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>
---------------
<TABLE>
<S> <C>
DALE S. BAKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6905 N.W. 25TH STREET 6905 N.W. 25TH STREET
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 592-4055 (305) 592-4055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES 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>
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. [ ]
(ADDITIONAL REGISTRANTS ON NEXT PAGE)
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES 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>
8 1/8% Senior Subordinated Notes
due 2008 ......................... $85,000,000 100% $85,000,000 $25,075
Guarantees of 8 1/8% Senior
Subordinated Notes due 2008 ...... $85,000,000 N/A N/A $ (2)
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) No additional fee due for subsidiary guarantees pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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>
<TABLE>
<CAPTION>
PRIMARY STANDARD
STATE OF INDUSTRIAL I.R.S. EMPLOYER
NAME OF ADDITIONAL REGISTRANT(S)* INCORPORATION CLASSIFICATION CODE IDENTIFICATION CODE
<S> <C> <C> <C>
Aviation Sales Distribution Services Company Delaware 5088 65-0673002
Aviation Sales Finance Company Delaware 6159 51-0375317
Aviation Sales Leasing Company Delaware 7359 65-0674397
Aviation Sales Manufacturing Company Delaware 6719 65-0791491
AVS/Kratz-Wilde Machine Company Delaware 3460 31-1575338
Aerocell Structures, Inc. Arkansas 4581 71-0704240
Apex Manufacturing, Inc. Arizona 3725 65-0801884
Caribe Aviation, Inc. Florida 4581 59-1710967
Aircraft Interior Design, Inc. Florida 4581 59-2449132
Aviation Sales Bearings Company Delaware 5088 65-0684071
Aviation Sales SPS I, Inc. Delaware 7359 65-0774065
Aviation Sales Maintenance, Repair & Overhaul Company Delaware 6599 65-0871343
Whitehall Corporation Delaware 3698 41-0838460
Hydroscience, Inc. Texas 3698 75-1456297
Aero Hushkit Corporation Delaware 3698 59-3220181
Triad International Maintenance Corporation Delaware 3698 59-1510039
Aviation Sales Property Management Corp. Delaware 3698 65-0885418
AVSRE, L.P. Delaware 6599 65-0885420
</TABLE>
- ---------------
* Address and telephone number of principal executive offices are the same as
Aviation Sales Company.
<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 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
$85,000,000
[GRAPHIC OMITTED]
8 1/8% Senior Subordinated Notes due 2008
------------
The notes will bear interest at the rate of 8 1/8% per year. Interest on
the notes will be payable on August 15 and February 15 of each year beginning
August 15, 1999. The notes will mature on February 15, 2008. Aviation Sales may
redeem some or all of the notes at any time, on or after February 15, 2003. In
addition, Aviation Sales may also redeem up to 35% of the notes at any time
prior to February 15, 2001 with the net proceeds of a public offering of common
stock. The redemption prices are discussed under the caption "Description of
the Notes--Optional Redemption." Aviation Sales has previously issued $165
million of notes which are publicly traded. The notes offered by this
prospectus and the previously issued notes will be identical in all respects.
The notes will be general unsecured obligations of Aviation Sales and will
rank junior to all of our existing and future senior indebtedness and
equally with the previously issued notes. The notes will be guaranteed, fully
and unconditionally, on a senior subordinated basis, by substantially all of
the subsidiaries of Aviation Sales and the guarantees will rank junior in right
of payment to all existing and senior debt of the subsidiary guarantors and
equally with the guarantees provided by the subsidiary guarantors of the
previously issued notes.
Concurrently with this offering, we intend to sell 2,600,000 shares of our
common stock and several of our stockholders intend to sell 900,000 shares of
our common stock by a separate prospectus. The consummation of the notes
offering and the consummation of the stock offering are not conditioned upon
each other.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
PER NOTE TOTAL
---------- --------------
<S> <C> <C>
Public Offering Price ................................. % $
Underwriting Discount ................................. % $
Proceeds to Aviation Sales (before expenses) .......... % $
</TABLE>
Interest on the notes will accrue from February 15, 1999 to date of
delivery.
------------
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes to purchasers on or about , 1999.
Salomon Smith Barney BT Alex. Brown
, 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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary ........................................ 1
Risk Factors .............................................. 8
Use of Proceeds ........................................... 13
Capitalization ............................................ 14
Selected Consolidated Financial Data ...................... 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................ 17
Business .................................................. 25
Management ................................................ 37
Principal Stockholders .................................... 45
Description of Other Indebtedness ......................... 47
Description of Notes ...................................... 48
United States Federal Income Tax Considerations ........... 81
Underwriting .............................................. 85
Where You Can Find More Information ....................... 86
Legal Matters ............................................. 87
Experts ................................................... 87
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 NOTES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE FINANCIAL
STATEMENTS AND THE 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.
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 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
1
<PAGE>
approximately 75% of the North American services, and outsource 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 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 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
2
<PAGE>
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 NOTES OFFERING
The Issuer................ Aviation Sales Company, a Delaware corporation.
The Notes................. We are offering a total of $85,000,000 principal
amount of our 8 1/8% senior subordinated notes due
2008.
Price................... % plus accrued interest.
Interest Payment Dates.... We will pay the interest due on the notes on
February 15 and August 15 of each year.
Maturity Date............. The notes will mature on February 15, 2008.
Subordination............. The notes will be general unsecured obligations
of Aviation Sales, subordinated in right of payment
to all existing and future senior debt of Aviation
Sales, including indebtedness outstanding under
Aviation Sales' existing revolving credit facility.
For a description of the credit facility, see
"Description of Other Indebtedness." In addition,
the notes will be effectively subordinated to all
secured obligations to the extent of the assets
securing such obligations, including the credit
facility. At March 31, 1999 after giving effect to
the offering and the application of the net
proceeds, Aviation Sales and the subsidiary
guarantors had approximately $132.5 million of
senior debt outstanding, all of which is secured
($23.1 million, after giving effect to both this
offering and the concurrent stock offering). The
indenture permits Aviation Sales and its
subsidiaries to incur additional indebtedness,
including senior debt, subject to limitations. The
notes will also be effectively subordinated in
right of payment to all existing and future
liabilities of any subsidiaries of Aviation Sales
which do not guarantee the notes.
Existing Notes............ Aviation Sales has previously issued $165.0
million of its 8 1/8% senior subordinated notes due
2008 pursuant to the indenture. The notes will rank
equally with our previously issued notes and will
be identical in all respects to the previously
issued notes.
Subsidiary Guarantees..... The notes will be unconditionally guaranteed, on
a senior subordinated basis, by substantially all
of Aviation Sales' existing subsidiaries and by
each subsidiary that is organized in the future by
Aviation Sales, unless designated as an
unrestricted subsidiary. The subsidiary guarantees
will be joint and several, full and unconditional
and general unsecured obligations of the subsidiary
guarantors. The subsidiary guarantees will be
subordinated in right of payment to all existing
and future senior debt of the subsidiary
guarantors, including the credit facility, and will
also be effectively subordinated to all secured
obligations of the subsidiary guarantors to the
extent of the assets securing such obligations,
including the credit facility. The indenture
permits the subsidiary guarantors to incur
additional
4
<PAGE>
indebtedness, including senior debt, subject to
limitations. The subsidiary guarantees for the
previously issued notes will be identical in all
respects and will rank equally with the subsidiary
guarantees for the notes.
Optional Redemption....... The notes will be redeemable at the option of
Aviation Sales, in whole or in part, at any time on
or after February 15, 2003, at the redemption
prices set forth in this prospectus, plus accrued
and unpaid interest to the redemption date.
Aviation Sales may also redeem up to 35% of the
aggregate principal amount of notes at any time
prior to February 15, 2001, at a redemption price
equal to 108 1/8% 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 common stock of Aviation Sales;
PROVIDED, that at least 65% of the aggregate
principal amount of notes remains outstanding after
such redemption.
Change of Control......... Upon a change of control, Aviation Sales will be
required to make an offer to repurchase all or any
part of each holder's notes at a repurchase price
equal to 101% of the principal amount of the notes,
plus accrued and unpaid interest to the repurchase
date. We cannot assure you that Aviation Sales will
have the financial resources necessary to purchase
the notes upon a change of control or that the
repurchase will be permitted under the credit
facility.
Covenants................. The indenture contains covenants that, among
other things, limit the ability of Aviation Sales
and its subsidiaries to incur additional
indebtedness, 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, or enter into mergers or consolidations
or sell all or substantially all of their assets.
Use of Proceeds........... We intend to use the net proceeds from the sale
of the notes to reduce amounts outstanding under
our credit facility.
THE STOCK OFFERING
Concurrently with this notes offering, we intend to sell 2.6 million
shares of our common stock and certain of our stockholders intend to sell
900,000 shares of our common stock by a separate prospectus. The notes offering
and the stock offering are not conditioned upon each other. We intend to use
the net proceeds to us from the sale of the 2.6 million shares (estimated to be
$109.4 million) to reduce amounts outstanding under the credit facility.
5
<PAGE>
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 $ 24,776 $ 19,912
Net income ........................................ 27,415 26,827 29,794
Diluted net income per share ...................... 2.15 2.11 1.94
Weighted average number of diluted shares ......... 12,729 12,729 15,329
Ratio of total debt to EBITDA ..................... 4.5x 4.5x 3.4x
Ratio of EBITDA to cash interest .................. 3.4x 3.2x 4.1x
Ratio of earnings to fixed charges(7) ............. 2.6x 2.5x 3.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(8) ADJUSTED(9)
---------- ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 10,536 $ 10,536 $ 28,599
Working capital .................... 169,742 252,417 361,812
Total assets ....................... 599,377 601,702 619,765
Total debt ......................... 366,176 368,501 277,169
Total stockholders' equity ......... 154,298 154,298 263,693
Total capitalization ............... 520,474 522,799 540,862
</TABLE>
6
<PAGE>
- ----------------
(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 $85.0 million of senior subordinated notes offered by
this prospectus by Aviation Sales and application of the estimated net
proceeds of $82.7 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 offering of $85.0 million of senior subordinated notes as
discussed in Note 8 above, and (ii) the sale of 2,600,000 shares offered
in the stock offering by Aviation Sales at an assumed public offering
price of $45.00 per share and application of the net proceeds of $109.4
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 notes offering and the stock offering are
not conditioned upon each other.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO INVEST IN OUR NOTES. 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.
WE HAVE SUBSTANTIAL DEBT WHICH WE MAY BE UNABLE TO SERVICE AND WE ARE
SIGNIFICANTLY LEVERAGED.
We currently have significant outstanding indebtedness, and subsequent to
the offering, we will continue to be significantly leveraged. As of March 31,
1999 we had outstanding indebtedness of $403.5 million, of which $215.2 million
was senior indebtedness and $188.3 million was other indebtedness, (including
the previously issued notes with a discounted aggregate principal amount issued
of $164.1 million). The degree to which we are leveraged could have important
consequences to the holders of the notes, 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 cash flow from
operations to the payment of principal and interest on indebtedness,
thereby reducing the funds available for operations and future
business opportunities. Our requirement to pay principal and
interest on indebtedness for the year ending December 31, 1999 is
approximately $35.2 million.
In addition, subject to the limitations set forth in the indenture, we and
our subsidiaries may incur substantial amounts of additional indebtedness, much
of which is expected to be senior indebtedness. As of March 31, 1999, we had
availability under the credit facility of $6.7 million. The credit facility is
secured by substantially all of our assets.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO SENIOR DEBT.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness and all of our and their existing
and future senior indebtedness, except any future indebtedness that expressly
provides that it ranks equal with, or subordinated in right of payment to, the
notes and the guarantees. As a result, upon any distribution to our creditors
or the creditors of the subsidiary guarantors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or the subsidiary
guarantors or our or their property, the holders of senior indebtedness of
Aviation Sales and the subsidiary guarantors will be entitled to be paid in
full in cash before any payment may be made with respect to these notes or the
subsidiary guarantees.
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 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 previously issued senior subordinated notes, to satisfy
8
<PAGE>
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 notes impose significant operating and
financial restrictions on us. These restrictions may significantly limit our
ability to incur additional indebtedness, 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.
CONSEQUENCES OF CHANGE OF CONTROL
Upon a change of control, the holders of notes would be entitled to
require us to repurchase the notes at a purchase price equal to 101% of the
principal amount of the notes, plus accrued and unpaid interest. Our failure to
make such a repurchase would result in a default under the indenture. In
addition, the credit facility contains, and our future indebtedness may
contain, prohibitions on events that would constitute a change of control or
require such indebtedness to be repurchased upon a change of control. If the
holders of the notes exercise their right to require us to repurchase the
notes, this could cause a default under our indebtedness due to the financial
effect of such repurchase on us, even if the change of control itself does not
cause a default. Upon a change of control, we cannot assure you that we would
have sufficient funds, or be permitted, to repurchase the notes, or to satisfy
our other obligations under the notes.
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.
9
<PAGE>
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 capital, and by restrictions imposed
under our credit facility and the 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 part 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
10
<PAGE>
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 cannot 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% if we complete our stock offering concurrent with this notes offering.
Our directors and 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% if we complete the stock 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.
FRAUDULENT CONVEYANCES AND PREFERENTIAL TRANSFERS
The ability of the holders of the notes or the trustee to enforce the
notes and the subsidiary guarantees may be limited by certain fraudulent
conveyance and similar laws. Various fraudulent conveyance and similar laws
have been enacted for the protection of creditors and may be utilized by a
court to avoid the notes and the subsidiary guarantees or to further
subordinate our obligations under the notes or the obligations of any
subsidiary guarantor under its subsidiary guarantee to obligations (including
trade payables) that do not otherwise constitute senior indebtedness. The
requirements for establishing a fraudulent conveyance vary depending on the law
of the jurisdiction which is being applied. Generally, if in a bankruptcy,
reorganization, rehabilitation or similar proceeding in respect of us or a
subsidiary guarantor, or in a lawsuit by or on behalf of creditors against us
or a subsidiary guarantor, a court were to find that:
(1) we or a subsidiary guarantor, as the case may be, incurred
indebtedness in connection with the notes or the subsidiary guarantees with
the intent of hindering, delaying or defrauding current or future creditors
of us or the subsidiary guarantor, as the case may be; or
(2) we or a subsidiary guarantor, as the case may be, received less than
reasonable equivalent value or fair consideration for incurring such
indebtedness, and:
(a) were insolvent at the time of the incurrence of such indebtedness;
(b) were rendered insolvent by reason of incurring such indebtedness;
(c) were at such time engaged or about to engage in a business or
transaction for which our assets constituted unreasonably small capital;
or
(d) intended to incur, or believed that we would incur, debts beyond
our ability to pay such debts as they matured.
11
<PAGE>
The court could, with respect to us or the subsidiary guarantor, as the
case may be, declare void in whole or in part our obligations or the
obligations of the subsidiary guarantor in connection with the notes or the
subsidiary guarantees and/or further subordinate claims with respect to the
notes and the subsidiary guarantees to all other debts of us or the subsidiary
guarantors, as applicable. If our obligations or the obligations of the
subsidiary guarantors were further subordinated, we cannot assure you that
after payment of our other debt, there would be sufficient funds to pay the
subordinated claims with respect to the notes and the subsidiary guarantees.
Generally an entity will be considered insolvent if:
(1) the sum of its debts is greater than the fair saleable value of all
of its property at a fair valuation; or
(2) the present fair saleable value of its assets is less than the amount
that will be required to pay its probable liability on its existing debts,
as they become mature and absolute.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against us
or any subsidiary guarantor within 90 days after any payment by us or the
subsidiary guarantor with respect to the notes or a subsidiary guarantee or the
incurrence of a subsidiary guarantee if we or the subsidiary guarantor
anticipated becoming insolvent at the time of such payment or incurrence, all
or a portion of such payment or guarantee could be avoided as a preferential
transfer and the recipient of such payment could be required to return such
payment.
THERE MAY BE NO ACTIVE MARKET FOR OUR NOTES
The notes are not traded on an exchange or quoted on any automated
quotation system. While there has been a public market for the previously
issued notes, and the underwriters have informed us that they intend to make a
market in the notes, the underwriters may cease their market-making at any
time. In addition, the liquidity of the trading market in the notes, and the
market price quoted for the notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that there will be an active trading
market for the notes.
12
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the notes are estimated
to be $82.7 million, after deducting the underwriting discount and other
offering costs.
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 credit
facility indebtedness to acquire TIMCO and Whitehall, as well as for working
capital.
Concurrently with this offering, we intend to issue 2.6 million shares of
our common stock in a public offering by a separate prospectus with net
proceeds estimated to be $109.4 million. We intend to use the net proceeds from
the stock offering to reduce amounts outstanding under our credit facility. The
notes offering and the stock offering are not conditioned on each other.
13
<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 $85.0 million of senior subordinated notes
and as further adjusted to give effect to the concurrent offering of 2.6
million shares of common stock offered in a separate prospectus at an assumed
public offering price of $45.00 per share and the application of the estimated
net proceeds. The notes offering and the stock 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 $ 91,332 $ --
Senior subordinated notes .................................... 164,163 249,163 249,163
Other debt ................................................... 28,006 28,006 28,006
-------- -------- --------
Total long term debt ........................................ 366,176 368,501 277,169
-------- -------- --------
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 12,515,809
shares issued and outstanding, as adjusted and 15,115,809 as
further adjusted(3) ........................................ 12 12 15
Additional paid-in capital ................................... 64,344 64,344 173,736
Retained earnings ............................................ 89,942 89,942 89,942
-------- -------- --------
Total stockholders' equity .................................. 154,298 154,298 263,693
-------- -------- --------
Total capitalization ....................................... $520,474 $522,799 $540,862
======== ======== ========
</TABLE>
- ----------------
(1) For a description of our outstanding long-term debt see "Description of
Other Indebtedness."
(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."
14
<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 $ 24,776 $ 19,912
Net income ........................................ 27,415 26,827 29,794
Diluted net income per share ...................... 2.15 2.11 1.94
Weighted average number of diluted shares ......... 12,729 12,729 15,329
Ratio of total debt to EBITDA ..................... 4.5x 4.5x 3.4x
Ratio of EBITDA to cash interest .................. 3.4x 3.2x 4.1x
Ratio of earnings to fixed charges(7) ............. 2.6x 2.5x 3.1x
</TABLE>
15
<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 $ 10,356 $ 10,536 $ 28,599
Working capital ................ 69,610 68,039 88,222 89,988 169,742 252,417 361,812
Total assets ................... 121,477 134,660 190,118 341,332 599,377 601,702 619,765
Total debt ..................... 69,152 62,042 42,360 165,802 366,176 368,501 277,169
Total stockholders' equity ..... 34,068 44,298 115,896 121,279 154,298 154,298 263,693
Total capitalization ........... 103,220 106,340 158,256 287,081 520,474 522,799 540,862
</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
period presented subsequent to 1995 and Aerocell and Apex are included in
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 $85.0 million of senior subordinated notes offered by
this prospectus by Aviation Sales and application of the estimated net
proceeds of $82.7 million from the offering 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 offering of $85.0 million of senior subordinated notes as
described in Note 8 above, and (ii) the sale of 2,600,000 shares offered
in the stock offering by Aviation Sales at an assumed public offering
price of $45.00 per share and the application of the net proceeds from the
offerings, 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 notes offering and the stock offering are
not conditioned upon each other.
16
<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.
17
<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.
18
<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, as 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 previously
issued 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.
19
<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
20
<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.
21
<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.
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
22
<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 both 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 of 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
23
<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 space parts inventory
that may pose Year 2000 compliance issues, we have contacted our vendors to
assess the Year 2000 compliance of such 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 has 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.
24
<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, independent operators
such as Aviation Sales will continue to increase in the future.
25
<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.
26
<PAGE>
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 of 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.
27
<PAGE>
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
28
<PAGE>
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
29
<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
30
<PAGE>
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.
31
<PAGE>
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 also have 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.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
COMPANY ORGANIZATION
The operations of the business are conducted by Aviation Sales and its
wholly-owned subsidiaries. The operations of each of Aviation Sales'
subsidiaries are as follows:
(1) Aviation Sales Distribution Services Company sells aircraft spare parts
and provides inventory management services;
(2) Aviation Sales Bearings Company sells aircraft bearings and related
products;
(3) TIMCO operates three FAA-licensed repair stations providing aircraft
maintenance, repair and overhaul services;
(4) Aerocell is an FAA-licensed repair station specializing in the
maintenance and repair of airframe components;
(5) Caribe is an FAA-licensed repair station specializing in the
maintenance, repair and overhaul of hydraulic, pneumatic, electrical and
electromagnetic aircraft components;
(6) Aircraft Interior Design, Inc. manufactures plastic cabin interior
replacement parts under FAA-PMA approval and refurbishes aircraft interior
components;
(7) Kratz-Wilde primarily manufactures specialty machined metal parts for
jet engines;
(8) Apex manufactures precision specialty machined metal parts;
(9) Aviation Sales Leasing Company provides long-term leasing of customers
of aircraft spare parts to airlines;
(10) Aviation Sales SPS I, Inc. leases aircraft engines and rotables;
(11) Aero Hushkit Corporation owns our interest in an aircraft noise
reduction business;
(12) Aviation Sales Maintenance, Repair & Overhaul Company and Aviation
Sales Manufacturing Company are holding companies for our maintenance and
repair operations and for our manufacturing operations, respectively;
(13) Whitehall Corporation and Hydroscience, Inc. hold certain assets for
us;
(14) Aviation Sales Finance Company is involved in transactions with our
senior lenders;
(15) Aviation Sales FSC, Ltd. is qualified as a foreign sales company; and
(16) Aviation Sales Property Management is the one percent general partner
of a limited partnership, AVSRE, Ltd., which owns one of our facilities
(Whitehall is the 99% limited partner of AVSRE, Ltd.).
Substantially all of the operating assets of Aviation Sales are owned by
Aviation Sales Distribution Services, Aviation Sales Maintenance, Aviation
Sales Leasing, Aviation Sales Manufacturing and Aviation Sales Property
Management and substantially all of the operating revenues and net income
derived by Aviation Sales during 1996, 1997 and 1998, were derived from the
operations of Aviation Sales Distribution Services, Aviation Sales Maintenance
and Aviation Sales Manufacturing.
With the exception of Aviation Sales FSC, Ltd., all of our subsidiaries
(including AVSRE, Ltd.) jointly and severally and fully and unconditionally
guarantee, on a senior subordinated basis, the previously issued senior
subordinated notes and will similarly guarantee the notes.
36
<PAGE>
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 of 1999
our company 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
37
<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.
38
<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.
39
<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 Consultants 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 $5,000 per year for life insurance premiums. See
"Employment Agreements" below.
No long-term compensation awards were made to management during the three
years ended December 31, 1998.
40
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of common stock granted during the fiscal year ended December 31, 1998
to those persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION
NUMBER OF OPTIONS GRANTED FOR OPTION TERM(1)
SHARES UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED IN FISCAL YEAR ($/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 ............ -- -- 38,322/26,668 541,024/250,851
</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.
41
<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
42
<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.
43
<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.
44
<PAGE>
PRINCIPAL 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 simultaneously with this note offering 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 notes offering is not dependent on the stock 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.
45
<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.
46
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
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 certain financial covenants regarding our
financial performance and other covenants, including limiting the amount of our
annual capital expenditures and our ability to 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 assets or an issuance of our equity or debt securities or as a
result of insufficient collateral to meet the borrowing base requirements. 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, approximately $6.7 million was available for
borrowing under the credit facility and outstanding letter of credit aggregated
$22.6 million.
Following our sales of the notes offered by this prospectus and the
application of the net proceeds from this sale, we would have $132.5 million
available for borrowing under the credit facility. Additionally, if we close
our contemplated sale of 2.6 million shares of common stock in a concurrent
public offering and use the net proceeds (estimated to be $109.4 million) to us
to reduce the amounts outstanding under our credit facility, we will have
approximately $23.1 million available for borrowing under the credit facility.
OTHER NOTES
We have entered into several term loan agreements to finance certain
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 and Aircraft Interior Design,
on March 6, 1998 we delivered 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.
47
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in the following
summary set forth below under the subheading "Certain Definitions." For
purposes of this summary, the terms "Aviation Sales," "we," and "us" refer only
to Aviation Sales and not to any of its subsidiaries. Aviation Sales will issue
the notes under an indenture dated February 17, 1998 among itself, the
subsidiary guarantors and SunTrust Bank, Central Florida, National Association,
as trustee in a public offering. The terms of the notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act. For purposes of this summary, the term "notes" means the $85.0
million of 81/8% Senior Subordinated Notes due 2008 offered by this prospectus,
together with the $165.0 million of 81/8% Senior Subordinated Notes issued on
February 11, 1998. All of these notes have been or will be issued under the
indenture. The notes offered by this prospectus will rank equally with the
previously issued notes and will be identical in all respects to the previously
issued notes. The following summary of the material provisions of the indenture
does not purport to be complete and is qualified in its entirety by reference
to the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
These notes:
/bullet/ are general unsecured obligations of Aviation Sales;
/bullet/ are subordinated in right of payment to all current and future
Senior Debt;
/bullet/ are senior in right of payment to all existing and future
subordinated Indebtedness of Aviation Sales; and
/bullet/ are unconditionally guaranteed by the Subsidiary Guarantors.
THE SUBSIDIARY GUARANTEES
These notes are guaranteed by each Restricted Subsidiary of Aviation
Sales.
The Subsidiary Guarantees of these notes:
/bullet/ are general unsecured obligations of each Subsidiary Guarantor;
/bullet/ are subordinated in right of payment to all existing and future
Senior Debt of each Subsidiary Guarantor; and
/bullet/ are senior in right of payment to all current and future
subordinated Indebtedness of each Subsidiary Guarantor.
As of March 31, 1999, assuming we had completed the offering of these
notes and applied the net proceeds as intended, Aviation Sales and the
Subsidiary Guarantors would have had Senior Debt of approximately $132.5
million, (or $23.1 million if we close our concurrent offering of 2.6 million
shares of common stock), and Aviation Sales and its Subsidiaries would have had
additional liabilities (including trade payables, accrued expenses, income
taxes payable and deferred income) aggregating approximately $66.3 million. The
indenture will permit the incurrence of additional Senior Debt in the future.
At the date of this prospectus all of our Subsidiaries other than Aviation
Sales FSC, Ltd. will be Restricted Subsidiaries. However, under certain
circumstances described under the subheading "--Certain Covenants--Designation
of Restricted and Unrestricted Subsidiaries," we will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not
48
<PAGE>
be subject to many of the restrictive covenants set forth in the indenture. Our
Unrestricted Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides that we may issue notes with a maximum aggregate
principal amount of $250.0 million. On February 11, 1998 we issued $165.0
million of notes under the indenture, and we are issuing $85 million in
connection with this offering. Aviation Sales will issue notes in denominations
of $1,000 and integral multiples of $1,000.
The notes will mature on February 15, 2008. Interest on the notes will
accrue at the rate of 81/8% per annum and will be payable semi-annually in
arrears on February 15 and August 15, to holders of record on the immediately
preceding February 1 and August 1.
Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from February 15,
1999. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Aviation Sales,
Aviation Sales will pay all principal, interest and premium on that holder's
notes in accordance with those instructions. All other payments on notes will
be made at the office or agency of the paying agent and registrar within the
City and State of New York, unless Aviation Sales elects to make interest
payments by check mailed to the holders at their addresses set forth in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Aviation
Sales may change the paying agent or registrar without prior notice to the
holders, and Aviation Sales or any of its Subsidiaries may act as paying agent
or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and Aviation Sales may require
a holder to pay any taxes and fees required by law or permitted by the
indenture. Aviation Sales is not required to transfer or exchange any note
selected for redemption. Also, Aviation Sales is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the notes
will be subordinated in right of payment, as set forth in the indenture, to the
prior payment in full of all Senior Debt of Aviation Sales.
Upon any distribution to our creditors in a liquidation or dissolution of
us or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property, an assignment for the benefit of
creditors or any marshalling of our assets and liabilities, the holders of
Senior Debt will be entitled to receive payment in full in cash of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the holders of notes will be entitled to receive any
payment
49
<PAGE>
with respect to the notes, and until all Obligations with respect to Senior
Debt are paid in full, any distribution to which the holders of notes would be
entitled shall be made to the holders of Senior Debt (except that holders of
notes may receive and retain Permitted Junior Securities and payments made from
the trust described under "--Legal Defeasance and Covenant Defeasance").
We also may not make any payment upon or in respect of the notes (except
in Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the trustee receives a notice of such
default (a "Payment Blockage Notice") from us or the holders of any
Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice shall be effective unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, premium, if any, and interest on
the notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been waived for a period of not less than 90 days.
We must promptly notify holders of Senior Debt if payment of the notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of ours who are holders of Senior Debt. The indenture limits, subject
to certain financial tests, the amount of additional indebtedness, including
Senior Debt, that we and our subsidiaries can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors will jointly and severally guarantee our payment
obligations under the notes. The Subsidiary Guarantee of each Subsidiary
Guarantor is unsecured and is subordinated to the prior payment in full in cash
of all Senior Debt of such Subsidiary Guarantor. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See, however, "Risk Factors--Fraudulent
Conveyances and Preferential Transfers."
50
<PAGE>
A Subsidiary Guarantor may not consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person, other than Aviation Sales or another Subsidiary Guarantor, unless:
(1) subject to the provisions of the following paragraph, the Person formed
by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the trustee, under the notes and the
indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) such Subsidiary Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor
immediately preceding the transaction; and
(4) Aviation Sales would be permitted by virtue of Aviation Sales' pro
forma Fixed Charge Coverage Ratio, immediately after giving effect to
such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock."
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with a sale or other disposition of all of the assets of
any Subsidiary Guarantor, by way of merger, consolidation or otherwise if
the Subsidiary Guarantor applies the Net Proceeds of that sale or other
disposition in accordance with the "Asset Sale" provisions of the
indenture;
(2) in connection with a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor if Aviation Sales applies the Net
Proceeds of that sale in accordance with the "Asset Sale" provisions of
the indenture; or
(3) if Aviation Sales properly designates such Subsidiary Guarantor as an
Unrestricted Subsidiary. See "Redemption or Repurchase at Option of
Holders--Asset Sales."
OPTIONAL REDEMPTION
Prior to February 15, 2003 Aviation Sales may not redeem the notes. After
February 15, 2003, Aviation Sales may redeem all or part of the notes at any
time at its option, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on February 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------- -------------
<S> <C>
2003 ......................... 104.063%
2004 ......................... 102.708%
2005 ......................... 101.354%
2006 and thereafter .......... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to February 15, 2001, we may on
any one or more occasions redeem up to 35% of the aggregate principal amount of
notes issued under the indenture at
51
<PAGE>
a redemption price of 1081/8% of the principal amount of the notes, plus
accrued and unpaid interest, if any, to the redemption date, with the net cash
proceeds of a public offering of our common stock; PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes issued under
the indenture remain outstanding immediately after the occurrence of such
redemption (excluding notes held by us and our Subsidiaries); and
(2) such redemption shall occur within 45 days of the date of the closing
of such public offering.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange, if any, on which the notes are
listed; or,
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder of the note upon cancellation
of the original note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
notes or portions of them called for redemption.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase all or any part (equal to $1,000 or integral multiples
of $1,000) of such holder's notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest to the date
of purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, we will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the date specified in such notice, which date shall be
no earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the indenture and described in such notice. We will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
Change of Control.
52
<PAGE>
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions of the notes properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of the notes so tendered and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of the notes being purchased by us.
The paying agent will promptly mail to each holder of notes so tendered
the Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; PROVIDED that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, we will either repay or cause to
be repaid all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of notes required by this covenant. We will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that we
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The credit facility currently prohibits us from purchasing any notes prior
to maturity, and also provides that certain change of control events would
constitute a default under the credit agreement. Any future credit agreements
or other agreements relating to Senior Debt to which we become a party may
contain similar restrictions and provisions. If a Change of Control occurs when
we are prohibited from purchasing notes, we could seek the consent of our
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If we do not obtain such a consent or repay such
borrowings, we will remain prohibited from purchasing notes. Our failure to
purchase tendered notes would constitute an Event of Default under the
indenture which would, in turn, constitute a default under the credit facility.
In these circumstances, the subordination provisions in the indenture would
likely restrict payments to the holders of notes.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer.
ASSET SALES
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we (or the Restricted Subsidiary, as the case may be) receive
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of; and
53
<PAGE>
(2) at least 80% of the consideration therefor received by us or such
Restricted Subsidiary is in the form of cash; PROVIDED that the amount
of:
(a) any liabilities (as shown on our or such Restricted Subsidiary's most
recent balance sheet), of us or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms
subordinated to the notes or any guarantee thereof) that are assumed
by the transferee of any such assets pursuant to a customary novation
agreement that releases us or such Restricted Subsidiary from further
liability; and
(b) any securities, notes or other obligations received by us or any such
Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by us or such
Restricted Subsidiary into cash (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
we may apply such Net Proceeds, at our option:
(1) to repay or cause to be repaid Senior Debt;
(2) to the acquisition of a majority of the assets of, or a majority of the
Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0
million, we will be required to make an offer to all holders of notes and all
holders of PARI PASSU Indebtedness containing provisions similar to those set
forth in the indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of notes and such other Indebtedness that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in the indenture
and such other Indebtedness. To the extent that any Excess Proceeds remain
after consummation of an Asset Sale Offer, we may use such Excess Proceeds for
any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and such other Indebtedness tendered into such Asset
Sale Offer surrendered by holders thereof exceeds the amount of Excess
Proceeds, the trustee shall select the notes and such other Indebtedness to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero. In determining the fair
market value of any assets or Equity Interests issued, sold or otherwise
disposed of, such determination shall be evidenced by a resolution of the board
of directors set forth in an Officers' Certificate delivered to the Trustee if
such fair market value exceeds $15.0 million.
54
<PAGE>
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The indenture provides that we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of our or any of our Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger
or consolidation involving our or any of our Restricted Subsidiaries) or
to the direct or indirect holders of our or any of our Restricted
Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of us or to us or a Restricted Subsidiary of ours);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving us) any Equity Interests of ours or any direct or indirect
parent of ours;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is PARI PASSU
with or subordinated to the notes, except a payment of interest or
principal at Stated Maturity; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments").
Unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of the notes;
(2) we would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted
by clauses (2), (3), (4) and (6) of the next succeeding paragraph), is
less than the sum, without duplication of:
(a) 50% of our Consolidated Net Income for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the indenture to the end of our most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of
such deficit); PLUS
(b) 100% of the aggregate net cash proceeds received by us since the date
of the indenture as a contribution to its common equity capital or
from the issue or sale of our Equity Interests (other than
Disqualified Stock) or from the issue or sale of our Disqualified
Stock or debt securities that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of ours); PLUS
55
<PAGE>
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of:
(i) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any); and
(ii) the initial amount of such Restricted Investment; PLUS
(d) 50% of any dividends received by us or a Subsidiary Guarantor after
the date of the indenture from an Unrestricted Subsidiary of ours, to
the extent that such dividends were not otherwise included in our
Consolidated Net Income for such period; PLUS
(e) to the extent that any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary after the date of the indenture, the lesser of:
(i) the fair market value of our Investment in such Subsidiary as of
the date of such redesignation; or
(ii) such fair market value as of the date on which such Subsidiary
was originally designated as an Unrestricted Subsidiary.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any PARI PASSU or subordinated Indebtedness or Equity Interests of
ours in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of ours) of,
other Equity Interests of ours (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (2) (b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition PARI PASSU
or subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Subsidiary of ours to the holders of
its common Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of ours or any Subsidiary of ours held by any
member of our (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement in
effect as of the date of the indenture; PROVIDED that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests may not exceed $3.0 million in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction;
(6) the making and consummation of (A) an Asset Sale Offer to holders of
Indebtedness PARI PASSU with or subordinate to the notes in accordance
with the provisions described above under "Asset Sales", or (B) a
Change of Control Offer to holders of Indebtedness PARI PASSU with or
subordinate to the notes at a price not greater than 101% of the
principal amount of such Indebtedness in accordance with provisions
similar to those described above under "Change of Control"; PROVIDED,
that prior to consummation of a Change of Control Offer
56
<PAGE>
with respect to subordinated Indebtedness and concurrently with
consummation of a Change of Control Offer with respect to PARI PASSU
Indebtedness, we shall have consummated the Change of Control Offer with
respect to the notes; and
(7) the making of additional Restricted Payments in an amount not to
exceed $10.0 million.
The board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by us and
our Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments (to the
extent they otherwise fall within the definition thereof) at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by us or such Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any non-cash Restricted Payment in excess of $10.0 million shall be determined
by the board of directors whose resolution with respect thereto shall be
delivered to the trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $15.0 million. Not later
than the date of making any Restricted Payment, we shall deliver to the trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that we
will not issue any Disqualified Stock and will not permit any of our
Subsidiaries to issue any shares of preferred stock, PROVIDED, HOWEVER, that we
may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and the Subsidiary Guarantors may incur Indebtedness or
issue preferred stock if the Fixed Charge Coverage Ratio for our most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1 if such Indebtedness is incurred or such Disqualified
Stock or preferred stock is issued on or prior to February 15, 2000, or would
have been at least 2.25 to 1 if such Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued thereafter, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom)
as if the additional Indebtedness had been incurred, or the Disqualified Stock
or preferred stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The first paragraph of this covenant will not apply to the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by us and the Subsidiary Guarantors of Indebtedness
under the Credit Facility; PROVIDED that the aggregate principal amount
of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of us and the
Subsidiary Guarantors thereunder) outstanding under the Credit Facility
after giving effect to such incurrence does not exceed an amount equal
to $150.0 million less the aggregate amount of all Net Proceeds of Asset
Sales applied to repay such Indebtedness;
57
<PAGE>
(2) the incurrence by us and our Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by us and the Subsidiary Guarantors of Indebtedness
represented by the notes and the Subsidiary Guarantees;
(4) the incurrence by us or any of the Subsidiary Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in our
business or the business of such Subsidiary Guarantor, in an aggregate
principal amount not to exceed $10.0 million at any time outstanding;
(5) the incurrence by us or any of our Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph hereof or clause (2) of this
paragraph;
(6) the incurrence by us or any of the Subsidiary Guarantors of
intercompany Indebtedness or preferred stock between or among us and any
of the Subsidiary Guarantors; PROVIDED, HOWEVER, that:
(a) any subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness or preferred stock being held by a Person
other than us or a Subsidiary Guarantor; and
(b) any sale or other transfer of any such Indebtedness or preferred
stock to a Person that is not either us or a Subsidiary Guarantor
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness or an issuance of such Preferred Stock by us or such
Subsidiary Guarantor, as the case may be, that was not permitted by
this clause (6);
(7) the incurrence by us or any of the Subsidiary Guarantors of Hedging
Obligations;
(8) the guarantee by us or any of the Subsidiary Guarantors of Indebtedness
of us or a Subsidiary Guarantor that was permitted to be incurred by
another provision of this covenant;
(9) the incurrence by our Unrestricted Subsidiaries of Non-Recourse Debt,
PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of ours that was not permitted by this clause (9); and
(10) the incurrence by us or any of the Subsidiary Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (10), not to exceed $30.0
million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (10) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, we shall, in our
sole discretion, classify such item of Indebtedness in any manner that complies
with this covenant. Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant; PROVIDED, in each
such case, that the amount thereof is included in our Fixed Charges as accrued.
58
<PAGE>
LIENS
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien securing
Indebtedness or trade payables on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) (a) pay dividends or make any other distributions to us or any of our
Restricted Subsidiaries on our Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, or (b)
pay any indebtedness owed to us or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the Credit Facility as in effect as of the date of the indenture, and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, PROVIDED
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in the Credit Facility as in
effect on the date of the indenture;
(3) the indenture and the notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause
(3) of the preceding paragraph;
(8) any agreement for the sale of a Restricted Subsidiary that restricts
distributions by that Restricted Subsidiary pending its sale;
(9) Permitted Refinancing Indebtedness, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
59
<PAGE>
(10) secured Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under the caption
"--Liens" that limits the right of the debtor to dispose of the assets
securing such Indebtedness;
(11) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
ADDITIONAL SUBSIDIARY GUARANTEES
If we or any of our Restricted Subsidiaries shall acquire or create
another Subsidiary after the date of the indenture (other than an Unrestricted
Subsidiary properly designated as such), then such newly acquired or created
Subsidiary will become a Subsidiary Guarantor and execute a Supplemental
Indenture and deliver an Opinion of Counsel.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
We may not (a) consolidate or merge with or into (whether or not we are
the surviving corporation); or (b) sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our properties or assets in
one or more related transactions, to another Person unless:
(1) (a) we are the surviving corporation or the entity; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
us) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than us) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all
our obligations under the notes and the indenture pursuant to agreements
reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of us with or into a Subsidiary
Guarantor, we or the entity or Person formed by or surviving any such
consolidation or merger (if other than us), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made:
(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than our Consolidated Net Worth immediately
preceding the transaction; and
(b) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
our properties or assets to, or purchase any property
60
<PAGE>
or assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to us
or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or such Restricted Subsidiary
with an unrelated Person; and
(2) we deliver to the trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the board of directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the
board of directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million (or, in the case of a purchase of inventory from JFSS
in the ordinary course of business, $15.0 million) an opinion as to
the fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(1) any employment agreement entered into by us or any of our Restricted
Subsidiaries in the ordinary course of business and consistent with the
past practice of us or such Restricted Subsidiary;
(2) transactions between or among us and/or our Restricted Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of ours;
(4) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments;" and
(5) any transactions undertaken pursuant to any contractual obligations in
existence on the date of the indenture (as in effect on such date) as
described herein under the caption "Certain Relationships and Related
Transactions."
NO SENIOR SUBORDINATED DEBT
(1) We will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment
to the notes; and
(2) no Subsidiary Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Debt of such Subsidiary
Guarantor and senior in any respect in right of payment to the
Subsidiary Guarantees.
BUSINESS ACTIVITIES
We will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses, except to such extent as would
not be material to us and our Subsidiaries taken as a whole.
61
<PAGE>
PAYMENTS FOR CONSENT
Neither us nor any of our Subsidiaries will, directly or indirectly, pay
or cause to be paid any consideration, to or for the benefit of any holder of
any notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the indenture or the notes unless such consideration
is offered to be paid or is paid to all holders of the notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any notes are outstanding, we will furnish to the holders of notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if we were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by our certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports. If
Aviation Sales has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph will also include a reasonably
detailed presentation, either on the face of the financial statements or
in the footnotes thereto, and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations", of the financial
condition and results of operations of Aviation Sales and its Restricted
Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of Aviation Sales.
In addition, whether or not required by the Commission, Aviation Sales
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the
Indenture;
(2) default in payment when due of the principal of or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the Indenture;
(3) failure by us or any of our Subsidiaries to comply with the provisions
described under the captions "--Change of Control," "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(4) failure by us or any of our Subsidiaries for 60 days after notice to
comply with any of our other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any
62
<PAGE>
of our Restricted Subsidiaries (or the payment of which is guaranteed by
us or any of our Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, which default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10.0 million or more;
(6) failure by us or any of our Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(7) certain events of bankruptcy or insolvency with respect to us or any of
our Significant Subsidiaries; and
(8) except as permitted by the indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary
Guarantor, or any Person acting on behalf of any Subsidiary Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to us, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding notes will become due and payable without further
action or notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of us with the
intention of avoiding payment of the premium that we would have had to pay if
we then had elected to redeem the notes pursuant to the optional redemption
provisions of the indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to February 15,
2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of us with the intention of avoiding the prohibition on redemption of
the notes prior to such date, then the premium specified in the indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we are required upon becoming aware of any
Default or Event of Default, to deliver to the trustee a statement specifying
such Default or Event of Default.
63
<PAGE>
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of ours, as
such, shall have any liability for any of our obligations under the notes, the
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(2) our obligations with respect to the notes concerning issuing temporary
notes, mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in
the indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the benefit
of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and we must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the trustee
an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that (a) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the
date of the indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable
to the trustee confirming that the holders
64
<PAGE>
of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
or
(b) insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which we or any of
our Subsidiaries is a party or by which we or any of our Subsidiaries is
bound;
(6) we must have delivered to the trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) we must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by us with the intent of preferring the holders
of notes over our other creditors with the intent of defeating,
hindering, delaying or defrauding creditors of us or others; and
(8) we must deliver to the trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been
satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments
of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
65
<PAGE>
(8) make any change in the foregoing amendment and waiver provisions; or
(9) release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture, except in accordance with the
terms of the indenture.
In addition, any amendment to the provisions of the indenture which relate
to subordination will require the consent of the holders of at least 75% in
aggregate principal amount of the notes then outstanding if such amendment
would adversely affect the rights of holders of notes.
Notwithstanding the foregoing, without the consent of any holder of notes,
Aviation Sales, the Subsidiary Guarantors and the trustee may amend or
supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to holders of notes in
the case of a merger or consolidation or sale of all or substantially
all of our assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any such holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the trust indenture
act to provide for the issuance of additional notes in accordance with
the limitations set forth in the indenture or to provide for additional
Subsidiary Guarantors in accordance with the terms of the indenture.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Aviation Sales or its subsidiaries,
the indenture limits on its rights to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to Aviation Sales Company, 6905 N.W. 25th Street,
Miami, Florida 33122, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the notes to be resold as set
forth herein will initially be issued in the form of one or more Global Notes
(the "Global Notes"). The Global Notes will be
66
<PAGE>
deposited on the date of the closing of the sale of the notes offered hereby
(the "Closing Date") with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
Notes that are issued as described below under "--Certificated Securities"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless all Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of notes being transferred,
subject to the transfer restrictions set forth in the indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the underwriters, banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only thorough the Depositary's Participants or the Depositary's
Indirect Participants.
We expect that pursuant to procedures established by the Depositary:
(1) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of
the principal amount of the Global Notes; and
(2) ownership of the notes evidenced by the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of
the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised
that the laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently,
the ability to transfer notes evidenced by the Global Note will be
limited to such extent.
So long as the Global Note Holder is the registered owner of any notes,
the Global Note Holder will be considered the sole holder under the indenture
of any notes evidenced by the Global Notes. Beneficial owners of notes
evidenced by the Global Notes will not be considered the owners or holders of
the notes under the indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the trustee thereunder.
Neither we nor the trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the notes.
Payments in respect of the principal of, premium, if any and interest, on
any notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the trustee to or at the direction of the Global
Note Holder in its capacity as the registered holder under the indenture. Under
the terms of the indenture, Aviation Sales and the trustee may treat the
persons in whose names notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither we nor the trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of notes. We believe, however,
that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of
67
<PAGE>
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
a Global Note may, upon request to the Trustee, exchange such beneficial
interest for notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if
(1) we notify the trustee in writing that the Depositary is no longer
willing or able to act as a depositary and we are unable to locate a
qualified successor within 90 days; or
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of notes in the form of Certificated Securities under the
indenture,
then, upon surrender by the Global Note Holder of its Global Note, notes
in such form will be issued to each person that the Global Note Holder and the
Depositary identify as being the beneficial owner of the related notes.
Neither we nor the trustee will be liable for any delay by the Global Note
Holder or the Depositary in identifying the beneficial owners of notes.
Aviation Sales and the trustee may conclusively rely on, and will be protected
in relying on, instructions from the Global Note Holder or the Depositary for
all purposes.
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the notes represented by the Global Note (including
principal, premium, if any, and interest) be made by wire transfer of
immediately available next day funds to the accounts specified by the Global
Note Holder. With respect to Certificated Securities, we will make all payments
of principal, premium, if any, and interest by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. We expect that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with,
or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of
68
<PAGE>
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; PROVIDED that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales or leases of inventory in the ordinary course of
business or sales of leases or of assets subject to leases in the
ordinary course of business (PROVIDED that the sale, lease, conveyance
or other disposition of all or substantially all of the assets of
Aviation Sales and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above under the
caption "--Change of Control" and/or the provisions described above
under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant); and
(2) the issue or sale by Aviation Sales or any of its Restricted
Subsidiaries of Equity Interests of any of Aviation Sales' Restricted
Subsidiaries,
in the case of either clause (1) or (2), whether in a single transaction
or a series of related transactions (a) that have a fair market value in excess
of $2.0 million or (b) for net proceeds in excess of $2.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales:
(1) a transfer of assets by Aviation Sales to a Wholly Owned Restricted
Subsidiary or by a Wholly Owned Restricted Subsidiary to Aviation Sales
or to another Wholly Owned Restricted Subsidiary;
(2) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to Aviation Sales or to another Wholly Owned Restricted Subsidiary; and
(3) a Restricted Payment that is permitted by the covenant described above
under the caption "--Restricted Payments."
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stocks;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
69
<PAGE>
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) - (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of our assets and the assets of
our Restricted Subsidiaries taken as a whole to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of
us;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above) becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of our Voting Stock
(measured by voting power rather than number of shares); or
(4) the first day on which a majority of the members of our board of
directors are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of our assets and the assets of our Restricted Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase such notes as a result of a sale, lease, transfer, conveyance
or other disposition of less than all of the assets of us and our Restricted
Subsidiaries taken as a whole to another Person or group may be uncertain.
70
<PAGE>
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period PLUS
(1) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted
in computing such Consolidated Net Income); PLUS
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses (excluding
any such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; PLUS
(5) an amount equal to 1/3 of the Consolidated Lease Expense of such Person
and its Restricted Subsidiaries for such period, to the extent that any
such expense was deducted in computing such Consolidated Net Income;
MINUS
(6) non-cash items increasing such Consolidated Net Income for such period,
in each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash
expenses of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to Aviation Sales by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"CONSOLIDATED LEASE EXPENSE" means, with respect to any Person for any
period, the aggregate rental obligations of such Person and its consolidated
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP payable in respect of such period under leases of real and/or personal
property (net of income from subleases thereof, but including taxes, insurance,
maintenance and similar expenses that the lessee is obligated to pay under the
terms of such leases), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such Person and
its Restricted Subsidiaries or in the notes thereto.
71
<PAGE>
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; PLUS
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but
only to the extent of any cash received by such Person upon issuance of
such preferred stock LESS
(3) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of the indenture in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person; LESS:
(a) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Subsidiaries (except, in each case, Permitted
Investments); and
(b) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in
accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of our board of directors who:
(1) was a member of such board of directors on the date of the indenture;
or
(2) was nominated for election or elected to such board of directors with
the approval of a majority of the Continuing Directors who were members
of such board at the time of such nomination or election.
"CREDIT FACILITY" means that certain Third Amended Credit Agreement, dated
as of October 17, 1997, by and among Aviation Sales, Aviation Sales Operating
Company, Aerocell Structures, Inc. and AVS/Kratz-Wilde Machine Company, the
institutions from time to time party thereto as lenders, the
72
<PAGE>
Institutions from time to time party thereto as issuing banks, Citicorp USA,
Inc., as agent, and Citicorp Securities, Inc., as arranger, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Credit Facility; and
(2) any other Senior Debt permitted under the indenture the principal
amount of which is $25.0 million or more and that has been designated by
Aviation Sales as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the notes mature; PROVIDED, HOWEVER, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require Aviation Sales to repurchase such Capital Stock upon the occurrence
of a Change of Control or an Asset Sale shall not constitute Disqualified Stock
if the terms of such Capital Stock provide that Aviation Sales may not
repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant described above under
the caption "--Certain Covenants--Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means up to $9.5 million in aggregate principal
amount of Indebtedness of Aviation Sales and its Subsidiaries (other than
Indebtedness under the Credit Facility) in existence on the date of the
indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person and its Restricted
Subsidiaries for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations); PLUS
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon);
PLUS
(4) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of Aviation Sales (other than Disqualified
73
<PAGE>
Stock) or to Aviation Sales or a Restricted Subsidiary of Aviation Sales,
times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP; PLUS
(5) an amount equal to 1/3 of the Consolidated Lease Expense of such Person
and its Restricted Subsidiaries for such period, whether paid or
accrued.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person for such period. In the event that the referrent Person
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above:
(1) acquisitions that have been made by Aviation Sales or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net
Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations
of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
74
<PAGE>
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances or representing Capital Lease Obligations;
(4) the balance deferred and unpaid of the purchase price of any property;
or
(5) representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Aviation Sales or any Subsidiary of Aviation Sales sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of
Aviation Sales such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of Aviation Sales, Aviation Sales shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--
Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with (a) any Asset
Sale (including, without limitation,
75
<PAGE>
dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Aviation
Sales or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), any business or activities
conducted by Aviation Sales on the date of the indenture and any business or
activities reasonably related, ancillary or complementary to such business or
activities amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Aviation Sales nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is directly or indirectly liable (as a guarantor or otherwise); or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness (other than the notes) of Aviation Sales or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of Aviation Sales or any of
its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any business or activities conducted by
Aviation Sales on the date of the indenture and any business or activities
related, ancillary or complementary to such business or activities.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Aviation Sales or in a Subsidiary Guarantor;
(2) any Investment in Cash Equivalents;
76
<PAGE>
(3) any Investment by Aviation Sales or any Subsidiary of Aviation Sales in
a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of Aviation
Sales; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Aviation Sales or a Wholly Owned Restricted
Subsidiary of Aviation Sales;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Aviation Sales; and
(6) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (6) that are at the time
outstanding, not to exceed $10.0 million.
"PERMITTED JUNIOR SECURITIES" means:
(1) Equity Interests in Aviation Sales or any Subsidiary Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to substantially the same
extent as, or to a greater extent than, the notes are subordinated to
Senior Debt.
"PERMITTED LIENS" means:
(1) Liens on assets of Aviation Sales or any Subsidiary Guarantor to secure
Senior Debt of Aviation Sales or such Subsidiary Guarantor that was
permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Aviation Sales or a Subsidiary Guarantor;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with Aviation Sales or any Subsidiary of
Aviation Sales; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Aviation Sales;
(4) Liens on property existing at the time of acquisition thereof by
Aviation Sales or any Subsidiary of Aviation Sales, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and
77
<PAGE>
diligently concluded, PROVIDED that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been
made;
(9) Liens incurred in the ordinary course of business of Aviation Sales or
any Subsidiary of Aviation Sales with respect to obligations that do not
exceed $10.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in the
operation of business by Aviation Sales or such Subsidiary;
(10) Liens to secure the notes or the Subsidiary Guarantees; and
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Aviation
Sales or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Aviation Sales or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Aviation Sales or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR DEBT" means:
(1) all Indebtedness outstanding under the Credit Facility, all Hedging
Obligations with respect thereto and, after a default has occurred and
is continuing under the Credit Facility, all other Indebtedness arising
from intercompany loans and advances and owing by Aviation Sales or any
of the Subsidiary Guarantors which constitutes part of the collateral
security for the Credit Facility and such Hedging Obligations, including
without limitation, Indebtedness evidenced by intercompany notes pledged
or assigned in connection with the Credit Facility;
78
<PAGE>
(2) any other Indebtedness permitted to be incurred by Aviation Sales or a
Subsidiary Guarantor under the terms of the indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt
will not include:
(1) any liability for federal, state, local or other taxes owed or owing by
Aviation Sales or a Subsidiary Guarantor;
(2) any Indebtedness between or among Aviation Sales, any of its
Subsidiaries or any of its other Affiliates except to the extent the
same is subject to clause (1) above;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such regulation is in effect on the date of this
prospectus.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"SUBSIDIARY GUARANTORS" means each of:
(1) Aviation Sales Distribution Services Company, Aviation Sales Bearings
Company, Aviation Sales Leasing Company, Aviation Sales Manufacturing
Company, Aviation Sales Finance Company, AVS/Kratz-Wilde Machine
Company, Aerocell Structures, Inc., AVSRE, L.P., Aviation Sales Property
Management Corp., Triad International Maintenance Corporation, Aero
Hushkit Corporation, Hydroscience, Inc., Whitehall Corporation, Aviation
Sales Maintenance, Repair & Overhaul Company, Aviation Sales SPS I,
Inc., Aircraft Interior Design, Inc., Caribe Aviation, Inc. and Apex
Manufacturing, Inc.; and
(2) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the indenture, and their respective successors
and assigns.
79
<PAGE>
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Aviation Sales or any Restricted Subsidiary of Aviation Sales
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Aviation Sales or such Restricted
Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of Aviation Sales;
(3) is a Person with respect to which neither Aviation Sales nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Aviation Sales or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Aviation Sales or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Aviation Sales or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Aviation Sales as an Unrestricted
Subsidiary by the board of directors shall be evidenced to the trustee by
filing with the trustee a certified copy of the board resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Aviation Sales as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock," Aviation
Sales shall be in default of such covenant). The board of directors of Aviation
Sales may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Aviation Sales of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if:
(1) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation
had occurred at the beginning of the four-quarter reference period;
(2) no Default or Event of Default would be in existence following such
designation; and
(3) such Subsidiary becomes a Subsidiary Guarantor and executes a
Supplemental Indenture and delivers an Opinion of Counsel.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the board
of directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including
80
<PAGE>
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal
income tax considerations relating to the purchase, ownership and disposition
of the notes by initial purchasers, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto (possibly
with retroactive effect). This summary is based on the Internal Revenue Code of
1986, as amended, existing, temporary, and proposed Treasury Regulations, and
laws, rulings and decisions now in effect, all of which are subject to change.
This summary deals only with holders that will hold notes as "capital assets"
as defined in Section 1221 of the Internal Revenue Code. This summary does not
address holders subject to special rules, such as tax-exempt organizations,
insurance companies, dealers in securities or currencies, or persons that will
hold notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes. Because the amount payable at maturity will not
exceed the issue price by more than A DE MINIMUS amount, as those amounts and
issue price are determined under the Internal Revenue Code and Treasury
Regulations thereunder, the following discussion assumes the notes will not be
issued with original issue discount for federal income tax purposes.
For the purposes of this discussion, a "U.S. holder" means any holder of a
note that is:
(1) a citizen or resident of the United States;
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or any state thereof (except, in the
case of a partnership, to the extent future Treasury Regulations provide
otherwise);
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source;
(4) a trust other than a "foreign trust," as defined in Section 7701(a)(31)
of the Internal Revenue Code; or
(5) otherwise subject to United States federal income tax on a net income
basis in respect of its worldwide taxable income.
A "Non-U.S. holder" means any holder of a note that is not a U.S. holder.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL TAX INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
81
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
PAYMENT OF INTEREST
Stated interest on a note generally will be includable in the income of
the U.S. holder of such note as ordinary income at the time such interest is
received or accrued, in accordance with such holder's method of accounting for
United States federal income tax purposes.
AMORTIZABLE BOND PREMIUM
If a U.S. holder purchases a note for an amount in excess of the principal
amount the holder will be considered to have purchased the note at a "premium."
A U.S. holder generally may elect to amortize the premium over the remaining
term of the note on a constant yield method. However, if the note is purchased
at a time when the note may be optionally redeemed for an amount that is in
excess of its principal amount, special rules would apply that could result in
a smaller premium eligible for amortization during the call period and a
deferral of the amortization of bond premium until later in the term of the
note. The amount amortized in any year will be treated as a reduction of the
U.S. holder's interest income from the note. Bond premium on a note held by a
U.S. holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the note. The election
to amortize premium on a constant yield method, once made, applies to all debt
oblibations held or subsequently acquired by electing U.S. holder on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the Internal Revenue Service.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or redemption of a note, a U.S. holder generally
will recognize capital gain or loss equal to the difference between:
(1) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such
amount is attributable to accrued interest income not previously
included in income, which is taxable as ordinary income); and
(2) such holder's adjusted tax basis in the note. A holder's adjusted tax
basis in a note generally will equal the cost of the note to the U.S.
holder, decreased by any bond premium therefore amortized by the U.S.
holder with respect to the note. Such capital gain or loss will be long-
term capital gain or loss if the note was held by the U.S. holder for
more than 12 months. The net capital gain of an individual derived in
respect of the notes generally will be taxed at a maximum rate of 20% if
it is long-term capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest of a note and payments of the proceeds
of the sale of a note to certain noncorporate holders, and a 31% backup
withholding tax may apply to such payments if the U.S. holder:
(1) fails to furnish or certify his correct taxpayer identification number
to the payer in the manner required;
(2) is notified by the Internal Revenue Service that he has failed to
report payments of interest and dividends properly;
(3) under certain circumstances, fails to certify that he has not been
notified by the Internal Revenue Service that he is subject to backup
withholding for railure to report interest and dividend payments; or
82
<PAGE>
(4) the Internal Revenue Service notifies us or our paying agent that the
taxpayer identification number furnished by the U.S. holder is
incorrect. Any amounts withheld under the backup withholding rules from
a payment to a U.S. holder will be allowed as a credit against such
holder's United States federal income tax and may entitle the holder to
a refund, provided that the required information is furnished to the
Internal Revenue Service.
UNITED STATES FEDERAL TAXATION OF NON-U.S. HOLDERS
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Non-U.S. holder generally will not be
subject to U.S. federal income tax provided (1) such gain is not effectively
connected with the conduct by such holder of a trade or business in the United
States, and (2) in the case of gains derived by an individual, such individual
is not present in the United States for 183 days or more in the taxable year of
the disposition.
Payments of interest on the notes to a Non-U.S. holder will generally not
be subject to United States withholding tax if such Non-U.S. holder (1) does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of Aviation Sales; (2) is not a controlled
foreign corporation with respect to which Aviation Sales, directly or
indirectly, is a "related person" within the meaning of the Internal Revenue
Code; (3) is not a bank making a loan in its ordinary course of business; and
(4) either: (a) the beneficial owner of the note certifies to Aviation Sales or
its agent, under penalties of perjury, that such owner is not a United States
person and provides its name and address (which certification can be made on
IRS Form W-8 or Form W-8BEN) or (b) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business certifies to Aviation Sales or to its agent,
under penalties of perjury, that the certification described in clause (a) has
been received from the beneficial owner or by another financial institution
acting for the beneficial owner. Subject to certain transition rules, final
Treasury Regulations which apply to payments after December 31, 1999, also
provide that the certification requirements generally will be fulfilled if
beneficial owners, including partners of certain foreign partnerships as well
as certain foreign partnerships, meet either of the two requirements set forth
in clauses (a) and (b) using revised IRS Forms W-8. In addition, certain
beneficial owners, including foreign estates or trusts (a fiduciary thereof)
and foreign partnerships that have entered into a withholding agreement with
the Internal Revenue Service will be required to provide their U.S. "taxpayer
identification number" in addition to their name and address on Form W-8.
Foreign partnerships and their partners should consult their tax advisors
regarding possible additional reporting requirements.
If a Non-U.S. holder of a note is engaged in a trade or business in the
United States and interest on the note is effectively connected with the
conduct of such trade or business, such Non-U.S. holder, although exempt from
U.S. federal withholding tax (provided the Non-U.S. holder files the
appropriate certification with Aviation Sales or its U.S. agent) will be
subject to U.S. federal income tax on such interest in the same manner as if it
were a U.S. holder. In addition, if such Non-U.S. holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits (subject to adjustment) for the
taxable year unless it qualifies for a lower rate under an applicable income
tax treaty.
If interest on the notes is exempt from United States federal income tax
and withholding tax under the rules described above, the notes will not be
included in the estate of a deceased Non-U.S. holder for United States federal
estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Aviation Sales will, where required, report to the holder of notes and the
Internal Revenue Service the amount of any interest paid on the notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments. Copies of these information returns may also be made available under
the provisions of a specific treaty agreement to the tax authorities of the
country in which the Non-U.S. holder resides.
83
<PAGE>
In the case of payments of interest to Non-U.S. holders, Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments on a note issued in registered form
with respect to which either the requisite certification, as described above in
"United States Federal Taxation of Non-U.S. Holders," has been received or an
exemption has otherwise been established; PROVIDED that neither Aviation Sales
nor its payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
If payments of principal and interest are made to the beneficial owner of a
note by or through the foreign office of a custodian, nominee or other agent of
such beneficial owner, or if the proceeds of the sale, exchange or other
disposition of a note are paid to the beneficial owner of a note through a
foreign office of a "broker" (as defined in the regulations), the proceeds will
not be subject ot backup withholding (absent actual knowledge that the payee is
a U.S. person). Information reporting requirements, but not backup withholding,
will also apply to a payment of the proceeds of a disposition of the notes by
or through a foreign office of a custodian, nominee, agent or broker that is
(1) a U.S. person, (2) a controlled foreign corporation for United States
federal income tax purposes, or (3) a foreign person that derives 50% or more
of its gross income for certain periods from the conduct of a trade or business
in the United States, unless such broker has documentary evidence in its file
that the holder of the notes is not a United States person, and such broker has
no actual knowledge to the contrary, or the holder establishes an exception.
Subject to certain transition rules, Treasury Regulations were issued
which alter the foregoing rules in certain respects and which generally will
apply to any payments in respect of a note or proceeds from the sale of a note
that are made after December 31, 1999. Among other things, such regulations
expand the number of foreign intermediaries that are potentially subject to
information reporting and address certain documentary evidence requirements
relating to exemption from the general backup withholding requirements. Holders
of the notes should consult their tax advisers concerning the possible
application of such regulations to any payments made on or with respect to the
notes.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-U.S.
holder's United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
84
<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 has agreed to sell to such underwriter, the
principal amount of notes set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF NOTES
NAME --------------
<S> <C>
Salomon Smith Barney Inc. ........... $
BT Alex. Brown Incorporated .........
Total ............................. $85,000,000
-----------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes 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 notes if they purchase any
of the notes.
The underwriters propose to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the notes to certain dealers at the public offering price less a
concession not in excess of % of the principal amount of the notes. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of % of the principal amount of the notes on sales to certain other
dealers. After the initial offering of the notes to the public, the
underwriters may change the public offering price and the other selling terms.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Aviation Sales in connection with this offering.
<TABLE>
<CAPTION>
PAID BY
AVIATION SALES
---------------
<S> <C>
Per note ......... %
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell notes in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of notes 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 notes 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 notes made for
the purpose of preventing or retarding a decline in the market price of the
notes 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 notes originally sold by that syndicate
member.
Any of these activities may cause the price of the notes 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 in the over-the-counter
market, or otherwise and, if commenced, may be discontinued at any time.
Aviation Sales estimates that its total expenses of this offering will be
$ .
Aviation Sales has 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.
85
<PAGE>
The underwriters have performed investment banking and advisory services
for Aviation Sales from time to time for which they have received customary
fees and expenses. The Underwriters 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 notes to repay indebtedness owed to the lenders
under the credit facility, , including Citibank, N.A. The offering will be
conducted in accordance with Rules 2710 and 2720 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 3.5 million shares
of Aviation Sales' common stock, 2.6 million of which are being offered by
Aviation Sales. Aviation Sales also intends to use the proceeds from its sale
of these shares of common stock to reduce amounts 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 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:
<TABLE>
<S> <C>
(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.
</TABLE>
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.
86
<PAGE>
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., a law firm in Miami, Florida will
opine as to the validity of the notes 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 employed by Akerman
Senterfitt beneficially own shares of Aviation Sales's common stock on the date
hereof. Certain legal matters relating to the Notes offered hereby will be
passed upon on behalf of 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.
87
<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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$85,000,000
[GRAPHIC OMITTED]
8 1/8% Senior Subordinated
Notes Due 2008
--------
P R O S P E C T U S
, 1999
--------
Salomon Smith Barney
BT Alex. Brown
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 and NASD filing
fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee .......................... $ 25,075.00
NASD filing fees .............................. 9,000.00
Fees and expenses of the Trustee .............. 10,000.00
Rating agency fees ............................ 10,000.00
Legal fees and expenses ....................... 50,000.00
Accounting fees and expenses .................. 30,000.00
Blue sky fees and expenses .................... 7,500.00
Transfer Agent's and Registrar's fees ......... 5,000.00
Printing and engraving expenses ............... 50,000.00
Miscellaneous ................................. 3,425.00
------------
Total ........................................ $ 200,000.00
============
</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 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.
II-1
<PAGE>
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 Indenture filed as Exhibit 4.2 to Registrant's Registration Statement on Form S-4, File No. 333-
48669, incorporated by reference to this registration statement
4.2 Form of Subsidiary Guarantee filed as Exhibit 4.2 to Registrant's Registration Statement on
Form S-4, File No. 333-48669, incorporated by reference to this registration statement
4.3 Form of Note filed as Exhibit 4.2 to Registrant's Registration Statement on Form S-4, File
No. 333-48669 incorporated by reference to this registration statement
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 the registration statement)
</TABLE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for the Three Years Ended
December 31, 1998
II-2
<PAGE>
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
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 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. (Included in Exhibit 5.1)
</TABLE>
EXHIBIT 1.1
AVIATION SALES COMPANY
$85,000,000
8 1/8% Senior Subordinated Notes Due 2008
UNDERWRITING AGREEMENT
SALOMON SMITH BARNEY INC. New York, New York
BT ALEX. BROWN INCORPORATED _________, 1999
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, $85,000,000 principal amount of its 8 1/8% Senior
Subordinated Notes Due 2008 (the "Securities"). The Securities will (i) be fully
and unconditionally guaranteed on a joint and several senior subordinated basis
by Aviation Sales Distribution Services Company, Aviation Sales Finance Company,
Aviation Sales Leasing Company, Aviation Sales Manufacturing Company,
AVS/Kratz-Wilde Machine Company, Aerocell Structures, Inc., Apex Manufacturing,
Inc., Caribe Aviation, Inc., Aircraft Interior Design, Inc., Aviation Sales
Bearing Company, Aviation Sales SPS I, Inc., Aviation Sales Maintenance, Repair
& Overhaul Company, Whitehall Corporation, Hydroscience, Inc., Aero Hushkit
Corporation, Triad International Maintenance Corporation, Aviation Sales
Property Management Corp., and AVSRE, L.P. (each such subsidiary being a
"Subsidiary Guarantor" and all such subsidiaries being, collectively, the
"Subsidiary Guarantors"), pursuant to and to the extent set forth in the
Indenture (as herein defined) (the "Subsidiary Guarantees") and (ii) be issued
under an indenture (the "Indenture"), dated as of February 17, 1998, among the
Company, the Subsidiary Guarantors and SunTrust Bank, Central Florida, National
Association, as trustee (the "Trustee"). 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.
Any reference herein to the Registration Statement, a Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which were
filed under the Exchange Act on or before
<PAGE>
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. The Company and the
Subsidiary Guarantors, jointly and severally, represent and warrant to, and
agree 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), the Prospectus (and any supplements thereto) will, comply in
all material respects with the applicable requirements of the Act, the
Exchange Act and the Trust Indenture 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 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; on the Effective Date and on the Closing Date, the
Indenture did or will comply in all material respects with the
applicable requirements of the Trust Indenture Act and the rules
thereunder; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not,
1
<PAGE>
and on the date of any filing pursuant to Rule 424(b) and on the
Closing 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 and the Subsidiary
Guarantors make no representations or warranties as to (i) that part of
the Registration Statement which shall constitute the Statement of
Eligibility and Qualification (Form T-1) under the Trust Indenture Act
of the Trustee or (ii) 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) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware 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 on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries (the "Subsidiaries")
taken as a whole (a "Material Adverse Effect").
(d) The Subsidiary Guarantors are the only subsidiaries of the
Company (except for Aviation Sales Company FSC, Ltd., a Barbados
corporation which has no material operations or assets). Each
Subsidiary 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.
(e) 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.
(f) The Company's authorized equity capitalization is as set
forth in the Prospectus; the Securities conform in all material
respects to the description thereof contained in the Prospectus; all of
the outstanding shares of capital stock of the Company have been duly
and validly authorized and issued; are fully paid and nonassessable and
are free of any preemptive or similar rights.
(g) The Indenture has been duly and validly authorized,
executed and
3
<PAGE>
delivered by the Company and the Subsidiary Guarantors and, assuming
due authorization, execution and delivery by the Trustee, is a valid
and binding agreement of the Company and the Subsidiary Guarantors,
enforceable in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency or other similar laws
affecting creditor's rights generally and conforms in all material
respects to the description thereof in the Prospectus and has been duly
qualified under the Trust Indenture Act.
(h) The Securities have been duly authorized by the Company
and, when executed by the Company and authenticated by the Trustee in
accordance with the Indenture and delivered to and paid for by the
Underwriters in accordance with the terms hereof, will have been
validly issued and delivered, and will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture
and enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and subject to
the applicability of general principles of equity, and the description
of the Securities in the Prospectus will conform in all material
respects to the Securities.
(i) The Subsidiary Guarantees to be endorsed on the Securities
have been duly authorized by the Subsidiary Guarantors and, when
executed by the Subsidiary Guarantors and when the Securities are
issued and authenticated in accordance with the terms of the Indenture
and delivered to and paid for by the Underwriters in accordance with
the terms hereof, such Subsidiary Guarantees will have been validly
issued and delivered and will constitute valid and binding obligations
of the Subsidiary Guarantors entitled to the benefits of the Indenture
and enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and subject to
the applicability of general principles of equity, and the description
of the Subsidiary Guarantees in the Prospectus will conform in all
material respects to such Subsidiary Guarantees.
(j) 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" and "- Lease for New Facility,"
"Description of Other Indebtedness - Credit Facility," 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.
(k) This Agreement has been duly authorized, executed and
delivered by the Company and the Subsidiary Guarantors and constitutes
a valid and binding obligation of the Company and the Subsidiary
Guarantors enforceable in
4
<PAGE>
accordance with its terms, except as the enforcement hereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to the
applicability of general principles of equity, and except as rights to
indemnity and contribution hereunder may be limited by Federal or state
securities laws or principles of public policy.
(l) Neither the Company nor any Subsidiary is, and after
giving effect to the offering and sale of the Securities and the
issuance of the Subsidiary Guarantees 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.
(m) 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 the Trust Indenture 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.
(n) Neither the issue and sale of the Securities and the
Subsidiary Guarantees 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, 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.
(o) 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.
(p) 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
5
<PAGE>
(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.
(q) 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 and the Subsidiary Guarantors,
threatened that (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the consummation
of any 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).
(r) 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.
(s) 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 in the cases of clauses (ii) and
(iii), such violations or defaults in the aggregate would not have a
Material Adverse Effect.
6
<PAGE>
(t) 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.
(u) The Company and each of the Subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be
filed or have 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 have paid all taxes required
to be paid by them and any other assessment, fine or penalty levied
against them, 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 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).
(v) To the best knowledge of the Company and the Subsidiary
Guarantors, 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 and the Subsidiary Guarantors are not aware of any
existing or imminent labor disturbance by the employees of any of their
principal suppliers, contractors or customers, that could 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 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).
7
<PAGE>
(x) 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.
(y) 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 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).
(z) 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.
(aa) 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.
(bb) 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 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
8
<PAGE>
(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.
(cc) 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).
(dd) 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.
(ee) 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, or material increase in
the short-term or long-term debt, of the Company or any of the
Subsidiaries or any material adverse change, or any development
involving or which could reasonably be expected to involve a
prospective material adverse change, in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and the Subsidiaries taken as a whole.
(ff) Neither the Company nor any of the Subsidiaries nor, to
the knowledge of the Company and the Subsidiary Guarantors, 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.
9
<PAGE>
(gg) The Company and each of the Subsidiaries own or possess
all patents, trademarks, trademark registrations, service marks,
service mark registration, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as
being owned by any of them or necessary for the conduct of their
respective businesses, and the Company and the Subsidiary Guarantors
are not aware of any claim to the contrary or any challenge by any
other person to the rights of the Company and the Subsidiaries with
respect to the foregoing.
(hh) The Company has complied and will comply with all
provisions of Florida Statutes Section 517.075 relating to issuers
doing business with Cuba.
(ii) 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 the Subsidiary
Guarantors 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 and the Subsidiary Guarantors, as to
matters covered thereby, to each Underwriter.
2. PURCHASE AND SALE. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
____% of the principal amount thereof, plus accrued interest on the Securities
from February 15, 1999, to the Closing Date, the principal amount of the
Securities set forth opposite such Underwriter's name in Schedule I hereto.
3. DELIVERY AND PAYMENT. Delivery of and payment for the
Securities 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 between the Representatives and the Company 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 purchase price thereof to or upon the order of the
Company by
10
<PAGE>
wire transfer payable in same-day funds to an account specified by the Company.
Delivery of the Securities shall be made through the facilities of The
Depository Trust Company unless the Representatives shall otherwise instruct.
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.
5. AGREEMENTS.
The Company and the Subsidiary Guarantors agree 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
11
<PAGE>
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 (a) of this
Section 5, an amendment or supplement which will correct such statement
or 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 debt securities issued
or guaranteed by the Company (other than the Securities) or publicly
announce an intention to effect any such transaction, for a period of
90 days after the date of the Underwriting Agreement.
(g) Neither the Company nor any Subsidiary Guarantor will
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
12
<PAGE>
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Securities shall be subject to
the accuracy of the representations and warranties on the part of the Company
and the Subsidiary Guarantors contained herein as of the Execution Time and the
Closing Date, to the accuracy of the statements of the Company and the
Subsidiary Guarantors made in any certificates pursuant to the provisions
hereof, to the performance by the Company and the Subsidiary Guarantors of their
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) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, 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) each of 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; and all the
outstanding
13
<PAGE>
shares of capital stock of each of the Subsidiaries (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, 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; and the Securities conform
in all material respects to the description thereof contained
in the Prospectus; all of the outstanding shares of capital
stock of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and are free of any
preemptive rights and, to the best knowledge of such counsel
after due inquiry, other rights to subscribe for such capital
stock;
(iv) this Agreement and the Indenture have been duly
authorized, executed and delivered, the Indenture has been
duly qualified under the Trust Indenture Act, and this
Agreement and the Indenture constitute a legal, valid and
binding instruments enforceable against the Company and the
Subsidiary Guarantors in accordance with their 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 authenticated in accordance
with the provisions of the Indenture and delivered to and paid
for by the Underwriters pursuant to this Agreement, will
constitute legal, valid and binding obligations of the Company
entitled to the benefits of the Indenture, and the description
of the Securities in the Prospectus will conform in all
material respects to the Securities;
(v) the Subsidiary Guarantees to be endorsed on the
Securities have been duly and validly authorized by each
Subsidiary Guarantor and when executed by the Subsidiary
Guarantors in accordance with the Indenture and upon delivery
to the Underwriters, will have been validly issued and
delivered, and will constitute valid and binding obligations
of the Subsidiary Guarantors entitled to the benefits of the
Indenture, and the description of such Subsidiary Guarantees
in the Prospectus will conform in all material respects to
such Subsidiary Guarantees;
(vi) 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
14
<PAGE>
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" and "- Lease for New
Facility," "Description of Other Indebtedness - Credit
Facility," 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;
(vii) 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 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, the Exchange Act
and the Trust Indenture 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 information contained therein, as to which such
counsel need express no opinion);
(viii) 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;
(ix) 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
the Trust Indenture 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
15
<PAGE>
contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been
obtained;
(x) neither the execution and delivery of the
Indenture, the issue and sale of the Securities and the
Subsidiary Guarantees, 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;
(xi) 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;
(xii) 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;
(xiii) 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;
(xiv) such counsel is not aware of any material claim
or challenge
16
<PAGE>
by any other person to the rights of the Company and the
Subsidiaries with respect to any patents, trademarks,
trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being
owned by them or any of them or necessary for the conduct of
their respective businesses; and
(xv) 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 Delaware and 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 of the Company and the Subsidiary
Guarantors and public officials. References to the Prospectus in this
paragraph (b) include any supplements thereto at the Closing Date.
(c) The Underwriters shall have received on the Closing Date,
an opinion of _______________, special New York counsel for the Company
and the Subsidiary Guarantors, dated the Closing Date and addressed to
the Underwriters to the effect that:
(i) both this Agreement and the Indenture is a valid,
legal and binding obligation of the Company and the Subsidiary
Guarantors, enforceable against the Company and the Subsidiary
Guarantors in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to
general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing and
except to the extent that rights to indemnity and contribution
hereunder may be limited by federal or state laws or public
policy relating thereto;
(ii) each of the Securities and the Subsidiary
Guarantees to be endorsed on the Securities, when executed by
the Company and the Subsidiary Guarantors, respectively, upon
delivery to the Underwriters against payment therefore in
accordance with the terms hereof, will constitute a valid,
legal and binding obligation of the Company and the Subsidiary
Guarantors, respectively, enforceable against the Company and
the Subsidiary Guarantors, respectively, in accordance with
its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and
subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness,
good faith and fair dealing; and
17
<PAGE>
(iii) neither the execution and delivery of the
Indenture, the issue and sale of the Securities and the
Subsidiary Guarantees, 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 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.
(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 Indenture, the
Registration Statement, the Prospectus (together with any supplement
thereto) and other related matters as the Representatives may
reasonably require, and the Company 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 and the Subsidiary Guarantors shall have
furnished to the Representatives certificates, signed by the Chairman
of the Board or the President and the principal financial or accounting
officer of the Company and the Subsidiary Guarantors, 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
and the Subsidiary Guarantors 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 and the Subsidiary Guarantors have complied with all
the agreements and satisfied all the conditions on their part
to be performed or satisfied at or prior to the Closing Date;
(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 knowledge of
the Company and the Subsidiary Guarantors, 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).
18
<PAGE>
(f) 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 (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;
19
<PAGE>
(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 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
20
<PAGE>
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 (f) include any
supplement thereto at the date of the letter.
(g) 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
(f) 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, 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).
(h) 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.
(i) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
(j) 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.
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
21
<PAGE>
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 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.
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 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.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Subsidiary Guarantors, jointly and
severally, agree 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 and the Subsidiary Guarantors 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 Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company and the Subsidiary Guarantors, each of
their respective directors and officers who sign the Registration Statement, and
each person who controls the Company or any Subsidiary Guarantors within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company and the
22
<PAGE>
Subsidiary Guarantors 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 the Subsidiary Guarantors 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 the
Securities, (ii) the sentences related to concessions and reallowances and (iii)
the paragraph related to stabilization and 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.
(c) 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) or (b) 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) or (b) 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 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.
23
<PAGE>
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, the Subsidiary Guarantors and the
Underwriters severally 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, the Subsidiary Guarantors 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 and the Subsidiary Guarantors 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 Subsidiary Guarantors and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Subsidiary
Guarantors 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 the Subsidiary Guarantors
shall be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by the Company, 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 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 and the Subsidiary Guarantors 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
Subsidiary Guarantors 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 (d), 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 or a Subsidiary Guarantor within the
meaning of either the Act or the Exchange Act, each officer of the Company or a
Subsidiary Guarantor shall have signed the Registration Statement and each
director of the Company or a Subsidiary Guarantor shall have the same rights to
contribution as the Company and the Subsidiary Guarantors, subject in each case
to the applicable terms and conditions of this paragraph (d).
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
24
<PAGE>
principal amount of Securities set forth opposite their names in Schedule I
hereto bears to the aggregate principal 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 principal amount of Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate principal 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 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 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 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 and the Subsidiary Guarantors or their officers 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
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)
25
<PAGE>
599-6610, and confirmed to it at 6905 N.W. 25th Street, Miami, Florida 33122,
attention of the Legal Department.
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.
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(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.
26
<PAGE>
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(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.
"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.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Commission
promulgated thereunder.
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.
Very truly yours,
AVIATION SALES COMPANY
By:
--------------------------------------
Name:
Title:
27
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON SMITH BARNEY INC.
BT ALEX. BROWN INCORPORATED
By: SALOMON SMITH BARNEY INC.
By:
--------------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
28
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT
OF SECURITIES TO
UNDERWRITERS BE PURCHASED
------------ ------------
Salomon Smith Barney Inc......................... $
BT Alex. Brown Incorporated
Total................................... $85,000,000
EXHIBIT 5.1
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center
28th Floor
One S.E. 3rd Avenue
Miami, Florida 33131-1714
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"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of a Registration
Statement on Form S-3 for the proposed sale by the Company of $85.0 million in
principal amount of its 8 1/8% Senior Subordinated Notes due 2008 (the "Notes")
and the guarantees of Notes given by substantially all of the Company's
subsidiaries (the "Subsidiaries Guarantees").
In connection with the proposed sale, we have examined the Company's
Certificate of Incorporation and By-laws, as presently in effect, the Company's
relevant corporate proceedings, the draft Registration Statement on Form S-3
covering the proposed sale, including all amendments thereto (the "Registration
Statement"), the Indenture dated February 17, 1998 (the "Indenture"), that
certain Underwriting Agreement by and among the Company, Salomon Smith Barney,
Inc. and BT Alex. Brown (the "Underwriting Agreement") and such other documents,
records, certificates of public officials, statutes and decisions as we
considered necessary to express the opinions contained herein. In the
examination of such documents, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity to the original documents of all documents submitted to us as
certified or photostatic copies.
Based on the foregoing and upon the representations made to us by the
officers and directors of the Company, we are of the opinion that:
1. The issuance of the Notes and the Subsidiary Guarantees pursuant to the
terms of the Indenture and the Underwriting Agreement have been duly
authorized by all necessary corporate action of the Company.
2. When the Registration Statement shall have been declared effective by
order of the Securities and Exchange Commission and the Notes and the
Subsidiary Guarantees have been duly issued, all in accordance with the
terms of the Indenture and the Underwriting Agreement, each of such
Notes and the Subsidiary Guarantees will be validly issued and will
constitute binding obligations of the Company, in the case of the
Notes, and the respective subsidiaries, in the case of the Subsidiary
Guarantees, subject, as to enforcement (i) to any applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws relating to or affecting creditors' rights
and remedies generally and (ii) to general principles of judicial
discretion and equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity or in a
bankruptcy proceeding and except that (i) rights to contribution or
indemnification may be limited by the laws, rules or regulations of any
governmental authority or agency thereof or by public policy and (ii)
waivers as to usury, stay or extension laws may be unenforceable).
This firm consents to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to the firm under the caption "Legal
Matters" in the prospectus which is part of the Registration Statement regarding
the validity of the Notes and the Subsidiary Guarantees. 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 and the rules
and regulations promulgated thereunder.
Sincerely,
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.
