities and the application of
the proceeds thereof as described in the Prospectus, will not
be, an "investment company" as defined in the Investment
Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing
with or order of any court or governmental agency or body is
required in connection with the transactions contemplated
herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been
obtained;
19
<PAGE>
(ix) neither the issue and sale of the Securities,
nor the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict in any material respect with, result in a breach or
violation in any material respect of or imposition of any
lien, charge or encumbrance upon any property or assets of the
Company or the Subsidiaries pursuant to, (i) the charter or
by-laws of the Company or the Subsidiaries, (ii) the terms of
any material indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument known to such
counsel after reasonable inquiry to which the Company or the
Subsidiaries is a party or bound or to which its or their
property is subject, or (iii) any statute, law, rule or
regulation (assuming compliance with all applicable state
securities and Blue Sky laws), or any judgment, order or
decree known to such counsel after reasonable inquiry
applicable to the Company or the Subsidiaries of any court,
regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the
Company or the Subsidiaries or any of its or their properties;
(x) to the best knowledge of such counsel after
reasonable inquiry, except as described in the Prospectus, no
holders of securities of the Company have rights to the
registration of such securities under the Registration
Statement;
(xi) to the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the
Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or of any decree of
any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiaries;
(xii) the Company and each of the Subsidiaries (other
than Aviation Sales Company FSC, Ltd., a Barbados corporation
which has no material operations or assets) have full
corporate power and authority, and all necessary governmental
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all government regulatory
officials and bodies (except where the failure so to have any
such authorizations, approvals, orders, licenses,
certificates, franchises or permits, individually or in the
aggregate, would not have a Material Adverse Effect and except
as may be required under the Blue Sky laws or state securities
laws) to own their respective properties and to conduct their
respective businesses as now being conducted, as described in
the Prospectus;
(xiii) such counsel is not aware of any material
claim or challenge by any other person to the rights of the
Company and the Subsidiaries with
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respect to any patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of
them or necessary for the conduct of their respective
businesses; and
(xiv) the Company is not required to obtain
stockholder consent for the issuance or offering of the
Securities.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
States of Florida and Delaware or the Federal laws of the United
States, to the extent they deem proper and specified in such opinion,
upon the opinion of other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for the Underwriters
and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include
any supplements thereto at the Closing Date.
(c) The Selling Stockholders shall also have requested and
caused Akerman, Senterfitt & Eidson, P.A., counsel for the Selling
Stockholders, to have furnished to the Representatives their opinion
dated the Closing Date and addressed to the Representatives, to the
effect that:
(i) this Agreement and the Custody Agreement and
Power of Attorney have been duly authorized, executed and
delivered by the Selling Stockholders, the Custody Agreement
is valid and binding on the Selling Stockholders and each
Selling Stockholder has full legal right and authority to
sell, transfer and deliver in the manner provided in this
Agreement and the Custody Agreement the Securities being sold
by such Selling Stockholder hereunder;
(ii) the delivery by each Selling Stockholder to the
several Underwriters of certificates for the Securities being
sold hereunder by such Selling Stockholder against payment
therefor as provided herein, will pass good and marketable
title to such Securities to the several Underwriters, free and
clear of all liens, encumbrances, equities and claims
whatsoever;
(iii) no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by any Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained
under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such
other approvals (specified in such opinion) as have been
obtained; and
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(iv) neither the sale of the Securities being sold by
any Selling Stockholder nor the consummation of any other of
the transactions herein contemplated by any Selling
Stockholder or the fulfillment of the terms hereof by any
Selling Stockholder will conflict in any material respect
with, result in a breach or violation of, or constitute a
default under any law or the charter or By-laws of the Selling
Stockholder, if applicable, or the terms of any material
indenture or other agreement or instrument known to such
counsel and to which any Selling Stockholder or any of its
subsidiaries, if applicable, is a party or bound, or any
judgment, order or decree known to such counsel to be
applicable to any Selling Stockholder or any of its
subsidiaries, if applicable, of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over any Selling Stockholder or any of its
subsidiaries, if applicable.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of Florida or the Federal laws of the United States, to the
extent they deem proper and specified in such opinion, upon the opinion
of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for the Underwriters, and (B) as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers, if applicable, of the Selling Stockholders and
public officials.
(d) The Representatives shall have received from Latham &
Watkins, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date and addressed to the Representatives, with respect to
the issuance and sale of the Securities, the Registration Statement,
the Prospectus (together with any supplement thereto) and other related
matters as the Representatives may reasonably require, and the Company
and each Selling Stockholder shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing
Date;
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(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to the Company's
knowledge, threatened; and
(iii) since the date of the most recent financial
statements included or incorporated by reference in the
Prospectus (exclusive of any supplement thereto), there has
been no Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(f) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by the Selling Stockholder or, if
applicable, the Chairman of the Board or the President and the
principal financial or accounting officer of such Selling Stockholder,
dated the Closing Date, to the effect that the signer(s) of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplement to the Prospectus and this Agreement and
that the representations and warranties of such Selling Stockholder in
this Agreement are true and correct in all material respects on and as
of the Closing Date to the same effect as if made on the Closing Date.
(g) The Company shall have requested and caused Arthur
Anderson LLP to have furnished to the Representatives, at the Execution
Time and at the Closing Date, letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the Exchange
Act and the respective applicable rules and regulations adopted by the
Commission thereunder and that they have performed a review of the
unaudited interim financial information of the Company for the three
month period ended March 31, 1999, and as at March 31, 1999 in
accordance with Statement on Auditing Standards No. 71, and stating in
effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Exchange Act and the related rules and regulations adopted by
the Commission;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company
and the Subsidiaries; their limited review, in accordance with
standards established under Statement on Auditing Standards
No. 71, of the unaudited interim financial information for the
three month period ended March 31, 1999, and as at March 31,
1999, included or incorporated by reference in the
Registration Statement and the Prospectus; carrying out
certain specified procedures
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<PAGE>
(but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters
of significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the
stockholders, directors and committees of the board of
directors of the Company and the Subsidiaries; and inquiries
of certain officials of the Company who have responsibility
for financial and accounting matters of the Company and the
Subsidiaries as to transactions and events subsequent to
December 31, 1998, nothing came to their attention which
caused them to believe that:
(1) any unaudited financial statements
included or incorporated by reference in the
Registration Statement and the Prospectus do not
comply as to form in all material respects with
applicable accounting requirements of the Act and
with the related rules and regulations adopted by the
Commission with respect to financial statements
included or incorporated by reference in quarterly
reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity
with generally accepted accounting principles applied
on a basis substantially consistent with that of the
audited financial statements included or incorporated
by reference in the Registration Statement and the
Prospectus;
(2) with respect to the period subsequent to
March 31, 1999, there were any changes, at a
specified date not more than five days prior to the
date of the letter, in the long-term liabilities of
the Company and the Subsidiaries or capital stock of
the Company or decreases in the stockholders' equity
of the Company as compared with the amounts shown on
the March 31, 1999, consolidated balance sheet
included or incorporated by reference in the
Registration Statement and the Prospectus, or for the
period from April 1, 1999 to such specified date
there were any decreases, as compared with the
corresponding period in the preceding year in
operating revenues or income before income taxes,
operating losses and extraordinary items or in total
or per share amounts of net income of the Company and
the Subsidiaries, except in all instances for changes
or decreases set forth in such letter, in which case
the letter shall be accompanied by an explanation by
the Company as to the significance thereof unless
said explanation is not deemed necessary by the
Representatives; and
(3) the information included or incorporated
by reference in the Registration Statement and
Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data), Item 302 (Supplementary
Financial Information), Item 402 (Executive
Compensation) and Item 503(d) (Ratio of Earnings to
Fixed
24
<PAGE>
Charges) is not in conformity with the applicable disclosure
requirements of Regulation S-K;
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and the Subsidiaries) set forth in the Registration
Statement and the Prospectus and in Exhibit 12 to the
Registration Statement, including the information set forth
under the captions "Prospectus Summary - Summary Consolidated
Financial Data" and "Selected Consolidated Financial Data" in
the Prospectus, the information included or incorporated by
reference in Items 1, 2, 6, 7 and 11 of the Company's Annual
Report on Form 10-K, incorporated by reference in the
Registration Statement and the Prospectus, and the information
included in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included or
incorporated by reference in the Company's Quarterly Reports
on Form 10-Q, incorporated by reference in the Registration
Statement and the Prospectus, agrees with the accounting
records of the Company and the Subsidiaries, excluding any
questions of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro
forma, as adjusted and as further adjusted financial data,
included or incorporated by reference in the Registration
Statement and the Prospectus (the "pro forma, as adjusted and
as further adjusted financial data"); carrying out certain
specified procedures; inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma, as adjusted and as further adjusted
financial data, nothing came to their attention which caused
them to believe that the pro forma, as adjusted and as further
adjusted financial data, do not comply as to form in all
material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of such data.
References to the Prospectus in this paragraph (g) include any
supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(g) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company and the
Subsidiaries, taken as a whole,
25
<PAGE>
whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto) the
effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable
to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(i) Prior to the Closing Date, the Company and the
Selling Stockholders shall have furnished to the
Representatives such further information, certificates and
documents as the Representatives may reasonably request.
(ii) Subsequent to the Execution Time, there shall
not have been any decrease in the rating of any of the
Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction
of the possible change.
(iii) The Securities shall have been listed and
admitted and authorized for trading on the New York Stock
Exchange, and satisfactory evidence of such actions shall have
been provided to the Representatives.
(iv) On or prior to the Execution Time, the New York
Stock Exchange shall have approved the Underwriters'
participation in the distribution of the Securities to be sold
by the Selling Stockholders in accordance with Rule 393 of the
New York Stock Exchange.
(v) At the Execution Time, the Company shall have
furnished to the Representatives a letter substantially in the
form of Exhibit A hereto from each officer and director of the
Company and the Selling Stockholders addressed to the
Representatives.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company and
each Selling Stockholder in writing or by telephone or facsimile confirmed in
writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Latham & Watkins, counsel for the Underwriters, at
885 Third Avenue, Suite 1000, New York, New York 10022, on the Closing Date.
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<PAGE>
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or any Selling
Stockholders to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally through Salomon Smith Barney on demand for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities. If the Company is required to make any
payments to the Underwriters under this Section 7 because of any Selling
Stockholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, the Selling Stockholders
PRO RATA in proportion to the percentage of Securities to be sold by each shall
reimburse the Company on demand for all amounts so paid.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each
Underwriter and each person who controls any Underwriter within the
meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the registration statement for the registration of the Securities as
originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees
to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Selling Stockholder severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers
who signs the Registration Statement, each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person who
controls the Company or any
27
<PAGE>
Underwriter within the meaning of either the Act or the Exchange Act
and each other Selling Stockholder, if any, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information furnished to the Company by or on
behalf of such Selling Stockholder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any Selling
Stockholder may otherwise have.
(c) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signs the Registration Statement, and each person who
controls the Company within the meaning of either the Act or the
Exchange Act and each Selling Stockholder, to the same extent as the
foregoing indemnity to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to
any liability which any Underwriter may otherwise have. The Company and
each Selling Stockholder acknowledge that the statements set forth in
the last paragraph of the cover page regarding delivery of the
Securities and, under the heading "Underwriting", (i) the list of
Underwriters and their respective participation in the sale of
Securities, (ii) the sentences related to concessions and reallowances
and (iii) the paragraph related to stabilization, syndicate covering
transactions and the paragraph related to penalty bids in any
Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
in writing of the commencement thereof; but the failure so to notify
the indemnifying party (i) will not relieve it from liability under
paragraph (a), (b) or (c) above unless and to the extent it did not
otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a), (b) or (c) above. The
indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which indemnification
is sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained
by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall
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<PAGE>
bear the reasonable fees, costs and expenses of such separate counsel
if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of,
any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to
the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company, the Selling
Stockholders and the Underwriters agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company, one or
more of the Selling Stockholders and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, by the Selling Stockholders
and by the Underwriters from the offering of the Securities; PROVIDED,
HOWEVER, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering
of the Securities) be responsible for any amount in excess of the
underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by
the immediately preceding sentence is unavailable for any reason, the
Company, the Selling Stockholders and the Underwriters shall contribute
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company, of the Selling
Stockholders and of the Underwriters in connection with the statements
or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company and
by the Selling Stockholders shall be deemed to be equal to the total
net proceeds from the offering (before deducting expenses) received by
each of them, and benefits received by the Underwriters shall be deemed
to be equal to the total underwriting discounts and commissions, in
each case as set forth on the cover page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether
any
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<PAGE>
untrue or any alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information provided by the Company, the Selling Stockholders or the
Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method
of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of
this paragraph (e), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and
conditions of this paragraph (e).
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Stockholders or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company, the Selling Stockholders and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in
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the Company's Common Stock shall have been suspended by the Commission or the
New York Stock Exchange or trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war, or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
any Selling Stockholder or the Company or any of the officers, directors,
employees, agents or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel
(fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith
Barney Inc., at 388 Greenwich Street, New York, New York, 10013, Attention:
General Counsel; or, if sent to the Company, will be mailed, delivered or
telefaxed to Aviation Sales Company, Legal Department (305) 599-6610 and
confirmed to it at 6905 N.W. 25th Street, Miami, Florida 33122, attention of the
Legal Department; or if sent to any Selling Stockholder, will be mailed,
delivered or telefaxed and confirmed to it at the address set forth in Schedule
II hereto.
13. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. HEADINGS. The section headings used herein are for
convenience only and shall not affect the construction hereof.
31
<PAGE>
17. DEFINITIONS. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange
Commission.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(i)(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto or
any Rule 462(b) Registration Statement becomes effective prior to the
Closing Date, shall also mean such registration statement as so amended
or such Rule 462(b) Registration Statement, as the case may be. Such
term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
32
<PAGE>
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
33
<PAGE>
Very truly yours,
AVIATION SALES COMPANY
By:
---------------------------------------
Name:
Title:
[SELLING STOCKHOLDER]
By:
----------------------------------------
Name:
Title:
[SELLING STOCKHOLDER]
By:
----------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON SMITH BARNEY INC.
BT ALEX. BROWN INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
WARBURG DILLON READ LLC
By: SALOMON SMITH BARNEY INC.
By:
-------------------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
34
<PAGE>
SCHEDULE I
NUMBER OF UNDERWRITTEN
UNDERWRITERS SECURITIES TO BE PURCHASED
------------ --------------------------
Salomon Smith Barney Inc.
BT Alex. Brown Incorporated
Robert W. Baird & Co. Incorporated
Warburg Dillon Read LLC
---------
Total ................ 3,600,000
=========
<PAGE>
SCHEDULE II
(Selling Stockholders)
<PAGE>
SCHEDULE III
(Over-Allotment Options)
<PAGE>
[LETTERHEAD OF OFFICER, DIRECTOR OR MAJOR STOCKHOLDER OF
CORPORATION]
AVIATION SALES COMPANY
PUBLIC OFFERING OF COMMON STOCK
________, 1999
SALOMON SMITH BARNEY INC.
BT ALEX. BROWN INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
WARBURG DILLON READ LLC
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between Aviation
Sales Company, a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Common Stock, $0.001 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned will not, without the prior
written consent of Salomon Smith Barney Inc., offer, sell, contract to sell,
pledge or otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, including the filing or participation in the filing of) a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction, for a period of 90 days after the date
of this Agreement, other than shares of Common Stock disposed of as bona fide
gifts approved by Salomon Smith Barney Inc.
<PAGE>
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting Agreement),
the agreement set forth above shall likewise be terminated.
Yours very truly,
[SIGNATURE OF OFFICER, DIRECTOR OR MAJOR
STOCKHOLDER]
By:
----------------------------------------
Name:
Title:
[NAME AND ADDRESS OF OFFICER, DIRECTOR OR
MAJOR STOCKHOLDER]
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
SUNTRUST INTERNATIONAL CENTER
28TH FLOOR
ONE SOUTHEAST THIRD AVENUE
MIAMI, FLORIDA 33131-1704
(305) 374-5600
ATTORNEYS AT LAW
April 19, 1999
Aviation Sales Company
6905 N.W. 25th Street
Miami, Florida 33122
RE: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to Aviation Sales Company, a Delaware
corporation (the "Company"), with respect to the registration statement on Form
S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission for the purpose of registering for sale by the Company and several
selling stockholders under the Securities Act of 1933, as amended (the
"Securities Act"), up to 4,025,000 shares of common stock of the Company,
$.001 par value (the "Common Stock").
Based on our review of the Certificate of Incorporation of the Company,
as amended, the By-laws of the Company, the minutes of the meetings of the Board
of Directors of the Company and such other documents and records as we have
deemed necessary and appropriate, we are of the opinion that the Common Stock,
if and when issued and paid for in accordance with the terms of the Underwriting
Agreement by and among the Company, Salomon Smith Barney, Inc., BT Alex.
Brown Incorporated, Robert W. Baird & Co. Incorporated and Warburg Dillon Read
LLC, as representatives of the several underwriters, will be validly issued,
fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations promulgated thereunder.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 19, 1999.
